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AGENDA FOR SEP TRAINING
JULY 25, 2002
REGION 4, ATLANTA
8:30am Welcome/Logistics
8:45am-
9:15am History of Environmentally Beneficial Projects
-Mobile Source cases
-GAO/Congressional Inquiries
-Development of Early SEP policies
9:15am-
9:45am What is a SEP?
-in settlement of an enforcement action
-voluntary
-not otherwise required by law
9:45am-
10:30am Legal Requirements/Nexus
10:30am-
11:00am Types of Acceptable SEPs (Melissa/Gwen)
(include some Region 4 examples)
11:00am-
11:30am Appropriate Penalty Mitigation/PROJECT
11:30am-
Noon
Region 4 Internal Procedures (Gwen)
/HQ Approvals Clarification
New memos/updates
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SUPPLEMENTAL ENVIRONMENTAL PROJECTS
Resource Packet - June, 2002
Table of Contents
Tab 1 - SEP Policy (May, 1998)
Tab 2 - Model CAFO (January, 1999)
Tab 3 - PROJECT User's Manual (September, 1999)
Tab 4 - Appropriate Penalty Mitigation Credit (April 14, 2000)
Tab 5 - SEP Approval Process (July 21, 1998)
Tab 6 - OGC Memos - 1995 OGC Decision Memo (May 3,1995)
1998 OGC Opinion (March 24, 1998)
NOTE: OGC MEMOS ARE NOT FOR RELEASE OUTSIDE
THE AGENCY
Tab 7 - Memorandum to the Regional Administrators (March 22, 2002)
Tab 8 - Clarification of Interaction Between 1995 CWA Interim
Settlement Policy and 1998 SEP Policy (March 22, 2002)
Tab 9 - Renewable Energy/Energy Efficiency SEPs (email, June 6,
2002)
Tab
lO-
Environmental Management Systems
Tab
ll -
Guidance Memo - Valuation of SEPs
Tab
12-
Clarification of Nexus
Tab
13-
Regional and HQ SEP Coordinators
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Some ideas:
Energy efficiency; Solar and other alternative power installations; LEED
certification, Energy STAR
Daylighting and on-site recycling
Biological controls for storm water - planting bamboo, creation of wetlands
Redevelopment of Brownfields
Better Transportation Systems
Urban Forestry,
Permeable and porous cement for low-traffic areas
Reexamining waste streams to separate out products or recycle
Company funded carpooling or mass transit for employees
Rehabilitation of impacted property for open space and habitat
Preservation of sensitive environments with educational components
Underdevelopment of sites to provide recreation in EJ areas
Land conservation
Sustainabitity Training including Sustainabiiity, What and Why; Smart Growth, Agriculture,
Transportation Alternatives, Water Quality and Quantity, Sustainable Tools coming in 2003.
Region 4 SEP Training,
July 25,2002
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Sustainability and SEPs
Sustainability = Community-based activities with results that are self-continuing and
holistic in nature, benefitting the Environment, Economy and Social fabric of the
community
Sustainable State
Sustainability is thinking outside the box, in innovative ways to solve problems without
creating new ones - creating results that are better overall, not just in one area
Sustainability SEPs can change the bottom.Nne to make capital investments suddenly
attractive; improve public relations; and boost worker morale
Think: Efficient industrial processes that recycle, reduce waste and save
resources
Think: Innovative building practices that reduce energy and water use, prevent
rdmdff, Snd improve conditions for the building's users
Think: Preservation and restoration of habitats that support local recreation and
wildlife while cleaning the air and water
Think: Lodking into the future and capitalizing for future gain
Think: Going beyond compliance and beyond the ordinary
For help or data needs, contact:
Sustainability Annette Hill 2-8287
Sustainable SEPs Melissa Heath 2-9520
Smart Growth MaryJo Bragan 2-8323
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Southeastern Ecological Framework
EPA's Mission
The mission of the Environmental
Protection Agency is to protect human
health and to safeguard the natural
environment - air, water and land -
uj/iiV/i 1ifd>
What is an Ecological Framework?
The natural environment and the
processes that support it are our life support
system. Ever}' thing that the environment
provides to us for free, usually comes at a
very high price if we have to replace it or
maintain it. In that regard, preservation of
existing natural systems and their inherent
processes is essential for our survival.
Landscape ecologists have known for a long
time that piece-meal protection of the
environment often leads to degradation of the
parts being protected. The resulting
fragmentation prevents the operation of many
large-scale processes from adequately
ftmctioning. Preservation of natural areas
that are contiguous with other natural areas is
an important principle.
The Southeastern Ecological
Framework is a prototype for the protection
of water quality, species habitat, important
ecological areas, quality of life and other
important natural features by protecting large,
Southeastern ideological Framework
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intact landscapes and connectivity between
such areas. The Southeastern Ecological
Framework follows natural land and water
features such as rivers, ridges, estuaries,
wetland basins and upland forests at a
regional (8 state) scale. The framework is
comprised of important regional ecological
hubs and corridors that connect them. The
hubs of the framework are typically land areas
with important riparian areas, no or few
roads, high habitat diversity, little habitat
fragmentation, rare habitats or species, and
greater than 5,000 acres in size. Often they
are associated with existing managed lands
such as wildlife refuges, parks, national
forests or private protected lands. The
corridors of the framework connect the hubs
and typically follow natural land forms and
water features, allowing ecosystem processes
to operate at a larger scale.
What is this project about?
With funding from the Intermodal
Surface Transportation Efficiency Act
(ISTEA), the University of Florida developed
a model to identify potential greenways and
trails in Florida. That project developed the
modeling protocol and expertise for designing
landscape linkages and prioritizing ecological
hubs. The Florida Greenways and Trails
model underwent significant public
participation, comment and peer review. The
University of Florida Departments of
Landscape Architecture, Urban and Regional
Planning and Wildlife Ecology and
Conservation were awarded a cooperative
agreement grant to develop an ecological
connectivity model for the eight states in the
Environmental Protection Agency's Southeast
Region (4). The purpose of the project is to
identify regionally significant lands-that would
aid in protection of water resources, s
wetlands, and other natural areas. The - o
conservation of native landscapes and
ecosystems also connect people to the land
with other archeological, historical and
cultural resources. The finished product is a
-------
4/13/00 9:36 AM
place-based coverage of ecological hubs and
corridors in the Southeast. The resulting
framework represents some of the best
remaining large intact ecological areas in the
southeastern states of Georgia, Florida,
Mississippi, Alabama, Tennessee, Kentucky,
South and North Carolina.
Why is this important?
A green infrastructure in the southeast
can have significant ecological, economic and
social benefits for the region. From an
environmental point of view, the Southeastern
Ecological Framework can be an important
component of regional, state and local
conservation efforts. From EPA's
perspective, ths models and data can play an
innovative and multi-purpose role in
protecting water and air quality. The
approach can serve other agency missions by
contributing to wildlife habitat conservation,
prioritizing we:land mitigation locations,
sequestering carbon and removing particulate
matter, identifying growth management
strategies, and more.
This product can offer a wealth of
opportunity as a template for other federal
and state agencies and non-profits to
coordinate programmatic activities that
support environmental protection while
maintaining ecosystem connectivity. One
example of coordination is in direct support
of Georgia's Community Greenspace
Program. The Southeastern Ecological
Framework is helping local governments
prioritize land that connects communities with
their natural surroundings. Through
voluntary efforts, the fastest growing counties
in Georgia are identifying 20% of available
greenspace and designing plans to protect this
vital resource. EPA Region 4 and the Trust
for Public Land are working with county
governments to identify local connectivity
within the context of a statewide greenway
network.
What can it be used for?
The Southeastern Ecological
Framework is a template of important
ecological areas that can be used for many
purposes: 1). The development of mitigation
banks and sites that provide connectivity to
larger intact wetland systems, 2). buffering of
protected wildlife or natural areas such as
wildlife refuges, national parks, state and local
parks and private wilderness areas, 3).
planning of future road right of ways to
minimize impacts on existing natural areas, 4).
watershed protection and guidance for siting
of future industrial activities, 5).
prioritization for areas in conservation
through wetland reserve or conservation
reserve programs, 6). siting for reforestation
of riparian areas, 7). integration of local
greenspace protection efforts into the larger
regional picture, 8). conservation reserve
design and planning for conserving biological
diversity. This list is only a start of the types
of activities that can be planned around the
SE ecological framework to preserve and
protect our dwindling natural resource base.
Who to contact:
Rick Durbrow, Program Analyst, US EPA,
404-562-8286, durbrow.rick@epa.gov
John Richardson, Project Officer, US EPA,
404-562-8290, richardson.iohn@epa.gov
Tom Hoctor, UFL Dept. of Wildlife
Ecology & Conservation, 352-392-5037,
tomh@geoplan.ufl.edu
Margaret Carr, Principal Investigator,
University of Florida Department of
Landscape Architecture,
352-392-6098 ex 327,
mcarr@geoplan.ufl.edu
University of Florida Geoplan website:
www.geoplan.ufl.edu/proiects/epa/epaindex.html
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-------
Early use of environmental projects
Congressional and GAO inquiries
Development of Sep Policies
-------
Environmentally beneficial projects
Undertaken in settlement of an enforcement
action
Defendant not otherwise legally required to
perform
-------
r
Legal Guidelines
Must be related to the underlying
violation; in other words, must have a
nexus/connection. HOW?
- The project is designed to reduce the
likelihood that similar violations will occur in
the future; or
- The project reduces the adverse impact to
public health or the environment to which the
violation at issue contributes; or
4
- The project reduces the overall risk to public
health or the environment potentially affected
by the violation at issue
-------
Legal Guidelines continued
"A different pollutant in a different medium"
Footnote No. 5
Nexus cannot be waived
Miscellaneous Receipts Act
Augmentation of Appropriations
OGC 1995/1998 Memos
-------
Types of Acceptable SEPS
Eight categories of acceptable SEPs
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Provides diagnostic, preventative and/or
remedial components of human health care
which is related to the actual or potential
damage to human health caused by the
violation
-------
Reduces the generation of
pollution through source
reduction; BEFORE
pollutants are generated
Eliminates pollution
Must lower the overall
amount and/or toxicity of
pollution released to the
environment
-------
^EDSr^
A
$
Pollution Reduction
AFTER pollutants or waste streams are
generated
Recycles, treats or contains pollution
Must go beyond basic legal requirements
-------
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-------
A
Environmental Restoration
and Protection
10
Enhances the condition of
the ecosystem or
immediate geographic area
adversely affected
Natural or artificial
environments
Includes land transfers and
protection of endangered
species, put at risk by the
violation
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Assessments and Audits
Assessments
- Pollution Prevention
- Environmental Quality
2
<
\
PROVt-
Audits
- Environmental Compliance
(available for small businesses ^
and small communities)
11
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Environmental Compliance
Promotion
1}
<
Training or technical
support to OTHER
members of the
regulated community
Only for similar
regulatory requirements
Need prior approval
from HQ Media-specific
enforcement division
-------
Emergency
Planning and Preparedness
Non-cash assistance
Supports local government's
emergency response
capability
For violations related to
emergency planning,
reporting or spills
^eDsr^
^ PRCrt£°
-------
Other Types of Projects
Projects determined by the case team to have
environmental merit which do not fit within at least
one of the above categories
Must be fully consistent with all other provisions of
the SEP Policy
Need PRIOR approval of media-specific Div.
Director within OECA, with consultation from the
Multimedia Enforcement Division SEP contacts
14
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Not Acceptable
)
%
8
General public education
Projects already required to be performed,
by a federal, state or local requirement or a
settlement, including third-party agreements
Outright donations, including contributions
to environmental research at a college or
university
Studies without commitment (except for
pollution prevention assessments)
Projects funded by federal loans or grants
f\)on - ew" rortiviervfel" proje.Zi-%
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Penalty Mitigation/PROJECT
Penalties may be mitigated UP TO 80% for an acceptable
SEP*** CWA memo regarding municipal settlements
EXCEPTION: Up to 100% for small businesses, govt, entities
and non-profits for projects of outstanding quality, or
EXCEPTION: Up to 100% for any defendant who implements a
pollution prevention SEP, if the project is of outstanding
quality £
Must collect at least 25% gravity or 10% gravity plus
economic benefit, whichever is greater
16
Must run proposed SEP through PROJECT to determine
r*r\o-r nnmn
-------
Regional internal Propfedures/
Approvals Clarification
A
PRcn£
Regional procedures
Clarification of HQ Approvals
SEP CONTACTS:
Multimedia Enforcement Division:
Beth Cavalier (202-564-3271) and
Melissa Raack (202-564-7039)
DO J: remind DO J staff attorney to
consult with DO J SEP contact!!
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v Upcoming Changes tg SEP
Policy/New Memos
Currently being considered by OECA:
Expansion of Environmental Compliance Audit
category to allow state and local entities to
conduct compliance audits as SEPs
Clarification of Nexus
Valuation of SEPs
18
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Upcoming Changes t<^ SEP
Policy/New Memos, continued
Use of Dispute Resolution in Judicial Settlements
Revisions to Stipulated Penalties Section
Issuance of Community Guidance and revision to
Community Guidance section of the policy
Footnote 13; CWA municipal penalty policy limits
SEP credit to 40%
19
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-"v,
us&}
V
«t v.o'&
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON.' D C 20460 «.*
apr i q m
ENFORCEMENT AND
COMPLIANCE A-SS^ANCE
MEMORANDUM
SUBJECT: Issuance of Final
tEnvironmental Projects Policy
FROM: Steven A. He;
Assistant Admi:
TO: Regional Administrators
I am pleased to issue the finat 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 DQJ. 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 stricture 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 saiion to
encourageifit use of community input in developing prbjectt iri
appropriate cases and ihere fa a new penalty, mitigfttibnfactarfof -¦
commum^iD^b' {Sreparf^a public pamffelpt that explains the
Policy i£ to facilitate implementation of this new section.
2. Cateyoriyiof Acceptable Prefects. 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
subcategory has been revised and renamed to "environmental quality
assessments." The environmental management system subcategory has
been eliminated.
Internal Address (URL) http://www.apa.gov
a*cycl*an«er cUMa « Prtntad w«h VagaUBla 01 Baaad Inka on Racyctad Papar (Minimum 20% Poalconsumar)
-------
1
3. Use of SFpfi tn 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. 1 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 S£P 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 I-X
Director, Office of Environmental Stewardship, Region I
Director, Division of Enforcement and Compliance Assurance, Region 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
Chief, DOJ, EES
SEP Workgroup Members
David Hindin, Chair, EPTDD
Leon Acierto, V
Christropher Day, III
Joe Boyle, V
Lourdes Bufill, WED
Becky Dolph, VII
Karen Dworkin, DOJ, EES
Gwen Fitz-Henley, IV
Melanie Garvey, FFlEO
Mark Haag, DOJ, PSLS
Tanya Hill, OGC
Leslie Jones, OSRE '
Maureen Katz, DOJ, EES
Amelia Katzen, I
Ann Kline, MED.
Gerard Kraus, MED
Sylvia Liu, DOJ, PSLS
Amy Miller, IX
Peter Moore, MED
Mike Northridge, OSRE
Reginald Pallesen, V
Rudy Perez, II
Erv Picked, AED
JoAnn Semones, IX
Efren Ordonez, VI
Lawrence Wapensky, VIII
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EPA SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY !
I
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 beneficiai
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 tha 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 determining an 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 SEP is also a relevant factor for EPA to 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..
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SEP Policy page:
The Agency encourages the use of SEPs thai are consistent with this Policy. SEPs mav
n:>'t be appr0P"ate in settlernent a11 cases- but tiie^ are an imPorTant pan of EPA's enforcement
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
.j^nificant 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 and Fnvironmental 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 SEPs should 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 or 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, low-income 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
near, where the violations occur would be protected. Because environmental justice is not a
specific technique o: 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.
3. Using this Policy
In evaluating a proposed project to determine if it qualifies as a SEP and then 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 ail legal guidelines, including nexus, are satisfied. (Section C)
(3) Ensure that the project fits within one (or more) of the designated categories of SEPs.
(Section D)
(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, I and J)
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SEP Policv
page 5
4. A^zgU&ah-ilitY
jhis 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 all 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 mitigated by the use of SEPs.1
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 the
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 Policy establishes a framework 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 alternative or modified approach.
1 In extraordinary circumstances, the Assistant Administrator may consider mitigating potential
stipulated penalty liability using. SEPs where: (1) despite the circumstances giving rise to the claim, for
stipulated penalties, the violator has the ability and intention to comply with a 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 .agreement which
provides that 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.
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SEP Policy
page 4
B DEFINE10* AiND 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 pans of this definition are elaborated below.
"Environmentally beneficial" means a SEP must improve, protect, or reduce risks to
public health, or the environment at large. While in 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^.g., issued a notice of violation, administrative order,
or complaint).21
"Not otherwise legally required to perform means" the project or 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 leeal 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 in the facility coming into
compliance earlier than the deadline. Such "accelerated compliance" projects are not allowable,
2 Since the prinufy purpose of this Policy is to obtain environmental or public health benefits that
may not have occwred "but for" the setdement, projects which the defendant has previously commined
to perform or have been started before the Agency has identified aviolation 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 regulated entity had initiated environmentally
beneficial projects before the enforcement process commenced, the initial penalty calculation could be
lower due to the absence of recalcitrance, no history of other violations, good faith efforts, less severity
of the violations, or a shorter duration of the violations.
3 .The statutes EPA 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 in a particular
case, such an activity does not qualify as a SEP.
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-EP Policy
page
however if r^e regulation or statute provides a benefit (e.g.. a higher emission limit) to the
.cefendant'responJent for early compliance.
Also, the oerformance 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 include 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 geographic3 area. Such SEPs may have sufficient nexus even if the SEP
4 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.
s The immediate geographic area will generally be the area within a SO 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 subparagraph a, b, or c in the definition of nexus. In some cases, a
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addresses a different pollutant in a different medium. In limited cases, nexus mav 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.
,7 Earmarks are instructions for changes to EPA's discretionary budget authority made by
appropriations committee in committee reports that the Agency generally honors as a matter of policy.
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environmental requirements, a project may not directly, or indirectly, prov ide
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. (n
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 is related to the'actual or potential damage to human health caused by
the violation. This may include epidemiological data collection and analysis, medical
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.)
Source reduction may include equipment or technology modifications, process or
procedure modifications, reformulation or redesign of products, substitution of raw materials,
and improvements in housekeeping, maintenance, training, inventory 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-process recycling," wherein waste materials produced 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 to the environment, not
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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 protectionlproiect is one which enhances the condition
of the ecosystem or immediate geographic area adversely affected.8 These projects may be used
to restore or profe^naturarenvTronments (such as ecosystems) and man-made environments,
such as facilities and buildings. This category also includes any project which protects the
ecosystem from actual or potential damage resulting from the violation or improves the overall
condition of the ecosystem.1' Examples of such projects include: restoration of a wetland in the
same ecosystem along the same avian 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
8 If EPA lacks authority to 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 and
protection project, but may fit into another category such as pollution prevention or pollution reduction.
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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, [n 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 Audits
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 Part 2, Subpart B.
a. Pollution 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 quality assessments are investigations of: the condition 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 Solicitor's Office'in the Department of the Interior.
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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 tvpeS of
sites: sites that are on the National Priority List under CERCLA § 105, 40 CFR Part 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), CWA §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 maintain compliance with environmental requirements.
In general, compliance audits are acceptable as SEPs only when the defendant/respondent is a
small business or small community.11 12
6. Environmental Compliance Promotion
An environmental compliance promotion project provides training or technical support to
other members of the regulated community to: I) 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
11 For purposes of this Policy, a small business is owned by a person or another entity that employs
100 or fewer individuals. Small businesses could be individuals, privately held corporations, farmers,
landowners, partnerships and others. A small community is one comprised of fewer than 2,500 persons.
12 Since most large cdmpanies 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 not commonly done by small businesses, perhaps because such audits m&y be too
expensive.
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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 stale or local emergency
response or planning entity. This is to enable these organizations to fulfill their obligations under
the 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 spills.
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 not 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 EPCRA, 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 Tvnss 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 ail other
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provisions of this Policy, may be accepted with the advance approval of the Office of
Enforcement and Compliance Assurance.
9. Projects Whicn Are Not 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. 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. Projec:s which the defendant/respondent will undertake, in whole 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
that 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: a) 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 steps is explained below. The five steps are also summarized in the penalty
calculation worksheet attached to this Policy.
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Step 1 Settlement Amn1im Without a SEP
a. The applicable EPA penalty policy is used to calculate the economic benefit or"
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 l.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, whichever is greater. The minimum 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 I .a) to amount in step 2.a.
c. Calculate 25 percent of gravity (multiply amount in step 1 .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. [n 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 the February 1995 Revised Interim Clean Water Act Settlement Penalty Policy, section
V, a smaller minimum penalty amount may be allowed for a municipality.
14 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 98-500408GE1, or they may be downloaded from the World Wide Web at
¦lh.ttp:/7ww\v.epa.gov/oeca/modelsr.
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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 530,000 per year, the net cost of S70,000 is entered into the
PROJECT rr.odel (variable 4).
[n 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 for number 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 the SEP that it has not 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 The PROJECT 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 sales of a product, improved corporate public image, or improved
employee morale). Nor does it 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 late 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 not readily calculate the cost of an accelerated compliance SEP. The cost of
such a SEP is only the 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 for directions on how to calculate the costs of such projects.
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the marginal tax rate in variable 7 should not be set to zero: rather the default settings lor a more
precise estimate of the business' marginal tax rates) should be used in variable 7.
[f 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 prcvide 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 bui
for the enforcement case settlement. To allow SEP penalty mitigation for profitable projects
would thwart this goal.17
t
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
.isted 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).
InnovatiVeness. 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.
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Fnvironmental 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.
Ocmmunitv Input. SEPs which perform well on this factor will have been developed
taking into consideration input received from the affected community. \'o 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
mere 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 noc exceed 80 percent of the SEP COST, with two exceptions:
(1) For small businesses, government agencies or entities, and non-profit organizations,
this mitigation percentage of the SEP COST may 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 demonstrate that 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 in 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
the amount of the SEP cost that may be used in potentially mitigating the preliminary settlement
penalty.
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Step 5: Final Settlement Penalty
5.a. The SEP mitigation amount (step 4.b) is then subtracted from the settlement
amount without a SEP (step I.c).
5.b The greater of step 2.d or step 5.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 or submitted by the
auditor. A final report certified by an appropriate corporate official, acceptable to EPA, and
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 wr.h 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.g., 18 months or longer), 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
contractors or consultants.
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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 complete the project; and b) 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
pena.ty is necessary.
3. If the SEP is satisfactorily completed, but the defendant/respondent spent less
than 90 percent of the amount of money requiredto 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 a 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.
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SEP Policy
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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.
1. 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
local 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 not 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, the confidential 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 experts
assist in the process:
4. After the initial public meeting, the extent of community input and participation in the
SEP development process will have to be 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 will not participate
19 In civil judicial cases, the Department of Justice already seeks public comment on 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
; 40 CFR Part 22.
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directly in the settlement negotiations. This restriction is necessary because of the
confidential nature of settlement negotiations and because there is often ho 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 arid comment on the proposed SEP.
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 legal 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 case in which a SEP is included 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 the 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.
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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, without prior 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.
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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 I: CALCULATION OF SETTLEMENT AMOUNT WITHOUT A SEP.
1 .a. BENEFIT: The applicable penalty policy is used to calculate the
economic benefit of noncompliance.
S
l.b. GRAVITY: The applicable penalty policy is used to calculate the
gravity component of the penalty; this is gravity after all adjustments
in the applicable policy.
S
l.c SETTLEMENT AMOUNT without a SEP: Sum of step I.a plus l.b.
$
STEP 2: CALCULATION OF THE MINIMUM PENALTY AMOUNT WITH A SEP
2.a 10% of GRAviTY: Multiply amount in step l.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 l.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.
s
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 PoKcy. Mitigation percentage should not
exceed 80 % unless one of the exceptions applies.
%
4.b. SEP Mitigation Amount. Multiply step 3 by step 4.a
s
STEP 5: CALCULATION OF THE FINAL SETTLEMENT PENALTY.
5.a Subtract step 4.b from step I.c
$
S.b. Final Settlement Penalty: Select greater of step 2 d or step S.a.
s
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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] ) Docket No.
[Respondent's Address] )
)
Respondent. )
CONSENT AGREEMENT AND ORDER
Complainant, the United States Environmental Protection Agency ("EPA"), having filed
the Complaint herein on [date] against Respondent [Respondent's Name]; and
Complainant and Respondent having agreed that settlement of this matter is in the public
interest, and that entry of this Consent Agreement and Order without further litigation is the most
appropriate means of resolving this matter;
NOW, THEREFORE, before the taking of any testimony, upon the pleadings, without
adjudication of any issue of fact or law, and upon consent and agreement of the Parties, it is
hereby Ordered and Adjudged as follows:
I. PRELIMINARY STATEMENT
1. EPA initiated this proceeding for the assessment of a civil penalty, pursuant to
[statute and regulations].
2. The Complaint alleges that Respondent [describe conduct] in violation of [relevant
legal requirements].
3. Respondent filed an Answer and requested a hearing pursuant to [statute and
regulations].
4. This Consent Agreement and Order shall apply to and be binding upon Respondent, its
officers, directors, employees, successors and assigns, including, but not limited to, subsequent
purchasers.
5. Respondent stipulates that EPA has jurisdiction over the subject matter alleged in the
Complaint and that the Complaint states a claim upon which relief can be granted against
Respondent. Respondent waives any defenses it might have as to jurisdiction and venue, and,
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without admitting or denying the factual allegations contained in the Complaint, consents to the
terms of this Consent Agreement and Order.
6. Respondent hereby waives its right to a judicial or administrative hearing or appeal on
any issue of law or fact set forth in the Complaint.
II. TERMS OF SETTLEMENT
7. Pursuant to § of [statute], the nature of the violations. Respondent's agreement to
perform a Supplemental Environmental Project (SEP) and other relevant factors, EPA has
determined that an appropriate civil penalty to settle this action is in the amount of
[ dollars ($ )].
[Note: In order to avoid conflicts with the Miscellaneous Receipts Act. the civil
penalty provisions must be drafted separately from the provisions for
implementation of the SEPJ
8. Respondent consents to the issuance of this Consent Agreement and consents for the
purposes of settlement to the payment of the civil penalty cited in the foregoing paragraph and to
the performance of the Supplemental Environmental Project.
[Note: Remember that the Respondent must consent to the issuance of the Final
Order and the performance of the SEP]
9. Not more than thirty (30) days after the date of issuance of the executed Consent Order
signed by the EPA Regional Administrator, Region Respondent shall submit a cashier's or
certified check, payable to the order of the "Treasurer, United States of America," in the amount
of [ dollars ($ )], to:
EPA ~ Region
P.O. Lock Box
[address]
Respondent shall provide a copy of the check to:
Regional Hearing Clerk
[Regional Address] and
[Attorney Name and Address]
The check shall bear the case docket number. Interest and late charges shall be paid as specified
in Paragraph 21 herein.
10. The penalty specified in Paragraph 7, above, shall represent civil penalties assessed
by EPA and shall not be deductible for purposes of Federal taxes.
11. [Description of the SEP]
a. Respondent shall complete the following supplemental environmental project
("SEP"), which the parties agree is intended to secure significant environmental or public health
protection and improvements. Not more than (30) days after receiving a copy, of this Consent
Agreement signed by the Regional Administrator, Respondent shall [brief description of SEP].
b. Respondent shall complete the SEP as follows: [Identify key components of the
SEP]. The SEP is more specifically described in the scope of work (hereinafter, the "Scope of
Work"), attached hereto as Exhibit A and incorporated herein by reference.
MODEL SEP CAFO
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[Note: a milestone schedule may be appropriate if implementation will take
longer than 6 months].
[Note: Ensure that the description-of the project to he performed is clear,
complete and specific. Almost all the details of the project should be set forth in
the CAFO or scope of work: negotiations over the type and scope of'the SEP
must be completed prior to fwalization of the CAFO.f
[If applicable] 12. [New chemical not more toxic than eliminated chemical)
Respondent anticipates that the facility will use [new chemical) as a substitute for [eliminated
chemical] in the new systems constituting the SEP. In no event, however, shall any substitute
chemical be used in connection with the SEP which is more toxic or hazardous than [eliminated
chemical], as such characteristics are described on the material safety data sheet (MSDS) for
[new chemical] attached hereto as Exhibit B.)
13. [Cost of SEP) The total expenditure for the SEP shall be not less than [e.g., $x to
purchase the equipment and $y to operate the equipment each year for z years], in
accordance with the specifications set fortl] in the Scope of Work. Respondent shall include
documentation of the expenditures made in connection with the SEP as part of the SEP
Completion Report.
14. [Certifications that SEP is not otherwise required] Respondent hereby certifies
that, as of the date of this Consent Agreement, Respondent is not required to perform or develop
the SEP by any federal, state or local law or regulation; nor is Respondent required to perform or
develop the SEP by any other agreement, grant or as injunctive relief in this or any other case.
Respondent further certifies that it has not received, and is not presently negotiating to receive,
credit in any other enforcement action for the SEP.
[Note: This language emphasizes that the SEP is not required by any other law
(federal, state or local); nor is it required by any other agreement, grant or as
injunctive relief in the instant or any other case. In addition, the language
precludes Respondent from attempting to obtain double credit for the same
project. Also, Respondent cannot be allowed to "bank"projects (i.e., Respondent
is not to be given credit for projects it has already commenced or completed in
advance of the enforcement action by EPA.)]
15. [SEP Reports]
a. SEP Completion Report Respondent shall submit a SEP Completion Report to
EPA by [ date). The SEP (Completion) Report shall contain the following information:
(i) A detailed description of the SEP as implemented;
(ii) A description of any operating problems encountered and the solutions thereto;
(iii) Itemized costs;
(iv) Certification that the SEP has been fully implemented pursuant to the provisions
of this Consent Agreement and Order; and
(v) A description of the environmental and public health benefits resulting from
implementation of the SEP (with a quantification of the benefits and pollutant
reductions, if feasible).
MODEL SEP CAFO
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b. Periodic Reports Respondent shall submit any additional reports required by the
Scope of Work to EPA in accordance with the schedule and requirements recited therein. (Note:
For any SEP where implementation is expected to exceed one year, EPA should require
submission of periodic reports by Respondent).
c. Respondent agrees that failure to submit the SEP Completion Report or any
Periodic Report required by subsections a) and b) above shall be deemed a violation of this
Consent Agreement and Order and Respondent shall become liable for stipulated penalties
pursuant to paragraph 20 below.
d. Respondent shall submit all notices and reports required by this Consent Agreement
and Order to [specify name and address] by first class mail.
e. In itemizing its costs in the SEP completion report. Respondent shall clearly
identify and provide acceptable documentation for all eligible SEP costs. Where the SEP
completion report includes costs not eligible for SEP credit, those costs must be clearly identified
as such. For purposes of this Paragraph, "acceptable documentation" includes invoices,
purchase orders, or other documentation that specifically identifies and itemizes the individual
costs of the goods and/or services for which payment is being made. Canceled drafts do not
constitute acceptable documentation unless such drafts specifically identify and itemize the
individual costs of the goods and/or services for which payment is being made.
[If applicable] 16. [EPA right to inspect] Respondent agrees that EPA may inspect the
facility at any time in order to confirm that the SEP is being undertaken in conformity with the
representations made herein.
[Note: Consistent with the provisions below for Failure to Complete SEP and
EPA To Judge Achievement of SEP, this language provides vehicle for EPA to
exercise its discretion in determining if SEP has been completed satisfactorily and
whether stipulated penalties should be assessed.)
[If applicable:] 17. [Respondent must use SEP] Respondent shall continuously use or
operate the systems installed as the SEP for not less than [number] year(s) subsequent to
installation, and Respondent shall not reinstate the use of [eliminated chemical] at any time.
18. [Document retention and certification] Respondent shall maintain legible copies
of documentation of the underlying research and data for any and all documents or reports
submitted to EPA pursuant to this Consent Agreement and shall provide the documentation of
any such underlying research and data.to EPA not more than seven days after a request for such
information. In all documents or reports, including, without.limitation, any SEP reports,
submitted to EPA pursuant to this Consent Agreement, Respondent shall, by its officers, sign and
certify under penalty of law that the information contained in such document or report is true,
accurate, and not misleading by signing the following statement:
I certify under penalty of law that I have examined and am familiar with
the information submitted in this document and all attachments and that, based on
my inquiry of those individuals immediately responsible for obtaining the
information, 1 believe that the information is true, accurate, and complete. I am
MODEL SEP CAFO
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aware that there are significant penalties for submitting false information,
including the possibility of fines and imprisonment.
19. (EPA acceptance of SEP Report]
a. After receipt of the SEP Completion Report described in paragraph 15.a above,
EPA will notify the Respondent, in writing, regarding: i) any deficiencies in the SEP Report itself
along with a grant of an additional thirty (30) days for Respondent to correct any deficiencies; or
(ii) indicate that EPA concludes that the project has been completed satisfactorily or (iii)
determine that the project has not been completed satisfactorily and seek stipulated penalties in
accordance with paragraph 20 herein.
b. If EPA elects to exercise option (i) above, i.e., if the SEP Report is determined to
be deficient but EPA has not yet made a final determination about the adequacy of SEP
completion itself, EPA shall permit Respondent the opportunity to object in writing to the .
notification of deficiency given pursuant to this paragraph within ten (10) days of receipt of such
notification. EPA and Respondent shall have an additional thirty (30) days from the receipt by
EPA of the notification of objection to reach agreement on changes necessary to the SEP Report.
If agreement cannot be reached on any such issue within this thirty (30) day period, EPA shall
provide a written statement of its decision 6n adequacy of the completion of the SEP to
Respondent, which decision shall be final and binding upon Respondent. Respondent agrees to
comply with any requirements imposed by EPA as a result of any failure to comply with the
terms of this Consent Agreement and Order. In the event the SEP is not completed as
contemplated herein, as determined by EPA, stipulated penalties shall be due and payable by
Respondent to EPA in accordance with paragraph 20 herein.
20. [Stipulated Penalties for Failure to Complete SEP/Failure to spend agreed-on
amount]
a. In the event that Respondent fails to comply with any of the terms or provisions of
this Agreement relating to the performance of the SEP described in paragraph 11 above and/or to
the extent that the actual expenditures for the SEP do not equal or exceed the cost of the SEP
described in paragraph 13 above, Respondent shall be liable for stipulated penalties according to
the provisions set forth below:
(i) Except as provided in subparagraph (ii) immediately below, for a SEP which has
not been completed satisfactorily pursuant to this Consent Agreement and Order,
Respondent shall pay a stipulated penalty to the United States in the amount of S ( EPA
to set a number 75 - 150 percent of the amount by which the settlement penalty was
mitigated on account of the SEP].
(ii) If the SEP is not completed in accordance with paragraphs [X-Y], but the
Complainant determines that the Respondent: a) made good faith and timely efforts to
complete the project; and b) 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, Respondent shall not be liable for any stipulated penalty.
(iii) If the SEP is completed in accordance with paragraphs |X-Y|, but the Respondent
spent less than 90 percent of the amount of money required to be spent for the project,
Respondent shall pay a stipulated penalty to the United States in the amount of $ [10 - 25
MODEL SEP CAFO
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percent of the amount by which the settlement penalty was mitigated on account of
the SEP).
Civ) If the SEP is completed in accordance with paragraphs [X-Y], and the Respondent
spent at least 90 percent of the amount of money required to be spent for the project,
Respondent shall not be liable for any stipulated penalty.
(v) For failure to submit the SEP Completion Report required by paragraph 15(a)
above, Respondent shall pay a stipulated penalty in the amount of S[amount| for each
day after [date in paragraph 15) until the report is submitted.
(vi) For failure to submit any other report required by paragraph 15(b) above,
Respondent shall pay a stipulated penalty in the amount of S[amount| for each day after
the report was originally due until the report is submitted.
b. The determinations of whether the SEP has been satisfactorily completed and
whether the Respondent has made a good faith, timely effort to implement the SEP shall be in the
sole discretion of EPA.
c. Stipulated penalties for subparagraphs (v) and (vi) above shall begin to accrue on
the day after performance is due, and shall continue to accrue through the final day of the
completion of the activity.
d. Respondent shall pay stipulated penalties not more than fifteen (15) days after
receipt of written demand by EPA for such penalties. Method of payment shall be in accordance
with the provisions of paragraph 9 above. Interest and late charges shall be paid as stated in
paragraph 21 herein.
e. Nothing in this agreement shall be construed as prohibiting, altering or in any way
limiting the ability of EPA to seek any other remedies or sanctions available by virtue of
Respondent's violation of this agreement or of the statutes and regulations upon which this
agreement is based, or for Respondent's violation of any applicable provision of law.
/Note: Language included for payment of an additional penalty for non-completion of
SEP or failure to expend amount of funds committed to in Consent Agreement must not
appear to give EPA a choice between: I) collection of an additional penalty; or 2)
additional SEP expenditures by Respondent. Such a provision might appear to give EPA
control or discretion over the use ofpenalty dollars. Unlike a SEP, all assessed penalty
dollars must be deposited in the Treasury. ]
21. Payment Provisions Pursuant to 31 U.S.C. § 3717, EPA is entitled to assess
interest and penalties on debts owed to the United States and a charge to cover the cost of
processing and handling a delinquent claim. Interest will therefore begin to accrue on a civil or
stipulated penalty if it is not paid by the last date required. Interest will be assessed at the rate of
the United States Treasury tax and loan rate in accordance with 4 C.F.R. § 102.13(c). A charge
will be assessed to cover the costs of debt collection, including processing and handling costs and
attorneys fees. In addition, a non-payment penalty charge of six (6) percent per year compounded
annually will be assessed on any portion of the debt which remains delinquent more than ninety
(90) days after payment is due. Any such non-payment penalty charge on the debt will accrue
from the date the penalty payment becomes due and is not paid. 4 C.F.R. §§ 102.13(d) and (e).
INote: Penalty and interest provisions and recovery of attorneys fees may vary by
statute. If appropriate, substitute a statute-specific collection authority in this
MODEL SEP CAFO
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paragraph. The maximum non-payment penalty charge is six (6) percent unless a
statute specifically provides otherwise.] .
22. [Public statements must acknowledge enforcement action] Any public statement,
oral or written, in print, film, or other media, made by Respondent making reference to the SEP
shall include the following language, "This project was undertaken in connection with the
settlement of an enforcement action taken by the U.S. Environmental Protection Agency for
violations of [citation to legal requirements violated]."
23. {No relief from compliance; no endorsement by EPA] This Consent Agreement
and Order shall not relieve Respondent of its obligation to comply with all applicable provisions
of federal, state or local law, nor shall it be construed to be a ruling on, or determination of, any
issue related to any federal, state or local permit, nor shall it be construed to constitute EPA
approval of the equipment or technology installed by Respondent in connection with the SEP
undertaken pursuant to this Agreement.
24. [Force Majeure~if appropriate and requested by Respondent]
a. If any event occurs which causes or may cause delays in the completion of the
SEP as required under this Agreement, Respondent shall notify Complainant in writing not more
than 10 days after the delay or Respondent's knowledge of the anticipated delay, whichever is
earlier. The notice shall describe in detail the anticipated length of the delay, the precise cause or
causes of the delay, the measures taken and to be taken by Respondent to prevent or minimize the
delay, and the timetable by which those measures will be implemented. The Respondent shall
adopt all reasonable measures to avoid or minimize any such delay. Failure by Respondent to
comply with the notice requirements of this paragraph shall render this paragraph void and of no
effect as to the particular incident involved and constitute a waiver of the Respondent's right to
request an extension of its obligation under this Agreement based on such incident.
b. If the parties agree that the delay or anticipated delay in compliance with this
Agreement has been or will be caused by circumstances entirely beyond the control of
Respondent, the time for performance hereunder may be extended for a period no longer than the
delay resulting from such circumstances. In such event, the parties shall stipulate to such
extension of time.
c. In the event that the EPA does not agree that a delay in achieving compliance with
the requirements of this Consent Agreement and Order has been or will be caused by
circumstances beyond the control of the Respondent, EPA will notify Respondent in writing of
its decision and any delays in the completion of the SEP shall not be excused.
d. The burden of proving that any delay is caused by circumstances entirely beyond the
control of the Respondent shall rest with the Respondent. Increased costs or expenses associated
with the implementation of actions called for by this Agreement shall not, in any event, be a basis
for changes in this Agreement or extensions of time under section (b) of this paragraph. Delay in
achievement of one interim step shall not necessarily justify or excuse delay in achievement of
subsequent steps.
MODEL SEP CAFO
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25. [If Respondent has agreed that it will not treat the cost of performing the SEP as a
business expense to be deducted for purposes of federal taxes, and the tax rate in the PROJECT
computer model was thus set at zero, include this paragraph. If not, exclude this paragraph.]
Respondent hereby agrees not to claim any funds expended in the performance of the SEP as a
deductible business expense for purposes of Federal taxes. In addition. Respondent hereby
agrees that, within thirty (30) days of the date it submits its Federal tax reports for the calendar
year in which the above-identified SEP is completed, it will submit to EPA [identify EPA
official] certification that any funds expended in the performance of the SEP have not been
deducted from Federal taxes.
26. This Consent Agreement and Order constitutes a settlement by EPA of all claims for
civil penalties pursuant to [cite statute] for the violations alleged in the Complaint. Nothing in
this Consent Agreement and Order is intended to nor shall be construed to operate in any way to
resolve any criminal liability of the Respondent. Compliance with this Consent Agreement and
Order shall not be a defense to any actions subsequently commenced pursuant to Federal laws
and regulations administered by EPA, and it is the responsibility of Respondent to comply with
such laws and regulations.
27. Each undersigned representative of the parties to this Consent Agreement certifies
that he or she is fully authorized by the party represented to enter into the terms and conditions of
this Consent Agreement and to execute and legally bind that party to it.
28. Each party shall bear its own costs and attorneys fees in connection with the action
resolved by this Consent Agreement and Order.
For Complainant: For Respondent:
Director President, Company
U.S. Environmental Protection
Agency, Region
Date: Date: '
Esq.
Assistant Regional Counsel
Date:
(Firm Name] .
Date:
MODEL SEP CAFO
page 8
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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.
5 Date:
6
7 [Regional Administrator or delegatee]
8 (Title)
9 U.S. Environmental Protection Agency Region
MODEL SEP CAFO
nage 9
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July 15,2002
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 Corporation - PROJECT defaults to this, however could
also be Not-for-Profit or For Profit Other Than Corporation
State - this is the state in which the respondent/defendant conducts the majority of
its business, 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.
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 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. This category includes things such as materials
or labor needed to begin project, engineering or financial services, or purchasing
land.
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.
-------
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 SUGHTLY 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.
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
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.
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PROJECT USER'S MANUAL
Multimedia Enforcement Division (2248-A)
Office of Regulatory Enforcement
Office of Enforcement and Compliance Assurance
United States Environmental Protection Agency
401 M Street, SW
Washington, D.C. 20460
THIS MANUAL
IS
September 1999
RELEASABLE IN ITS ENTIRETY
-------
United States
Environmental Protection Agency
PROJECT
User's Manual
-------
acknowledgments
This document was prepared under the technical direction of Mr. Jonathan Libber.
BEN.'ABEL Coordinator, Office of Enforcement and Compliance Assurance, U.S. Environmental
Protection Agency (EPA). Technical assistance was provided under contract to EPA by Industrial
Economics. Incorporated (IEc) of Cambridge, Massachusetts.
MAILING LIST ADDITION
If you would like to receive updated materials, and you work for a federal, state or local
government environmental agency, please e-mail your name, government mailing address, and
government phone number to benabel@indecon.com. If you have any questions about updates,
contact the EPA enforcement economics'toll-free helpline at 888-ECON-SPT (326-6778).
If you are a member of the public and would like to obtain these materials, download them
from the U.S. EPA's web site at http://es.epa.gov/oeca. (This address may have changed by the time
you read this manual. To obtain the current address, you can call the helpline at 888-ECONSPT.)
September 1999
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TABLE OF CONTENTS
INTRODUCTION Chapter 1
A. Overview " 1-1
B. How to Use this Manual . 1-2
USING THE COMPUTER PROGRAM .; Chapter 2
A. Structure of the Computer Program 2-1
B. Program Installation 2-2
C. Data Entry 2-5
D. Calculating and Printing Results 2-6
E. Exiting and Saving . 2-7
DATA REQUIREMENTS ; Chapter 3
A. Case Screen 3-2
1. Case Name, Office/Agency, Analyst Name 3-2
a. Case Name* 3-3
b. Office/Agency 3-3
c.. Analyst Name 3-3
2. Entity Type, State, Customized Tax Rate 3-3
a. Entity Type 3-3
b. State 3-4
c. Customized Tax Rate 3-4
3. Penalty Payment Date 3-5
4. Creating/Adding, Copying, and Removing Runs 3-6
B. Run Input Screen 3-6
1. Cost Estimate Dates 3-8
2. Inflation Rate 3-8
3. Component Cost Estimates 3-9
a. Capital Investment 3-9
b. One-Time Nondepreciable Expenditure 3-9
c. Annual Recuning Costs 3-10
4. Project Operation Date 3-11
5. Discount Rate 3-11
DETAILED CALCULATIONS f Appendix A
A. Theory and Assumptions A-1
B. Calculations and Spreadsheet A-2
1. Inputs and Variables A-2
2. SEP Cost Components A-4
3. Net Present Value A-6
U.S. EPA SEP POLICY MEMORANDUM Appendix B
September 1999
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INTRODUCTION
CHAPTER 1
A. OVERVIEW
In some environmental enforcement cases, the violator may be allowed to perform a
Supplemental Environmental Project (SEP) as part of a settlement of the case. EPA defines SEP's
as environmentally beneficial projects that a violator undertakes but is not otherwise legally
required to perform in exchange for favorable penalty consideration in settlement of an
enforcement action.1 The PROJECT computer model assists EPA staff in determining the actual
cost of such projects.2 PROJECT can also calculate the value of injunctive relief. Generally
PROJECT is appropriate for settlement purposes but not trials or administrative hearings. See
EPA's SEP policy (Appendix B) for more context.
The actual "true" cost of a SEP to a violator is the after-tax net present value of the project.
Net present value is the cost of the project in today's dollars. The concept of present value accounts
for the "time value of money": a dollar today is worth more than a dollar one year from now because
of investment possibilities. The time value of money is quantified by "discounting" future costs to
determine their present value using a discount rate that reflects the violator's cost of money for
investments. For this reason, project costs occurring in future years will have a lower net present
value in today's dollars. Furthermore, the after-tax net present value will be even lower if the costs
1 See Appendix B, memorandum from Steven A. Herman, "Issuance of Final Supplemental
Environmental Projects Policy," dated April 10,1998, for details on acceptable projects and other SEP policy
issues.
1 For "early compliance" SEP's, use the BEN model instead of PROJECT. As a form of SEP, a
defendant may offer to comply with an environmental regulation'significantly earlier than is required. Just
like other SEP's, this action has associated with it an after-tax net present value that is the maximum amount
by which you can reduce the proposed civil penalty. For the "compliance date" in the BEN model, enter the
date when the regulation requires compliance of the defendant (i.e., the date by which you would normally
expect the defendant to achieve compliance). For BEN's "noncompliance date," enter the date that the
defendant is proposing for its early compliance (i.e., a date earlier than the noncompliance date you
previously entered). BEN's "economic benefit" result is the maximum amount by which you should mitigate
the proposed civil penalty..
1-1
September 1999
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of the project are deductible from the violator's taxes, since the project is creating tax savings for
the violator.
PROJECT first calculates the present value as of the project operation date, and then
determines the final value as of the penalty payment date. Project cost components include capital
investments and one-time nondepreciable expenditures required to install capital equipment or
conduct other activities (e.g., remove contaminated sediments from a stream), as well as annually
recurring costs (for operation and maintenance of capital equipment or for other purposes).3
PROJECT is easy to use, and designed for people without any background in financial
economics.4 To calculate the present value of a SEP, you must supply the case name, EPA Region,
analyst name, tax status, state, penalty payment date, run name, estimated project costs, and project
operation date. For the remaining variables (tax, inflation, and discount rates, tax deductibility of
one-time nondepreciable expenditures, and number of credited years for annual cost), you can either
accept the model's standard values or specify your own.
This PROJECT User's Manual contains all the information a user needs to run the model,
as well as descriptions of the underlying formulae. This manual is designed to help you determine
the appropriate input data for PROJECT, enter such data correctly, and understand the results.
Appendix A provides a detailed explanation of PROJECT'S computational methods, but you do not
have to be familiar with Appendix A to use PROJECT or this manual.
B. HOW TO USE THE MANUAL
This manual provides instructions for using PROJECT, taking you step-by-step through a
PROJECT run. If you are already familiar with the BEN model, you will notice that the models
operate similarly, with many of the same data requirements.
Chapter 2 describes how to use PROJECT. Chapter 3 defines each of the inputs you will
need to run the model. Appendix A provides detailed explanations of PROJECT'S calculations.
Appendix B is a copy of EPA's SEP policy.
1 PROJECT considers and calculates only the direct financial costs (or savings) associated with
implementation of a SEP. PROJECT does not consider any changes in sales, market share, employee morale,
or public image that may be associated with some SEP's. Such changes (if present) may have significant
financial impacts for the violator, but they are often difficult to estimate and are outside the scope of this
analysis.
4 The PROJECT model should provide reasonable estimates of the after-tax net present value for almost
all SEP's. In some unusual cases, the model may not be appropriate or.may need to be used in a modified
manner. If you ever suspect that you might have such a case, consult with EPA's toll-free enforcement
economics helpline (888-ECONSPT) for guidance.
1-2
September 1999
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Most of this information (except the appendices) is also in PROJECT'S on-line help system,
accessible through the F1 key from any screen within the model. If you need further assistance in
'operating the program or understanding the results, please contact the U.S. EPA enforcement
economics toll-free helpline at 888-ECONSPT (326-6778) or benabel@indecon.com. If you need
legal or policy guidance, please contact Jonathan Libber, the BEN/ABEL Coordinator at 202-564-
6102, or e-mail him at libber, jonathan@epamail.epa.gov.
1-3
September 1999
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USING THE COMPUTER PROGRAM
CHAPTER 2
PROJECT is an interactive computer program that runs in the Windows operating
environment. This chapter contains five sections. Section A describes the structure of the computer
program. Section B explains the procedures for installing the program on your computer. Section
C provides data format requirements and additional helpful hints for entering data at your computer,
as well an overview of error messages. Section D tells you how to calculate and print results.
Section E explains how to exit the program and save files. For an in-depth description of each
variable and recommended sources of information, see Chapter 3.
A. STRUCTURE OF THE COMPUTER PROGRAM
PROJECT consists of three different screens: main screen/case creation, run input, and
results/output. In general, you start with the main screen, enter data on a separate screen, return to
the main screen, then view (and print) your output from a final screen. PROJECT operates like
EPA's BEN model and any standard Windows applications (although it differs significantly from
EPA's ability to pay models of INDIPAY, MUNIPAY, and ABEL). Use the mouse or the Tab and
Return keys to move between cells and within a screen. Hold down the Shift key while pressing Tab
to return to previous entries.
When you first open PROJECT the case screen appears. PROJECT starts up with a blank
case screen. You can obtain a new screen at any time by selecting "New" from the File menu, or
using the Ctrl+N shortcut. To toggle between cases, select the appropriate file name under the
"Window" menu.
The first inputs on the case screen are case name, analyst.name, and office/agency. These
values are for reference only and do not affect the results. Next PROJECT asks for the violator's
tax status and state. With this information PROJECT references an internal database and
automatically calculates the relevant marginal tax rate. After the tax rate PROJECT requests the
penalty payment date.
2-1
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The right side of the case screen is for run management. Here you can create a new run. enter
or edit run data, copy a run, remove a run, and calculate a run. You can create multiple runs for each
case.
The run screen is where you enter the cost components of the SEP. It is also where you have
the opportunity to customize the discount and inflation rates, as well as other default values. You
must enter all the cost data for a run before you can calculate the after-tax net present value of a SEP.
The output screen displays the results of PROJECT'S calculation. Here you have three
options. You can print out a summary of the PROJECT calculation, you can print out a detailed
version of the calculation, and/or you can return to the run screen.
Once you are finished with a calculation, you can create, edit or calculate-other runs.' You
can even create other case files, and toggle between them. Before you exit PROJECT it gives you
the option of saving the current case, but you can also save your case file at anytime during your
sessipn. All runs are automatically saved with the case. The case is saved with a "pij" extension
in the folder you specify.
At any time during your use of the model you can access the help system by pressing the F1
key, just as in any Windows application.
B. PROGRAM INSTALLATION
PROJECT requires a personal computer running the Windows operating system (version 3.1
or higher). In addition, for optimal formatting of various data entry screens, set your display in the
control panel to the "small fonts" option. ("Small fonts" is the Windows default, so unless your
display settings have been altered, your computer should be set appropriately.)
The remainder of this section describes how to install PROJECT from EPA's website or from
floppy disks, onto a local network or stand-alone PC. Installing PROJECT will automatically install
the BEN model, since the models share some installation files. If you have trouble downloading or
installing the model, consult your local computer technician.
PROJECT is located on the EPA website at http://es.epa.gov/oeca.5 To install PROJECT,
first download the installation file to your computer or network, then run the file and follow the steps
listed below for installing it from a set of disks. The installation screens will appear as they do for
installation from a disk, although you will not be prompteifor a second disk.
If you have access to the installation disks, insert Disk 1 and run "a:\setup.exe" (or
5 This address may have changed by the time you read this manual. To obtain the current address, you
can call the helpline at 888-ECON-SPT.
2-2 September 1999
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"b: setup.exe'' if the floppy is in the b:\ drive). Then click [OK]. If you receive a warning message
that you cannot copy a file because it is in use, simply click [OK]. It is merely notifying vou that the
file the installation system is trying to copy already exists on your computer and is currently open.
The first PROJECT setup screen will appear:
Readme Inhumation
S3
Sfjvi Welcome to the BEN/PROJECT Setup program.
It is strongly recommended that you exit ALL Windows
programs before running this Setup program.
Click Cancel to quit Setup and then close any programs [¦ ¦ -i,
you have running. Click. Next to continue with the the
Setup program. (¦' .'i
If you have any questions about the install at ion of , .
this model, please call EPA's Enforcement Economics ¦; ;S
Support Helpline at 888-ECONSPT (326-6778), staffed
by IndusBal Economics. Incorporated (an EPA
contractor), from 8:00 am to 6:00 pm (eastern timel
You should close all other programs before installing the model. To do so, click on [Cancel],
close the programs and repeat the appropriate steps above. Otherwise click [Next] and proceed to
the second screen as shown below:
Choose Destination Location
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September 1999
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The second screen offers you the opportunity to designate a directory in which to store the
model,. The default directory is "c:\BENPRJ" (assuming that your local hard drive is c:\). If you
wish to save the model to a different directory, press [Browse] and choose your desired directory.
To proceed with the BEN/TROJECT installation, press [Next]. The next setup screen allows you
to choose a program folder name as shown below:
The default folder name is EPA Models, which you may alter. To continue installation press
[Next]. BEN/PROJECT will partially install and then prompt you for Disk 2, as shown below:
If the files are not on Disk 2 you may type their location or use browse to find them. Press
[OK] when the path is correct. If the program is on two disks, simply insert Disk 2 and press [OK].
The setup program will create icons for BEN and PROJECT and finish installing them. When you
have completed the installation process, you should reboot your computer prior to using the
PROJECT model or any other software package.
2-4
September 1999
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Once PROJECT has been loaded onto your hard drive, simply double-click the model icon
to start the program. If you are running Windows 95 or higher, and did not change the default
.directory and folder, BEN and PROJECT will automatically be listed on the start menu under
programs in the "EPA Models" folder.
After installing the model, you may wish to create a subdirectory for storage of all your case
files. Alternatively, you may also choose to save your case files in any pre-existing directories
corresponding to different cases or projects
C. DATA ENTRY
Like other Windows-based programs PROJECT uses the mouse or the Enter and Tab keys
to move from entry to entry or from screen to screen. Hold down the Shift key while pressing Tab
to return to previous entries. Each screen has several options and spaces for input.
PROJECT will accept several entry formats. Numerical values, can include but do not require
commas. Monetary values may include decimals but will be rounded to the nearest dollar. .They,
may be entered with or without dollar signs. Rates or percentages should be entered as a decimal
number without a percent symbol (e.g., enter 0.20 to represent 20 percent). If you type 2.5 for an
inflation rate, PROJECT will read it as an inflation rate of 250 percent
PROJECT converts all dates to a "1-Jan-1998" format, but can understand almost any
sensible format. If you enter an atypical date format, be sure to check that PROJECT has interpreted
it as you intended.
Be careful to use only number keys to enter numerical values. A frequent mistake is typing
the lowercase letter L instead of a number 1. Another error occurs when the letter O is typed instead
of the number 0 (zero).
PROJECT will tell you if the format for the entry is incorrect If this happens correct the
number and enter it again. Some inputs are limited to a range of values. If an entered value falls out
of this range, PROJECT will display an error message with the allowable range of values. Other
error messages will appear if you did not enter data in a required field.
You may enter variables on the same screen in any order. The only exception to this is that
you must have entered all of the inputs for a case before yoircreate a run. Therefore you will receive
non-entry error messages only when moving from screen to screen or creating a run.
After typing your entry you might discover that you have typed an incorrect letter or number.
Typing errors are easy to correct: simply return to the relevant value and type over the mistake. Like
all computer programs, PROJECT follows the GIGO protocol: "Garbage In, Garbage Out."
Verifying your data inputs is therefore extremely important.
2-5 September 1999
/
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D. CALCULATING AND PRINTING RESULTS
To perform a net present value calculation, select the desired run title from the list on the
main screen and press [Calculate]. If you have entered data for only one run, you will therefore
have only one run to choose. If more than one run is on the list, you may calculate multiple runs and
display the results simultaneously. To do this, first select multiple run titles (i.e., select a run and
then click on subsequent desired runs, while simultaneously holding down the Control key), then
press [Calculate]. Additional runs are useful when you are analyzing more than one proposed SEP.
or if you want to compare the effects of changing variables. The following screen will display a
summarv of the results:
Example Case: Pioject Piesenl Value Results
; ^5.: .-:,-T.'v.iCS -mp--
Run Name -
Test Run
Xr
M
i
$
PresentValues as of Proiect Ooeration Date:
01 -Jan-2001
A) Capital & Other One-Time Costs
181,098
B) Annually Recurring Costs
$2,566
C) Initial ProjectValue (A+B>
$83,664
kv
VnT
D) Final Proj. Value at Penalty Payment Date,
01Jan.1999
$68,007
il
£
C-Corporation vSMA tax rate
w
Discount Rate
10.9%
w
Caoital Investment:
V-,
m
Cost Estimate
$100,000
iiS
S*
Estimate Date
01 - S e p-1996
Inflation Rate
1.7%
*?
-31
One-Time. Nondepreciable Expenditure:
ar
Cost Estimate
$10,000
K
Estimate Date
01 -Sep-1996
Inflation Rate
1.7%
¦fiii '
Tax Deductible?
Y
v'.v:
Annual Costs;
<&:
Cost Estimate
$1,000
You may print either a summaiy or the detailed calculations for the results. The [Summary]
button will print only the information from the results screen. The [Detail] option will print,
separately for each run, a summary page, a page showing the present value calculations for capital
and other one-time costs, and one or two pages showing the present value calculations for annually
recurring costs.
2-6
September 1999
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For more information on interpreting these pages, consult Appendix A, or call EPA's toll-tree
enforcement economics support helpline at 888-ECONSPT (326-6778).
Although printing is done from the output screen, the printer setup is controlled by the pull-
down menu on the main screen. The printer setup allows you to shift between landscape and portrait
printing, as well as choose more advanced options.
E. EXITING AND SAVING
You exit PROJECT just like any other standard Windows application. From the main screen,
select Exit under the File pull-down menu at the top left corner of your screen, or click on the [x]
button at the top right comer of your screen, or double-click on the PROJECT icon at the top left
comer of your screen. PROJECT will ask you if you want to save your work before you exit.
Be sure to save your case(s) before you exit. You save a case by selecting "Save" under the
File menu (or give the case a new narfte by selecting "Save As..."), or the Ctrl+S shortcut.
PROJECT cases are automatically saved with the extension ".pij" and can be accessed using the
"Open" command under the File menu or the Ctrl+O shortcut You can save cases in any folder, and
switch between different folders at any time. Runs are automatically saved as part of a case.
2-7
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DATA REQUIREMENTS
CHAPTER 3
To calculate the after-tax net present value of supplemental environmental projects (SEP's),
PROJECT requires the entity's tax status, state, penalty payment date, project cost estimates .and
dates, and project operation date. For the tax, inflation, and discount rates, you can either accept
PROJECT'S tailored default values or specify your own.
This chapter explains the variables in the order in which you enter them in PROJECT. The
explanations include a brief description of the criteria you should use in developing the input values,
and the basis for each of the standard values. Each explanation also contains a statement regarding
how a change in the value of each variable will affect the PROJECT after-tax net present value
result, as summarized below (holding all other variables constant).
Input Item
Direction of Change
Impact on Result
Entity Type
not-for-profit to
c-corp. or other for-profit
decrease
Marginal Tax Rate
increase
decrease
Penalty Payment Date (PPD)
later
increase
Cost Estimates
increase
increase
Inflation Rates
increase
increase
Tax Deductibility of One-Time
Nondepreciable Expenditure
tax-deductible to not tax-
deductible
increase
Credited Years for Annual Costs
increase
. increase
Project Operation Date (POD)
later
decrease
Discount Rate
increase
varies
3-1
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A. CASE SCREEN
The case screen shown below is what you see when you first open PROJECT. This is where
you enter the following variables: case name, office/agency, analyst name, entity type, state, tax rate,
penalty' payment date, and run name. It is also where you add, edit, calculate and remove runs.
1. Case Name. Office/Agency. Analyst Name
Case name, analyst name, and office/agency (formerly EPA region) are the first three inputs
in PROJECT. They are for reference purposes only and do not affect the calculation. Each of them
will appear along with the current date on the bottom of every page of the results.
a. Case Name
EXAMPLE PR J
Example Case
Regions
J. Analyst
Test Run 2-POD 1/1/2002
^T^S-Foi-
- -J *-*>
PenaltyP.
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September 1999
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Case name is the first input in PROJECT. This name can be any length and can contain
letters, spaces, punctuation and numbers (although you may not leave it blank). It will appear along
with the current date, analyst name, and EPA region on each page of the results. Since its sole
purpose is documentation, this label can contain anything you choose. It can reflect the violator's
name, the name of a specific SEP, or a characteristic of the specific case (e.g., "Payment on July 15,
1999").' Each case can contain several runs, so you will not need to alter the case name to save
individual calculations.
b. Office/Agency
Like case name, office/agency is for reference purposes only (although you may not. leave it
blank). It will appear along with the cunent date, case name, and analyst name on each page of the
results. A pull down menu to the right of the cell lists all ten EPA regions, EPA headquarters, and
the option of "other." You may also type in a different value.
c. Analyst Name
Like case name and office/agency, analyst name is for reference purposes only (although you
may not leave it blank). This name can be of any length and can contain letters, spaces, punctuation
and numbers. It will appear along with the current date, case name, and EPA region on each page
of the results. It can be anything you choose, but it is most appropriate to simply enter your own
name.
2. Entity Type. State. Customized Tax Rate
PROJECT needs to know the violator's tax rate to calculate the after-tax net present value
of a SEP, since project costs are generally tax-deductibl6. Because tax-deductible expenses and
depreciation associated with capital investments reduce taxable income, they result in tax savings.
PROJECT uses the marginal tax rate to account for the tax effects of project costs. The higher the
tax rate, the higher the tax savings, and therefore the lower the after-tax value of the SEP. Changing
the violator's state or tax status changes the violator's marginal tax rate and thus alters the value of
a proposed SEP.
a. Entity Type
PROJECT asks you to designate the tax filing status of the entity, either Not-For-Profit, C-
Corporation, or For-Profit Other than C-Corporation. Choosing the correct tax status is critical,
because it determines PROJECTS's application of the tax rate and the discount rate. PROJECT will
default to C-Corporation status.
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A C-Corporation files a federal tax Form 1120 or Form 1120-A. These companies are taxed
at.corporate income tax rates. Virtually all publicly traded companies are C-Corporations, but small
private firms can also be C-Corporations.
For-profit entities other than C-corporations may be S-corporations, partnerships, or sole
proprietorships (e.g., a comer grocery store). These entities file federal tax returns other than 1120
or 1120-A (e.g., an S- corporation files a Form 1120-S and a Schedule K for each shareholder). The
income and expenses of these organizations are divided among the shareholders and reported on their
individual income tax returns. Income is therefore taxed at the individual income tax rate.
Not-for-profit entities, such as municipalities, public authorities, and charitable organizations,
generally have a tax-exempt status. When you indicate that the violator is a not-for-profit entity,
PROJECT sets the marginal income tax rate to zero. (Although rare, certain not-for-profit
companies are subject to taxation. You should verify the status of the not-for-profit in question and
adjust the tax rates accordingly.)
b. State
This is the state in which the entity conducts the majority of its business, which is not
necessarily the state in which it is incorporated. Selecting the correct state is important because
PROJECT uses a state-specific tax rate in its calculations. The pull-down menu lists all fifty states
plus "AVG", which is an average of all state tax rates (appropriate if the proposed SEP involves
several states).
c. Customized Tax Rate
After you have entered the tax status and state of the violator, PROJECT will automatically
calculate the marginal combined tax rate. The marginal income tax rate is the fraction of the last
dollar of taxable income that a defendant would pay to federal and state governments. PROJECT
uses the marginal tax rate, not the average tax rate (i.e., total tax divided by total taxable income),
because the marginal tax rate is the rate that applies to incremental changes in the violator's
tax-deductible expenses.
State tax rates must be adjusted to reflect their deductibility from federal taxable income.
The adjustment is made by multiplying the marginal state tax'rate by a factor equal to one minus the
marginal federal tax rate, as shown in the following formula:
Combined tax rate = Federal rate + [State rate x (1 - Federal rate)]
State income taxes do not include sales tax, inventory tax, charter tax, or taxes on property.
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One-time tax payments, such as taxes on the purchase of equipment, should be included in capital
investments or in one-time nondepreciable expenditures. If the tax recurs regularly, then it should
be'included in annually recurring costs. For example, sales tax would be included in the capital cost
while property tax would be included in annual cost.
If you have information that supports the use of tax rates other than those supplied by the
PROJECT model (e.g., the entity was not subject to the highest marginal rate), you may modify the
combined tax rate. To do so, simply select the tax rate and type over the standard value. Remember
to enter the tax rate as a decimal. PROJECT will automatically convert it to a percentage.
When the tax rate has been modified, a note indicating the modification will appear in the
PROJECT run results. Note that once tax rates are modified, re-designation of the state or entity
type will result in a loss of the customized information.
PROJECT assumes that the expenses (including depreciation) of SEP's are deductible from
a violator's income for tax purposes. If the violator, asserts that the SEP costs are not tax deductible
and commits in the settlement document net to deduct such costs, then the marginal tax rate may be
set to zero. Further, for each tax year costs are incurred by defendant for the SEP, the violator's chief
financial officer (or other official responsible for tax preparation) must submit a signed statement
to the Agency certifying that the expenses were not deducted. The certification should state:
"Under penalties of perjury, I declare that I have examined the tax return pertaining
to the year XXXX. To the best of my knowledge and belief, these tax returns do not
contain deductions or depreciation for any supplemental environmental project
expenses my company has incurred."
The agreement to make this submission should be spelled out in the settlement document."
The settlement should contain language that the defendant acknowledges that the settlement and
certifications will be forwarded to the IRS. The litigation team should make the defendant aware
that should the SEP costs be deducted, not only will the defendant be facing prosecution for peijury,
but the Agency will seek the full penalty regardless of how much work was. performed on the SEP.
If you need further guidance on this issue, please contact Jonathan Libber of the Multimedia
Enforcement Division at 202-564-6102 or e-mail him at libber.jonathan@epamail.epa.gov.
3. Penalty Payment Date
The penalty payment date is the date when the violator will make its actual payment to the
government. If you vary the date of penalty payment, PROJECT automatically adjusts the SEP's
present value by discounting the costs to the revised date. The present value of project costs will
increase as the penalty payment date is pushed further into the future.
Dates may be entered as month/day/year (i.e. 7/31/98) or written out (i.e. July 31,1998).
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PROJECT will.accept two-digit years, but four-digit years are preferable. You must enter dates to
the day. If you do not enter a day, PROJECT will assume the first of the month.
4. Creating/Adding. Copying, and Removing Runs
You must create a run before you can enter SEP cost information. To add a new run, enter
the run name under "New Run:" and press [Add], PROJECT will save the new run and list it under
"Existing Runs." Run names can be any length and include any letter, punctuation or number. Each
case may contain multiple runs. Addtional runs are useful when analyzing the net present value of
more than one SEP for a particular case, or if you want to compare the effects of changing variables.
To copy an existing run select the run you wish to copy from the list of existing runs and
press (Copy], A window will appear asking you to enter a name for the new run. No two nins can
have the same name. Enter the new name and press [OK] to save the new run or [Cancel] to delete
it. The copy will contain all of the infoonation from the original. Copies are particularly useful
when making only minor changes in cost information from run to run, because they can be used to
carTy over consistent data.
To remove a run select it from the existing run window and press [Remove]. A window will
appear asking you if you are sure. Press [Yes] and the run is deleted. Remember that PROJECT
does not have a "trash bin" to hold deleted runs, so you will have no way to retrieve a run once you
have removed it.
B. RUN INPUT SCREEN
To access the run input screen, select a run and press [Enter/Edit], or simply double click
on the run name. Here you enter cost estimates for the SEP's three possible components: capital
investments, one-time nondepreciable expenditures and annually recurring costs. Each cost
component requires a cost estimate and an estimate date, with the additional option of overriding the
default inflation rate. In addition, you can override the assumption that the one-time nondepreciable
expenditure is tax deductible, as well as change the default assumption of five years of credited
annually recurring costs. At the bottom of the run screen you must enter the project operation date
and may alter the default discount rate. The run screen is shown on the next page.
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1. Cost Estimate Dates
Each cost estimate needs a date. This is the date on which the estimate of the SEP cost is
based. Dates may be entered as month/day/year (i.e., 7/31/98) or written out (i.e., July 31, 1998).
PROJECT will accept two-digit years, but four-digit years are preferable. You must enter dates to
the day. If you do not have date information to the day, use the day that falls in the middle of the
time frame you have. For example, if all you know is that the estimate was made in May of 1998.
use May 15,1998 as the estimate date. If all you know is that the estimate was made in 1998, use
July 1, 1998 as the estimate date. If you do not enter a day, PROJECT will assume the first day of
the month. If you have costs with different dollar-years, enter them as separate runs, and sum the
separate runs' results.
2. Inflation Rate
The inflation rate in PROJECT is the annual rate at which the costs of environmental control
projects are expected to increase over time. These cost increases are the result of various factprs
affecting supply and demand for particular products and services, as well as general inflationary
pressures in the economy. PROJECT uses this rate to adjust the cost of SEP's from the cost estimate
date to the project operation date. The higher the inflation rate, the higher the value of the SEP will
be at the project operation date.
PROJECT'S inflation rate is based on the "Plant Cost Index" (PCI) published in Chemical
Engineering magazine. The PCI is used rather than another index (e.g., the Consumer Price Index,
or the GDP Implicit Price Deflator), because it more accurately reflects the costs of activities
associated with pollution-control expenditures. The PCI is based on cost changes in typical
components of pollution control, including equipment, construction labor, buildings, and engineering
and supervision.
To calculate future inflation, PROJECT extrapolates the PCI forward in time at a forecasted
rate based upon a consensus forecast for the Consumer Price Index (CPI) and the PCI's historical
relationship to the CPI. (The rationale for the calibration of the PCI to the CPI is that the CPI yet
not the PCI has widely available forecasts for projected inflation.)
The inflation rate for each SEP cost category may be modified individually because the
different cost categories may be affected by different inflationary trends. If you have some reason
to believe that a better inflation forecast for your purposes is available, or if you would like to obtain
the detailed calculations for this projected rate (which is updated each year), please call EPA's
helpline at 888-ECONSPT. If you customize the inflation rate be certain that you enter an annual
rate and not a monthly or semiannual rate.
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3. Component Cost Estimates
a. Capital Investment
The capital investment should include all depreciable investment outlays necessary to
implement the SEP. Depreciable capital investments are usually buildings, equipment, or other long-
lived assets.6 Typical environmental capital investments include groundwater monitoring wells,
stack scrubbers, and wastewater treatment systems. In addition to these conventional capital
investments, capital costs may also be associated with projects that do not appear at first to be capital
investments. For example, a project to restore a wetland may include capital costs like pipes and
pumps.
You may enter capital costs with or without commas or dollar signs. PROJECT will accept
decimals but will round the amount to the nearest whole dollar. Enter a zero if capital investment
costs will not be incurred. All else being equal, a larger capital investment will result in a higher net
present value for the SEP.
b. One-Time, Nondepreciable Expenditure
Include any one-time nondepreciable expenditures necessary to implement the SEP. Such
costs could be for materials or labor needed to start up the project (excluding design and installation
costs for capital equipment), engineering, financial, or other services (e.g., a training program, waste
disposal), or purchasing land. If such expenditures must occur over time and regularly, rather than
as a one-time event, enter them as an annually 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 annually
recurring cost.)
You may enter the cost estimate with or without commas or dollar signs. PROJECT will
accept decimals but will round the amount to the nearest whole dollar. Enter a zero if these costs
will not be incurred. All else being equal, a larger one-time nondepreciable expenditure will result
in a higher net present values for the SEP.
PROJECT next allows you to override the assumption that the one-time nondepreciable
expenditure is tax-deductible. The only one-time nondepreciable expenditure that is not tax-
deductible is land. Note that, all else being equal, overriding the tax-deductibility assumption will
increase the PROJECT result
* Note that land is not a depreciable capital investment. Land costs should be input as a one-time
nondepreciable expenditure, and the tax-deductibility box should be unchecked.
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c. Annually Recurring Costs
For the annually recurring costs associated with implementation of the SEP, enter the net
change in expenditures for labor, power, water, raw materials, supplies, training, waste disposal,
recycling, lease payments, and property taxes. Annual costs, however, should not include annualized
capital recovery, interest payments, or depreciation. Do not enter any annual costs that appear
speculative or unsubstantiated.
For some SEP's, the annual cost may be a negative number to reflect net cost savings
associated with implementation of the project. (This is particularly likely for a pollution prevention
capital improvement, which may make the production process more efficient; e.g., by reducing
electricity consumption and waste generation.) PROJECT will calculate the net cost to the company
of such a project by evaluating both the capital investment for the new equipment and the operational
.cost .savings.
You may enter annual costs with or without commas or dollar signs. PROJECT will accept
decimals but will round the amount to the nearest whole dollar. Enter a zero if no annual costs will
be incurred. All else being equal, larger annually recurring costs will result in higher net present
values for the SEP.
Enter the number of years for which the annual costs will be credited. The number of years
of annual costs should correspond to the number of years that the defendant is legally required to
operate the project. EPA takes this position because it has no way to be sure the money will ever
be spent on the project without such a legal requirement The default value is five years because in
most cases it would be impractical for the government to monitor a consent decree for more than five
years.
PROJECT will not allow you to enter a value that exceeds IS years. This resection is based
on the expectation that the government cannot continue to monitor whether the defendant is still
implementing the SEP 15 or more years after start-up. Further, in most cases changes in technology,
market conditions, and environmental conditions create too much uncertainty to reasonably assume
that a project will be implemented in the same manner for more than 15 years. Finally, the useful
life of capital equipment will typically be 15 years. In many cases these reasons justify limiting the
entry for this variable to no more than five years.
You may enter annual costs with or without commas pr dollar signs. PROJECT will accept
decimals but will round the amount to the nearest whole dollar. Enter a zero if no annual costs will
be incurred. All else being equal, larger annually recurring costs will result in a higher net present
values for the SEP.
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4. Project Operation Date
This is the date when the SEP will commence operation, which is generally when all capital
investments and one-time nondepreciable expenditures will have been incurred, and/or the annual
costs will first start to be incurred. For example, a pollution control project that requires the
installation of a stack scrubber would not be considered operational until all capital costs for the
scrubber are expended. In cases where the SEP involves only annual expenses, the project operation
date is when the violator begins incurring those costs. The project operation date may occur before
or after the penalty payment date. In virtually all cases, however, the project operation date will
occur after the commencement of the enforcement action. (Otherwise, the violator is credited for
a project that presumably would have been undertaken anyway.)'
Holding all other variables constant, the present value of project costs- will decrease as the
project operation date is pushed further into the future.
Dates can be written out or entered in month/day/ year format. For example, January 4,1998
can be written as January 4,1998, Jan 4 1998,1-4-98, or 1/4/1998. Four-digit years are preferable,
although PROJECT will accept some two-digit formats. If using numerical abbreviations, be sure
to enter the month first, e.g., PROJECT will interpret 10/2/98 as October 2, 1998, not February 10,
1998.
To compare cost estimates from different dates, PROJECT calculates the initial present value
of the costs as of the project operation date, and then the final value as of the penalty payment date.
To perform these present value calculations, PROJECT must employ a discount rate that reflects the
violator's "time value of money."
PROJECT uses the weighted-average cost of capital ("WACC") to discount cash flows for
all for-profit entities. The WACC represents the average cost of capital to the violator, after taxes,
assuming constant risk and constant capital structure. PROJECT uses the cost of municipal debt as
the basis for the discount rate for not for-profit organizations. When you indicate that the violator
is a not for-profit entity, PROJECT automatically defines the discount rate based on average
municipal bond yields.
Violators may occasionally request an adjustment in the discount rate to reflect their financial
condition more precisely. Make the violator aware that a case-specific analysis could change the
discount rate in a way that would lead to a lower present value for the SEP. Furthermore, a
case-specific analysis for the PROJECT discount rate might also affect the BEN discount rate. If
you alter the discount rate, be sure to enter it as a decimal. PROJECT will automatically convert it
to a percentage.
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Each year the standard-value discount rates are updated. If you have any questions about the
discount rate, including the detailed derivation of the standard values, or guidance on tuning the
discount rate to a specific violator or industry, please contact the EPA helpline at 888-ECON'SPT.
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METHODOLOGY FOR COMPUTING THE VALUE
OF A SUPPLEMENTAL ENVIRONMENTAL PROJECT
APPENDIX A
This technical appendix explains the methodology the PROJECT computer program uses to
calculate, the present value of a supplemental environmental project (SEP). The first section is an
introduction to the theory and underlying assumptions of PROJECT. The second section is a step-
by-step explanation of a sample PROJECT calculation.
A. THEORY AND ASSUMPTIONS
In some environmental enforcement cases, the violator may be allowed to perform a
supplemental environmental project as part of a settlement of the case. EPA defines SEP's as
environmentally beneficial projects that a violator undertakes but is not otherwise legally
required to perform in exchange for favorable penalty consideration in settlement of an
enforcement action. The PROJECT computer model assists EPA staff in determining the actual cost
of such projects. PROJECT can also calculate the value of injunctive relief.
The actual "true" cost of a SEP to a violator is the after-tax net present value of the project.
Net present value is the cost of the project in today's dollars. The concept of present value accounts
for the litime value of money": a dollar today is worth more than a dollar one year from now because
of investment possibilities. The time value of money is.quantified by "discounting" future costs to
determine their present value using a discount rate that reflects the violator's cost of money for
investments. For this reason, project costs occurring in future years will have a lower net present
value in today's dollars. Furthermore, the after-tax net present value will be even lower if the costs
of the project are deductible from the violator's taxes, because the project is creating tax savings for.
the violator.
PROJECT first calculates the present value as of the project operation date (POD), and then
determines the final value as of the penalty payment date (PPD). Project cost components include
capital investments and one-time nondepreciable expenditures required to install capital equipment
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September 1999
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or conduct other activities (e.g., remove contaminated sediments from a stream), as well as annually-
recurring costs (for operation and maintenance of capital equipment or for other purposes).1
PROJECT is easy to use, and designed for people without any background in financial
economics. To calculate the present value of a SEP, you must supply the case name, EPA Region,
analyst name, tax status, state, penalty payment date, run name, estimated project costs, and project
operation date. For the remaining variables (tax, inflation, and discount rates, tax deductibility of
one-time nondepreciable expenditures, and number of credited years for annual cost), you can either
accept the model's standard values or specify your own.
B. CALCULATIONS AND SPREADSHEET
PROJECT references a Microsoft Excel spreadsheet to perform all of its present value
calculations, although you do not need Excel to run PROJECT. The data you enter into the program
is automatically transferred to the spreadsheet. The spreadsheet calculates the present value of the
SEP and returns the result to the program for output This section illustrates a PROJECT calculation
by taking you step-by-step through relevant portions of the underlying spreadsheet. Italicized
comments within brackets are added to explain the calculations, and are not part of the spreadsheet
itself.
The spreadsheet is in your PROJECT folder (on your C drive or wherever else you installed
PROJECT), filename "proj****.xls". The asterisks represent the most recent year for which EPA
has performed updates for the spreadsheet. You may open the file, but it has been write-protected
to preserve the integrity of the calculations. This spreadsheet contains necessary formulas and
background information like tax rates and discount rates. The background information will be
updated once a year, but the calculations themselves will remain the same.
1. Inputs and Variables
The first section of the spreadsheet contains the variables entered by the user. These are a
prerequisite for the calculations. The following is a list of PROJECTS's basic inputs, along with
inputs from an example case.
1 PROJECT considers and calculates only the direct financial costs (or savings) associated with
implementation of a SEP. PROJECT does not consider any changes in sales, market share, employee morale,
or public image that may be associated with some SEP's. Such changes (if present) may have significant
financial impacts for the violator, but they are often difficult to estimate and are outside the scope of this
analysis.
A-2 September 1999
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Inputs
Example
Comments
Case. Name
Example Case.
Analyst Name
T.R. Analyst
EPA Region
EPA Region 1
Tax Status
C-corp
[Also known as "Entity Type"]
State
MA
Customized Tax Rates?
n
[You may customize the tax rate, in which case PROJECT
Federal Tax Rate
35.0%
will use the customized rate instead of its internal table]
State Tax Rate
9.50%
Combined Tax Rate
41.2%
[Combined = Federal +(State x (I-Federal))]
Penalty Payment Date (PPD)
01-Jan-1999
Run Name
Test Run
Discount Rate
10.0%
[This is one of PROJECT'S two discount values, one for
Caoital Investment:
companies and one for not-for-profits]
Cost Estimate
$100,000
Estimate Date
01-Sep-'t996
Inflation Rate
2.2%
[This is the default value]
One-Time. Nondeoreciable Exoenditure:
Cost Estimate
$10,000
Estimate Date
01-Sep-1996
Inflation Rate
2.2%
[This is the default value]
Tax Deductible?
Y
[This is the default setting]
Annual Costs:
Cost Estimate
$1,000
Estimate Date
01-Sep-1996
Inflation Rate
2.2%
[This is the default value]
Number of Credited Years
5
[This is the default value]
Project Operation Date (POD)
01-Jan-2001
Tax rates are contained in the spreadsheet as a table that contains current corporate and
individual federal tax rates and state tax rates. Annual updates will keep tax rates current When
you designate a state and tax status for the violator, PROJECT finds the appropriate federal and state
tax rates and calculates a combined tax rate. Because state taxes are deductible from federal taxable
income, the combined tax rate calculation is:
Combined tax rate = Federal rate + [State rate x ( 1Federal rate)].
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September 1999
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2. SF.P Cost Components
PROJECT first calculates costs as of the date they will be expended, then adjusts them to the
project operation date (POD). The present value (as of the POD) of each date's cash flow is equal
to the cash flow multiplied by that date's present value factor. The PV factor uses the discount rate
to determine a dollar's equivalent value in POD dollars. Therefore, the PV factor for any date is
equal to the sum of one plus the discount rate, raised to the difference in the number of years
(including any fractions) between that date and the project operation date.
Capital investments and one-time nondepreciable expenditures are calculated together for
the year in which they are originally incurred. PROJECT also calculates the future depreciation tax
shields for the initial capital investment.
Annually recurring costs are calculated for the number of credited years. The number of
credited years may be customized, but the default value is five, and it may never be more than
fifteen. Note that PROJECT automatically adjusts annual costs for inflation, and also adjusts the
annual cost for any partial years.
The following page is PROJECT'S spreadsheet calculation of the present value of capital,
one-time, and annually recurring SEP costs as of the project operation date.
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A) Capital & Other One-Time Costs
01-Jan-2001
01-Jul-2001
01-Jul-2002
01-Jul-2003
01-Jul-2004
01 -Jul-2005
01-Jul-2006
01-Jul-2007
01-Jul-2008
One-Time. Nondepreciable Expenditure
(10.990)
Capital Investment
(109,698)
Depreciation
0
(15.700)
(26,914)
(19.225)
(13.732)
(9,808)
(9,808)
(9.808)
(4.904)
Marginal Tax Rate
41.2%
41.2%
41.2%
41.2%
41 2%
41.2%
41.2%
41 2%
41.2%
Net After-Tax Cash Flow
(116,360)
6,468
11,088
7,921
5,658
4,041
4,041
4.041
2.021
PV Factor: Adjusts Cash Flow to POD
1.0000
0.9538
0.8671
0.7883
0.7164
0.6513
0.5921
0 5383
0.4892
PV Cash Flow as of POD
(116.360)
6,170
9.615
6,244
4,053
2,632
2,393
2.175
988
Total PV as of POD: 182.0901 /Present value of all one-time an J capita! investment costs as of the project operation date. 1
/Companies may deduct the depreciation of capital equipment from their taxable income. Below is the standard 7-year depreciation schedule, using the half-year convention)
Depreciation 14.2860% 24 4897% 17.4935% 12.4953% 8.9243% 8.9243% 8 92.43% 4.4626%
IMACRS):
B) Annually Recurring Costs
Year:
1
2
3
4
5
6 7 8 9
Period of Annual Costs; From:
01-Jan-2001
01-Jan-2002
01-Jan-2003
01-Jan-2004
01-Jan-2005
To:
01-Jan-2002
01-Jan-2003
01-Jan-2004
01-Jan-2005
01-Jan-2006
Annual Costs
(1.111)
(1.135)
(1.160)
(1.186)
(1.212)
Marginal Tax Rate
41.2%
41.2%
41.2%
41.2%
41.2%
Net After-Tax Cash Flow
(653)
(668)
(682)
(697)
(713)
PV Factor: Adjusts Cash Flow to POD
0.9535
0.8668
0.7880
0.7163
0.6511
PV Cash Flow as of POD
(623)
(579)
(538)
(499)
(464)
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4. Net Present Value
Once PROJECT has computed the value of capital costs and annually recurring costs, it
adds them together to calculate the value of the project as of the project operation date. This initial
value is then adjusted to the penalty payment date at the discount rate. To do this, the initial value
is multiplied by the sum of one plus the discount rate, raised to the difference in the number of years
(including any fractions) between the project operation date and the penalty payment date. The final
net present value of the proposed project as of the penalty payment date is the maximum amount by
which you may mitigate the penalty.
Run Name = Test Run
Comments
Present Values as of Project Operation Date: 01-Jan-2001
A) Capital & Other One-Time Costs $82,090
B) Annually Recurring Costs' $2,703
C) Initial Project Value (A+B) $84,793
D) Final ProJ. Value at Penalty Payment Date,
[From previous calculation]
[From previous calculation]
[Value as of project operation date]
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EPA SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY
APPENDIX B
Effective May 1,1998
Note that this policy's references to the PROJECT model are for the older DOS model, but the new
Windowsnt versions of the model and User's Manual supplant any prior versions.
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 determining an 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,
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and prior history of violations. Evidence of a violator's commitment and ability to perform a SEP
is also a relevant factor for EPA to 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.
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 and Environmental Justice
The Pollution Prevention Act o£ 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 SEPs should 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 or 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, i.e., low-income 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 near,
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.
3. Using this Policy
In evaluating a proposed project to determine if it qualifies as a SEP and then determining
how much penalty mitigation is appropriate, Agency enforcement and compliance personnel should
use the following five-step process:
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(1) Ensure that the project meets the basic definition of a SEP. (Section B)
(2) Ensure that all legal guidelines, including nexus, are satisfied. (Section C)
(3) Ensure that the project fits within one (or more) of the designated categories of SEPs.
(Section D)
(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, I and J)
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 all 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
mitigated by the use of SEPs.1
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 the 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
1 In extraordinary circumstance?, the Assistant Administrator may consider mitigating potential
stipulated penalty liability using SEPs where: (1) despite the circumstances giving rise to the claim for
stipulated penalties, the violator has the ability and intention to comply with a 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 agreement which
provides that a violation of X requirement subjects it to a stipulated penalty between $1,000 and S3,000, then
the Agency may consider SEPs in determining the specific penalty amount that should be demanded.
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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 Policy establishes a framework 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 alternative or modified approach.
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 beneficiar means a SEP must improve, protect, or reduce risks to public
health, or the environment at large. While in 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 project or 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:
2 Since the primary purpose of this Policy is to obtain enviroamental or public health.benefits that may
not have occurred "but for" the settlement,.projects which the defendant has previously committed to perform
or have ueen 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 regulated entity had initiated environmentally beneficial projects
before the enforcement process commenced, the initial penalty calculation could be lower due to the absence
of recalcitrance, no history of other violations, good faith efforts, less severity of the violations, or a shorter
duration of the violations
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(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 in the facility coming into
compliance earlier than the deadline. Such "accelerated compliance" projects are not allowable,
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 include 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:
1 The statutes EPA 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 in a particular case, such
an activity does not qualify as a SEP.
4 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.
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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 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 nvanaging 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.
5 The immediate geographic area will generally be the area within a SO 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 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.
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.
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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
report.7 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 eaimarked.fiinds.
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
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 is related to the actual or potential damage to human health caused by the
violation. This may include epidemiological data collection and analysis, medical 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.
7 Earmarks are instructions for changes to EPA's discretionary budget authority made by appropriations
committee in committee reports that the Agency generally honors as a matter of policy.
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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.)
Source reduction may include equipment or technology modifications, process or procedure
modifications, reformulation or redesign of products, substitution of raw materials, and
improvements in housekeeping, maintenance, training, inventory 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-process recycling," wherein waste materials produced 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 to the environment, not 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.
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4. Environmental Restoration and Protection
.An environmental restoration and protection project is one which enhances the condition of
the ecosystem or immediate 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 or potential damage resulting 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 avian 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 defendanl/respondent has agreed to restore and then protect certain
lands, the question arises as to whether the project may include the creation or 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.
* If EPA lacks authority to 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 and protection
project, but may fit into another category such as pollution prevention or pollution reduction.
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 Solicitor's Office in the Department of the Interior.
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§. Assessments and Audits
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 Part 2,
Subpart B.
a. Pollution 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 quality assessments are investigations of: the condition 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 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.
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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 CFR
Part 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), CWA §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
maintain compliance with environmental requirements. In general, compliance
audits are acceptable as SEPs only when the defendant/respondent is a small business
or small community." 12 '
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 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
11 For purposes of this Policy, a small business is owned by a person or another entity that employs 100
or fewer individuals. Small businesses could be individuals, privately held corporations, farmers, landowners,
partnerships and others. A small community is one comprised of fewer than'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 not commonly done by small businesses, perhaps because such audits may be too expensive.
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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 the 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 spills.
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 not 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 noncash assistance and
there are violations of EPCRA, or reporting violations under CERCLA §103, or CAA §112(r), or
violations of other emergency planning, spill or releasie 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 all other
provisions of this Policy,, may be accepted with the advance approval of the Office of Enforcement
and Compliance Assurance.
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9.
Projects Which Are Nnt 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. 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, in whole 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 that
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:
a) 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 steps is explained below. The five steps are also summarized in the penalty
calculation worksheet attached to this Policy.
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Step 1: Settlement Amount Without 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 l.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, whichever
is greater. The minimum 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 1 .a) to amount in step 2.a.
c. Calculate 25 percent of gravity (multiply amount in step 1 .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
13 Pursuant to the February 1995 Revised.Interim Clean Water Act Settlement Penalty Policy, section
V, a smaller minimum penalty amount may be allowed for a municipality.
14 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-^847, and asking for Document #PB
98-500408GEI, or they may be downloaded from the World Wide Web at
"http://www.epa.gov/oeca/models/".
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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 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 5100,000 per year, but the new process reduces existing hazardous waste disposal
expenditures by $30,000 per year, the net 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 for number 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 the SEP that it has not 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
13 The PROJECT 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 sales of a product, improved corporate public image, or improved employee morale).
Nor does it 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
- late 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 not readily calculate the cost of an accelerated compliance SEP. The cost of such
a SEP is only the 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 for directions on how to calculate the costs of such projects.
B-15
September 1999
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marginal tax rate. If a business is not willing to make this commitment, the marginal tax rate in
variable 7 should not be set to zero; rather the default settings (or a more precise estimate of the
business' 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 :he 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 for 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).
Innovativeness. 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
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.
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September 1999
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compliance. This includes "technology forcing" techniques which may establish new-
regulatory "benchmarks."
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.
Commmity 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 nol exceed 80 percent of the SEP COST, with two
exceptions:
(1) For small businesses, government agencies or entities, and non-profit organizations,
this mitigation percentage of the SEP COST may 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 demonstrate that 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 in 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 the
amount of the SEP cost that may be used in potentially mitigating the preliminary settlement penalty.
B-17 September 1999
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Step 5: Final Settlement Penalty
5.a. The SEP mitigation amount (step 4.b) is then subtracted from the settlement amount
without a SEP (step l.c).
5.b. The greater of step 2.d or step -5.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 guidelihe 4 in § C above.) It should describe the specific actions ta 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 or submitted by the auditor. A final report certified by an
appropriate corporate official, acceptable to EPA, and 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.g.,
18 months or longer), SEPs which require EPA review and comment on interim milestone activities,
" Non-profit organizations, such as universities and public interest groups, may function as contractors
or consultants.
B-18
September 11999
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and other complex SEPs may not be appropriate in administrative enforcement 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.
I. 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 d\e 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 complete the project; and
b) 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 a 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.
B-19
September 1999
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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." 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.
1. 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 th&t 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 local
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 not
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, the confidential'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 experts
assist in the process.
19 In civil judicial cases, the Department of Justice already seeks public comment on lodged consent
decrees through a Federal Register notice. See 28 CFR §30.7. In certain administrative enforcement actions,
there are also public notice requirements that are followed before a settlement is finalized. See 40 CFR Part
22.
B-20
September 1999
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4. After the initial public meeting, the extent of community input and participation in the SEP
development process will have to be 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 will not participate 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.
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 legal 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 case in which a SEP is included 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 the case file. The explanation of the SEP should explain how the five steps set
B-21
Sentember 1999
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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.
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, without prior notice, or to art at variance
to this Policy. This Policy does not create any rights, duties, or obligations, implied or otherwise,
in any third parties.
B-22
September 1999
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# fit-*
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
APR 1 4 2000
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
igatjon Credit under the SEP Policy
TO:
Regional Counsels, Regions I-X
Air Division Directors (Regiqns 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
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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 in 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
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'* A \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
"V R0*°
WASHINGTON, D.C. 20460
JUL 2 1 iS9&
CrFICz CF
EMFGRCEMS.VT AND
COMPLIANCE ASSURANCE
MEMORANDUM
J
/ > 7
SUBJECT: Revised Approval Procedures/or'SupplOTient^l Environmental Projects
FROM: Eric V. Schaeffer, Director L 'L' 1
Office of Regulatory Enforcement
TO: Regional Counsels, Regions I-X
Director, Office of Environmental S tewardshipj Region I'
Director, Division of Enforcement and Compliance Assurance, Region 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
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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 who manage implementation of the Policy in the Multimedia Enforcement Division,
as well as the other divisions in the Office of Regulatory Enforcement, routinely respond ;o
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 ¦-ve
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 in 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 Regulatory Enforcement Cases, issued by the" Assistant
Administrator 6n July 11,1994.
Adherence to these procedures ensures consistent, fair and defendable application o: the
$EP Policy. We appreciate your compliance and look forward to working with you to obtain the
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 mav not fullv comply with (f><>pmvfcinns of ihis
Policy (e.g.; see footnote 1), the SEP must be approved by the EPA Assisrcnr
Administrator for Enforcement-and Compliance Assurance.- If a project dces-not
jiitly 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 legal authority and is not otherwise inconsistent with law.
If there is an issue or question about whether a proposed SEP is
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3
consistent with the Pdlicy (or how a project can be modified to. become
consistent), the Region should consult with the appropriate Division in
the Office of Regulatory Enforcement (ORE).' 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 .me 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 Director (usually me) or the Assistant Administrator. Please
remember that there may be some projects that, although inconsistent
withlheTolicy's guidelines,lare ^vertfiele^jus^tifrabTe^and hav'e sirch
compelling environmental benefits that they could be approved as.
exceptions to the Policy.
c. In allcases-in which a SEP would involve activities outside, the United States, the
SEP must be approved in advance by the Assistant Administratorjind, for judicial
cases only, the Assistant Attorney Generaffbr the Environment and Nature!
Resources Division of the Department ofJustice.
Memoranda requesting approval for such projects should be sent to
the Assistant Administrator, with a copy to 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 (section
D.6) or a project in the pother"-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 the ORE Division Directors
the authority. to approve environmental compliance promotion SEPS
and 'Other?'SEPs'in their respective programs, after.consulting with
the Multimedia Enforcement Division,
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.
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Questions regarding these procedures, or any aspect of the Final SEP Policy,
directed to Ann Kline of the Multimedia Enforcement Division, 202-564-0119..
ORE Division Directors
OECA Office Directors -
SEP Workgroup Members
Joel Gross, DOJ
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
MAR 24 1998
OFFICE OF
GENERALCOUNSEL
MEMORANDUM
SUBJECT: Final Revised Supplemental Environmental Projects Policy
FROM: Jonathan Z. Cannon y
General Counsel (23I ft)
If)
TO:
Steven A. Herman
Assistant Administrator for
Enforcement and Compliance Assurance (2201 A)
I understand that the Office of Enforcement and Compliance Assurance (OEC A) plans to
issue the EPA Supplemental Environmental Projects Policy (the new Policy) to provide a
framework for EPA in exercising its enforcement discretion in determining appropriate
settlements that include supplemental environmental projects (SEPs). My staff has worked
closely with your office in^the development of the new Policy which will supersede the May
1995 Interim Revised Supplemental Environmental Projects Policy (the 1995 Policy). The 1995
Policy superseded the February 12,1991 Policy on the Use of Supplemental Environmental
Projects in EPA Settlements (the 1991 Policy). OGC staff also worked with your office in
developing the 1995 Policy and, on May 3,1995, issued a detailed legal opinion supporting the
1995 Policy.
As you are aware, the General Accounting Office (GAO) reviewed the 1991 Policy. In a
March 1, 1993, letter to Congressman Dingell (B-247155.2), GAO indicated that the 1991 Policy
was not consistent with GAO's interpretation of appropriations law principles. The
appropriations law issues raised by GAO were fully considered and taken into account in
developing the new Policy. While we cannot ensure GAO's ultimate concurrence1, we believe,
based on our review, that there is reasonable legal basis for issuing the new Policy.
1 Although GAO opinions and legal interpretations are useful sources on appropriations
law matters, they are not binding on executive agencies. See Implementation of the Bid Protest
Provisions of the Competition in Contracting Act. 8 Op. O.L.C. 236,246 (1984); Memorandum
for Janis A. Sposato, General Counsel, Justice Management Division, from John O. McGinnis,
Deputy Assistant Attorney General, Office of Legal Counsel. (August 5, 1991); Memorandum
for Emily C. Hewitt, General Counsel, General Services Administration from Richard L.
Shiffrin, Deputy Assistant Attorney General, Office of Legal Counsel. (August 11 1 QQ7,>
-------
We look forward to continuing to support OECA's efforts to effectively enforce and
encourage compliance with our environmental laws. Please contact Jim Nelson at 260-5340 or
Tanya Hill at 260-1486 if you have any further questions.
cc. David Hindin (2248A)
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r" SL 1 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
O
WASHINGTON, D.C. 20460
MAY 3 1995
OFFICE OF
GENERALCOUNSEL
MEMORANDUM
SUBJECT: Review of 1995 Revised Policy on Supplemental
Environmental Projects
FROM: James C. Nelson Qffl
Associate General Counsel
Pesticides and Toxic Substances Division (2333R)
TO:
Steven A. Herman
Assistant Administrator
Office of Enforcement'«and Compliance Assurance (2201)
The Office of Enforcement and Compliance Assurance (OECA) is
revising EPA's Supplemental Environmental Projects (SEPs) Policy
which sets forth the conditions for including SEPs in settlements
of environmental enforcement actions. You asked that we review
the final draft of the revised Policy (dated April 24, 1995,
hereafter the "Draft Policy") before it is issued for legal
sufficiency, and that we address the concerns raised by
Representative Dingell and th« General Accounting Office (GAO)
concerning certain Clean Air Act mobile source SEPs.
Examination of relevant statutes and case law shows that EPA
has authority to include SEPs in settlement of civil penalty
actions. The environmental statutes administered by EPA provide
broad authority to enforce, including authority to prosecute
violators, to assess penalties, to mitigate penalties, and to'
enjoin future violations, as well as seek appropriate relief.
Implicit in this enforcement authority is broad discretion to
settle enforcement actions on terms that are consistent with the.,
underlying objectives of the statutes which the Agency is charged
to enforce. EPA can settle a civil penalty action by accepting a
lower penalty than it had originally sought in return for a
defendant's agreement to undertake a SEP. However, such a
settlement must be a reasonable exercise of discretion and not
otherwise contrary to law.
We have carefully reviewed the Draft Policy and, as set
forth fully below, conclude that the Draft Policy establishes
criteria to assure that settlements of civil penalty enforcement
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2
actions which include SEPs comply with applicable law.1
Additionally, we think that the Draft Policy addresses the
criticisms raised by GAO. Thus, it is appropriate to issue the
Policy in the form we have reviewed.
DISCUSSION
I. Introduction
In a July 22, 1992 letter, Representative Dingell, as Chair
of the Subcommittee on Oversight and Investigation, House
Committee on Energy and Commerce, forwarded to former
Administrator Reilly a GAO opinion that called into question
EPA's authority to enter into certain settlement agreements for
Clean Air Act (CAA) mobile source enforcement cases. GAO
specifically challenged EPA's practice of allowing defendants in
mobile source actions to fund public awareness projects in
exchange for EPA accepting a lower penalty than originally sought
by EPA when it brought the penalty action. GAO also concluded
that such practice was inconsistent with the Miscellaneous
Receipts Act, 31 U.S.C. §3302(bV/ and was an improper
augmentation of appropriations.
OECA has been revising EPA's SEP Policy with GAO's concerns
in mind, and we have worked closely with your staff during this
process. The Draft Policy will supersede the 1991 SEP Policy in
effect at the time of the GAO opinion. The Draft Policy sets
forth the types of projects that are permissible as SEPs, the
calculation of an appropriate settlement penalty when considering
a proposed SEP, and the terms and conditions under which SEPs may
become a part of a settlement. As diescribed in the Draft Policy,.
SEPs are environmentally beneficial projects which a violator,
agrees to undertake in settlement of an enforcement action, but
which the violator is not otherwise legally required to perform.
The acceptable categories of projects include: public health,
pollution prevention, pollution reduction, environmental
restoration and protection, assessments and audits, environmental
compliance promotion, and emergency planning and preparedness.
The Draft Policy includes legal guidelines for evaluation of
whether a proposed SEP is within EPA's authority and consistent
with all statutory and Constitutional requirements.
This memorandum discusses EPA's authority to include SEPs in
settlements of civil penalty actions, the limitations on EPA's
authority, and how the Draft Policy helps assure that settlements
which include SEPs comply with law and the Constitution.
1 This memorandum does not address mitigation of stipulated
penalties for violations of a consent decree or other settlement
document.
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II. EPA's broad enforcement authority includes authority to
settle cases and, as part of the settlement, to
consider environmentally beneficial actions agreed to
be taken by a defendant i,n determining an appropriate
settlement penalty.
A. EPA has statutory authority to enforce the federal
environmental statutes; this authority includes
broad discretion to settle enforcement cases and
accept lower penalties in such settlements.
Congress creates statutory obligations and associated
enforcement authorities. Congress has specifically authorized
EPA to enforce the federal environmental statutes and the
regulations promulgated thereunder. Generally, EPA can initiate
judicial civil enforcement actions under a statute it administers
seeking penalties and/or injunctions to be awarded by a court, or
EPA can levy civil penalties administratively and/or compel
compliance through administrative orders. Most of EPA's statutes
also contain provisions for criminal penalties. The discussion
that follows focuses solely on the civil penalty authority.
Typically, administrative civil penalty enforcement
provisions in EPA statutes direct that the Administrator may
impose a civil penalty for violation of the statute, up to a
specified dollar amount either per violation or per day of
violation. For example, the Emergency Planning and Community
Right to Know Act (EPCRA) §325(b)(l), 42 U.S.C. §11045(b)(1), an
administrative civil penalty provision, states: "A civil penalty
of not more than $25,000 per violation may be assessed by the
Administrator in the case of a violation of the requirements of
section 11004 of this title."2 In this context, Congress
delegated to EPA authority to prosecute, to determine the amount
of penalties to seek, up to.the specified maximum, and to impose
the penalties.
2 Examples of other administrative civil penalty provisions
include: EPCRA §§325(b)(1)(A), (2), and (c), 42 U.S.C.
§§11045(b)(l)(A), (2), and (c); Federal Insecticide, Fungicide,
and Rodenticide Act (FIFRA) §14(a)(l), 7 U.S.C. §136l(a)(l);
Toxic Substances Control Act (TSCA) §§l6(a)(l) and 207, 15 u.s.c.
§§2615(a)(l), and 2647; Clean Water Act (CWA) §309(g)(1) and (2),
33 U.S.C. §§1319(g)(1)( and (2); CAA §§113(d), 120(a), 205(c),
and 211(d), 42 U.S.C. 7413(d), 7420(a), 7524(C), and 7545(d);
Resource Conservation and.Recovery Act (RCRA) §£3008(a) and
9006(a), 42 U.S.C. §§6928(a) and 6991e(a); Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA)
§109(a)(1) and b), 42 U.S.C. §9609(a)(l) and (b) , Safe Drinking
Water Act §§1423(c) and 1414(g)(3)(A), 42 U.S.C. §§300h-2(c) and.
300g-3(g)(3)(A), Marine Protection, Research, and Sanctuaries Act
§105(a), 33 U.S.C. §1415(a).
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Judicial civil penalty provisions are similar, for example:
"Any person who violates [certain provisions of the CWA, permit
conditions or limitations, requirements in a pretreatmerit
program. ..] shall be subject to a civil penalty not to
exceed $25,000 per day for each violation." CWA §309(d), 33
U.S.C. §1319(d).3 In the judicial context, EPA has the
authority to prosecute4 and to determine the amount of penalty
to seek; the court imposes the penalty.
EPA's authority to enforce federal environmental statutes
carries with it broad discretion to decide whether to prosecute,
in some cases this discretion is almost unreviewable. Heckler v.
Chanev. 470 U.S. 821, 831 (1985) (an agency's decision not to
prosecute or enforce is a decision generally committed to an
agency's absolute discretion). Implicit in the authority to
enforce is the authority to settle. Courts have presumed that
agencies have broad authority- to settle cases that.the agencies
are empowered to adjudicate. See e.g. Oil. Chemical & Atomic
Workers v. Occupational Safety & Health Review Comm.. 671 F.2d
643, 650 (D.C. Cir. 1982) cert, denied 459 3U.S. 905 (1982)
(necessarily included within an agency's prosecutorial power is
the discretion to withdraw or settle a claim). There is no
3 Examples of other judicial civil penalty provisions
include the CAA §113(b) and §205(b), 42 U.S.C. §7413(b) and
§7524(b); EPCRA §325(a), 42 U.S.C. §11045(a); RCRA §3008(g) and
§7003(b), 42 U.S.C. §6928(g) and §6976(b); CERCLA §J.04 (e) (5) (B) ,
§106, and §109(c), 42 U.S.C. §9604(e)(5)(B), §9606, and §9609(c).
4 Actually, it is the Attorney General that prosecutes
judicial actions on behalf of EPA. The Attorney General has .
plenary power and supervision over any litigation to which the
United States is a party, absent an applicable congressional-
directive to the contrary. United States v. California. 332 U.S.
19, 27 (1947); FTC v. Guianon. 390 F.2d 323,324 (8th Cir. 1968),
relying on 28 U.S.C. §§516 and 519. Included within the broad
authority of the Attorney General to carry on litigation is the
power to compromise. Halbach v. Markham. 106 F. Supp. 475
(D.N.J. 1952), aff'd 207 F.2d 503 (3d Cir. 1953), cert, denied.
347 U.S. 933 (1954). This power is both inherent in the creation
of the Office, e.g. Confiscation Cases. 74 U.S. at 457-459, and
derived from the client agencies' authority to settle cases.
United States v. Newport News Shipbuilding: 571. F.2d 1283, 1287
(4th Cir.), cert, denied 439 U.S. 875 (1978). The Attorneys
General have long recognized that they have authority to settle
cases even when the agency charged with administering the
underlying law would not have that authority. 38 Op. Att'y Gen.
98, 99 (1934). For simplicity, this memorandum.refers throughout
to EPA's authority in judicial actions, but it is implicit that
the reference is collectively to EPA and the Department of
Justice. .
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indication in case law that courts would treat prosecutorial
discretion exercised in administrative enforcement actions
differently from discretion exercised in judicial enforcement
actions.
As illustrated by the penalty provisions quoted above, the
civil penalty provisions in statutes administered by EPA include
the authority to assess penalties up to a specified maximum.
Necessarily included in this authority is the discretion to
assess a penalty for a lesser amount. Courts defer to agency
determinations on penalties. See, e.g. . NL Industries. Inc. v.
Dept. of Transp., 901 F.2d 141 (D.C. Cir 1990) (Administrative
agency is entitled to substantial deference in assessing civil
penalty appropriate for violation of its regulations.); Cox v.
U.S. Dept. of Agriculture. 925. F.2d 1102 (11th Cir. 1991) cert,
denied 112 S. Ct. 178 (1991) (Assessing penalties for violation
of the Animal Welfare Act was an exercise of a discretionary
grant of power by USDA, and review by the court is limited.).
Indeed, courts on occasion suggest that penalty assessments
within the range authorized by^statute are'virtually
unreviewable. See Mendelson v. Macv. 356 F.2d 796, 799 n.4 (D.C.
Cir. 1966).
B. Penalty assessment provisions support EPA's authority
to mitigate penalties based on a defendant's commitment
to undertake a SEP.
In addition to the civil penalty enforcement provisions,
many of EPA's statutes include penalty assessment provisions that
set out criteria that EPA or the court must consider in
determining the appropriate penalty. Section 325(b)(1)(C) of
EPCRA is typical of those penalty provisions:
In determining the amount of any penalty assessed pursuant
to this subsection, thie Administrator shall take into
account the nature, circumstances, extent, and gravity of
the violation or violations and, with respect to the
violator, ability to pay, any prior history of such
violations, the degree of culpability, economic benefit or
savings (if any) resulting from the violation, and such
other matters as justice may require.
42 U.S.C. §11045(b)(l)(C)(Class I administrative penalties).5
5 While the precise language differs, many EPA statutes
contain similar penalty as.sesisment provisions, see, e.g. , EPCRA
§325(b)(2) (Class II penalties for EPCRA 304 violations), TSCA
§16(a)(2)(2)(B), CAA 113(e) (stationary sources), CAA §205(c)
(emission standards for motor vehicles), CAA §211(d) (regulation
of fuels), CWA §309(g), CERCLA §109 (a)(3) and (b), §SDWA 1423(c)
(underground injection), RCRA §9006(c)(underground storage
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These criteria are also appropriate for EPA enforcers to consider
in determining whether and how much to mitigate a penalty in
negotiating a settlement, as the Draft Policy recognizes. The
Draft Policy provides that evidence of an alleged violator's
commitment and ability to perform a SEP is a relevant factor to
consider in establishing an appropriate penalty during
settlement. The statutes clearly support considering such
factors with language such as "other matters as justice may
require" or "good faith" of the defendant.
C. EPA has discretion to fashion settlements that serve
the objectives of the statute- being enforced, and such
settlements may include remedies other than those
specified in the statute.
EPA is charged with enforcing the federal environmental
statutes and.has broad discretion in fashioning a settlement
which it believes is consistent with the purpose and objectives
of the statute under which it is acting. Niagara Mohawk Power
Corp. v. FPC. 379 F.2d 153, 159. (D.C. Cir. .1967) ("the breadth of
agency discretion is, if anythirtg, at zenith when the action
assailed relates primarily ... to the fashioning of policies,
remedies and sanctions, including enforcement and voluntary
compliance programs in'order to arrive at maximum effectuation of
Congressional objective"); Mooa Industries. Inc. v. FTC. 355 U.S.
411, 413 (1958) (Agency, in exercising its enforcement
discretion, can' decide the course "best calculated to achieve the
ends contemplated by Congress and to allocate its available funds
and personnel in such a way as to execute its policy efficiently
and economically.").
In negotiating the terms of settlement of civil penalty
actions, EPA is not limited to civil penalties. Nor is there a
statutory bar that would preclude EPA from including a SEP as a
term of a settlement. Indeed, EPA settlements often contain
terms in addition to penalties, depending on the circumstances of
the case, such as agreements by defendants to cease violating the
law, to remediate contamination resulting from the violation, to
conduct audits and self-report violations, to conduct in-house
educational seminars on compliance, and to analyze manufacturing
processes to determine ways to reduce discharges and pollution.
Case law shows that settlements of enforcement and civil penalty
actions can include remedies different from those specified in
the statute.
While EPA cannot order a defendant to perform a SEP as a
remedy for the violation- when the statute only authorizes civil
penalties for such a violation, EPA can exercise its enforcement
discretion to settle a civil penalty case on terms that include a
tanks), and FIFRA §14(a).
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SEP as well as a penalty. There is no case law directly on
point.6 However, the case law on judicial review of consent
decrees and of agency settlements, discussed below, supports this
conclusion.
Settlement of judicial civil penalty actions
When EPA settles judicial civil penalty actions, EPA enters
the settlement agreement as a consent decree for approval by the
court. The Supreme Court has explicitly held that courts are not
barred from approving, consent decrees which contain relief that
the court lacked authority, under the statute, to award after a
trial. Local No. 93. International Association of Firefighters
v. City of Cleveland. 478 U.S. 501", 525 (.1986). In Firef iqhters.
the statute prohibited a court from ordering relief for
individuals who were, not actual victims of discrimination, but
the consent decree provided race-conscious relief that benefited
individuals who were not actual victims of discrimination. The
Court concluded that, where the parties have consented to the
terms of the decree, the court .may jenter the decree as long as
the decree 1) falls within a court's subject matter jurisdiction,
2) is within the general scope of the complaint, and 3) furthers
the objectives of the law upon which the complaint was based.
Id. at 525.
Similarly, in Sierra Club. Inc. v. Electronic Controls
Design. Inc. fECD). 909 F. 2d 1350 (9th Cir. 1990), the court
noted that it was clear that it could not order a defendant in a
civil penalty citizens suit, under the CWA to make payments to an
organization other than the U.S. Treasury, but held that this
prohibition did not extend to a settlement agreement between the :
parties where the court is not ordering non-consensual monetary
relief. The court stated:
There is no indication that where a defendant agrees to
a settlement it must also agree to pay penalties to the
treasury. Likewise, the Act's legislative history ..
reveals no Congressional intent that private parties be
precluded from entering into settlements which do not
require the defendant to tender civil penalties to the
United States. . . . The payments to the environmental
organizations are not in recognition of liability under
the Clean Water Act and are not civil penalties.
909 F. 2d at 1356.
Settlement of administrative civil penalty actions
6 EPA has routinely settled judicial civil actions with
SEPs in various District Courts, and the courts have not objected
to these provisions.
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Unlike settlements of judicial civil penalty enforcement
actions, settlements of administrative civil penalty enforcement
actions do not require judicial ratification. Accordingly/
courts are not typically asked to rule on the substance of such
settlements. However, courts have ruled on other types of
settlements of administrative actions.
In Center for Auto Safety. Inc. v. Lewis. 685 F. 2d 656
(D.C. Cir. 1982) the court held that the Secretary of
Transportation did not abuse his discretion by settling a
transmission defect investigation on the basis of a remedy other
than the remedy specified in the National Traffic and Motor
Vehicle Safety 'Act. The Act requires recall and replacement of
the defective part by the manufacturer. However, the Secretary,
rather than continue with an enforcement action, settled the case
in return for the manufacturer agreeing to send owners of
automobil.es notice of the alleged transmission defect and a
warning not to leave the automobile with the engine running. The
court rejected the argument that the Secretary lacked authority
to settle a safety defect investigation for'any form of relief
other than the remedies prescribed in the statute. The court's
holding in this regard was primarily based on the fact that there
had been no final determination under the statute that the
vehicles under investigation contained a defect. The Secretary
had the burden of proof and would have to prevail against the
challenge by the manufacturers before the Secretary could require
the remedies specified in the Act-. See also. Center for Auto
Safety v. Ruckelshaus. 747 F. 2d 1 (D.C. Cir. 1984) (while EPA
could not order an automobile pollution offset commitment as a
substitute for the recall remedy specified in the statute, EPA
could "take account of an offset commitment in the exercise of
its enforcement discretion."); State Water Control Bd. v. Train.
559 F. 2d 921, 927 (4th Cir. 1977).
Similarly, in National Coalition Against Misuse of
Pesticides fNCAMPl v. EPA. 867 F. 2d 636 (D.C. Cir. 1989), the
court rejected a challenge that EPA lacked authority to enter
into a settlement whose remedy was different from that provided
by statute. EPA has administrative authority in FIFRA §6(b) to
cancel registrations of pesticides that cause unreasonable
adverse effects on the environment, and to allow continued sale
and use of existing stocks of a cancelled pesticide if EPA finds
that such sale or use will not have an unreasonable adverse
effect. Here, EPA settled and allowed continued sale and use of
the cancelled pesticide without finding that continued sale and
use of the cancelled pesticide would not have an unreasonable
adverse effect on the environment. The court rejected the
challenge because here EPA did not cancel under FIFRA §6(b);
instead, in response to a threat of cancelling under §6(b), the
registrant agreed, to cancel voluntarily in return for being
allowed to continue to sell and distribute the cancelled
pesticide until existing stocks were exhausted. The court found
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it reasonable for EPA to settle on these terms because the
settlement enhanced the purposes of FIFRA by resulting in less
use of the pesticide than if EPA had gone through the lengthy
cancellation proceedings. Thus, the court approved a settlement
with a remedy for existing, stocks that EPA could not have ordered
after going through the cancellation proceedings (unless EPA made
the required statutory finding).
These cases support a conclusion that courts may uphold
agency settlements and approve consent decrees that settle civil
penalty enforcement actions with a SEP as. a term of the
settlement even though the statute upon which the action is based
does not specifically authorize such a remedy.
D. Settlements can go beyond remedying the specific
violation at issue.
Courts have rejected contentions that provisions in a
consent decree must be limited to remedying specific violations
of a statute. In Citizens for*a Better Environment v. Gorsuch.
718 F.2d 1117 (D.C. Cir. 1983), cert, denied 467 U.S. 1219
(1984), the court found that such limitations on a court's
authority are unduly narrow. In Gorsuch. the issue was whether
the court had authority to approve provisions of a consent
agreement which directed EPA to take actions not required to
remedy the specific violations of the CWA. EPA had agreed to
implement a requirement of the CWA concerning toxic pollutant
regulations using more extensive criteria than those imposed by
the CWA, and agreed to undertake a study to identify additional
toxic pollutants not covered by the CWA. The court rejected the
contention that the consent decree be limited to remedying the
specific violation at issue. The court reasoned that to limit a
court's authority to approve consent decrees only to the extent
the decrees remedy wrongs which the court could specifically .
identify would require a court
"...to undertake a close examination of each part of
the Decree in order to establish that it was responsive
to a specific violation of the Act. This would
require, in turn, detailed findings that the Act had
been violated in various ways. However, the long-
standing rule is that a district court has power to
enter a consent decree without first determining that a
statutory violation has occurred." Swift & Co. v.
United States. 276 U.S. 327 (1928).
Gorsuch at 1125. The court considered the agreement appropriate
given that it was consistent with the purposes of the CWA and
fairly resolved the controversy.
If a court will approve a consent decree that contains a
remedy which is not limited to correcting the specific violation
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at issue, then implicitly the court would not consider such
settlement beyond an agency's authority. Although Gorsuch
involved judicial review of a consent decree between EPA and
NRDC, there is no reason that the EPA Environmental Appeals
Board's or EPA Regional Administrator's approval of a consent
order settling an administrative civil penalty case should be
subject to a different standard. Indeed, EPA's rules governing
consent orders in settlement of administrative civil penalty
cases only require that the settlement be consistent with the
provisions and objectives of the statute and applicable
regulations. 40 CFR §20.18(a).
E. Injunctive Counts are not needed for SEPs.
In U.S. v. Roll Coater. 21 Envtl. L. Rep. 21073 (S.D. Ind.
1991), the court rejected a defendant's request for monies to be
¦paid to an environmental entity rather than being paid as a civil
penalty because, among other things, there.was no injunctive
count. The court agreed with Roll Coater that it could fashion
injunctive relief requiring the defendant to pay monies to other
entities, but here there was no"'claim for injunctive relief, so
the court lacked "jurisdiction to grant Roll Coater's request for
an alternative remedy.11 This case, however, is not controlling
for EPA's settlement authority. Roll Coater concerned a court
acting after rendering a decision on liability, and whether the
court had authority to order the defendant to pay money to
environmental entities as a remedy for the defendant's violation
of pretreatment standards under the CWA. The court itself noted
that the law would be different if the case involved review of a
settlement agreement. Id. at 21077.
Indeed, the case law discussed above supports a conclusion
that injunctive counts are not needed. Courts will approve
consent decrees that go beyond the remedies in the statute.
Therefore, it should not make a difference to a court reviewing a
consent decree whether the government is only seeking civil
penalties, or includes an injunctive claim.
F. There is evidence of Congressional acceptance of SEPs
Congress has indicated approval of EPA settlements involving
SEPs. When Congress amended the CWA in 1987 to add a provision
on administrative penalties in §309 that included a penalty
assessment provision similar to that in EPCRA § 325 quoted above,
the Conference Committee stated:
In certain instances settlements of fines and penalties
levied due to NPDES permit and other violations have
been used to fund research, development and other
related projects which further the goals of the Act.
In these cases, the funds collected in connection with
these violations were used to investigate pollutipn
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problems other than those-leading to the violation.
Settlements of this type preserve the punitive nature
of enforcement actions while putting the funds
collected to use on behalf of environmental protection.
Although this practice has been used on a selective
basis, the conferees encourage this procedure where
appropriate.
H. Report 99-1004, 99th Cong. 2d Sess. at 139 (Oct. 15, 1986).
The cited passage is evidence of Congressional acceptance of SEPS
which address pollution problems other than those leading to the
violation.
III. EPA may include SEPs in judicial and administrative
settlements as long as the settlements represent a
reasonable exercise of discretion and are not-otherwise
contrary to law.
Section II above discusses EPA's broad enforcement authority
and prosecutorial discretion, .fhis section1focuses on the
limitations on the exercise of that discretion in settling cases
and including SEPs as a term of a settlement.
A. EPA settlements with SEPs must be a reasonable exercise
of enforcement discretion.'.
Generally, the standard for determining whether an agency
has abused its discretion is one of reasonableness. Hudson
Stations v. EPA. 642 F. 2d. 261 (8th Cir. 1981). If an agency
chooses a course of action that is reasonable in light of the
facts and its statutory mandate, there is no abuse of discretion.
See, e.g.. Citizens to Preserve Overton Park v. Volpe. 401 U.S.
402, 416 (1971); Niagara. supra. The law concerning the
reasonableness of settlement of enforcement actions is limited,
possibly because of the limited scope of review and the deference
granted by courts to agency settlement of enforcement actions.
Settlements approved by a federal agency charged with enforcement
of environmental protection statutes carry a "strong presumption
of validity." Hooker Chemicals and Plastics Corp.. 540 F.Supp.
at 1072. See FTC v. Standard Financial Management Corp.. 830 F.
2d 404, 408 (1st Cir. 1987) (discussing need for judicial
deference "to the agency's determination that the settlement is
appropriate"); NCAMP v. EPA. 867 F. 2d 636.(D.C. Cir. 1989).
The case law concerning judicial approval of consent decrees
in U.S. Government enforcement actions provides guidance on
factors that.can be considered in determining whether a
settlement represents a reasonable exercise of enforcement
discretion. Courts reviewing consent decrees lodged by the U.S.
Government to settle enforcement actions have stated the criteria
for approving a consent decree in a variety of ways, e.g.. a
consent decree must be fair, reasonable, and adequate, and not
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contrary to law. U.S. v. Metropolitan St. Louis Sewer District.
952 F. 2d. 1040 (8th Cir. 1992); the decree must be fair,
adequately protect the public interest, and accord with the
dictates of Congress. U.S. v. Hooker Chemicals and Plastics
Corp.. 540 F. Supp. 1067, 1072 (W.D.NY. 1982); U.S. v. Ketchikan
Pulp Co.. 430 F. Supp. 83, 86. (D. Alaska 1977). The criteria are
not mutually exclusive and are generally considered collectively
by the courts.
Generally, in considering fairness, courts look to the
negotiation process and attempt to gauge its candor, openness,
and bargaining balance. Courts also consider whether the
defendant is bearing the cost of the harm for which It is
responsible. Reasonableness involves considering whether the
decree adequately compensates the public for the harm caused, and
whether the decree reflects the relative strength or weakness of
the government's case. Overriding both fairness and
reasonableness is the question of whether the decree furthers the
goals of the statute upon which the complaint is based. U.S. v.
Cannons Engineering Corp.. 899 "F.2d 79 (1st Cir. 1990). In
determining whether the decree serves public interests, courts
will judge whether the penalties agreed to are adequate to deter
future violations! Ketchikan Pulp. Because the consent decree
is not a judgment on the merits of the case, the court does not
apply the penalty assessment criteria in the statute to-determine
an appropriate penalty. Metropolitan St. Louis Sewer.
In determining that consent decrees are not contrary to law,
courts have considered whether the decree conflicts with the
underlying statute (Firefighters). is beyond the agency's
authority (NCAMP), or violates appropriations law, i.e. the
Miscellaneous Receipts Act (Sierra Club v. ECD). [This latter
issue is discussed at length in Section IV.]
B. Settlements with SEPs that further enforcement goals
and the goals of the underlying statute should be
considered a reasonable exercise of enforcement
discretion.
A central theme of the consent decree cases discussed above
is that the settlement must be consistent with (some cases say
further the goals of) the underlying statute. EPA's authority to
settle derives from the enforcement provisions in its statutes.
Therefore, a settlement that furthers enforcement goals should be
a reasonable exercise of enforcement discretion. The primary
goal of civil penalty provisions is to induce compliance. See.
e.g. National Independent Coal Operators' Assn'» v. Kleppe. 423
U.S. 388, 401 (1976) (purpose of mine safety penalties is to
provide a "strong incentive for compliance with the mandatory
health and safety standards"); Diver, The Assessment and
Mitigation of Civil Money Penalties bv Federal Administrative
Agencies. 79 Col. L. Rev. 1435, 1455-57. So, certainly penalties
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are an important part of settlement.of civil penalty actions.
Also, as courts.have acknowledged, penalty provisions serve'
remedial functions, such as compensation and removal of the
economic benefit of noncompliance (restitution). E.g.. PIRG of
New Jersey v. Powell Duffrvn. 913 F.2d 64, 80; Atlantic States
Legal Foundation v. Tyson Foods. Inc.. 897 F.2d 1128, 1141 (11th
Cir. 1990); Tull v. United States. 481 U.S. 412, 422 (1987)
(purpose of civil penalties is threefold: retribution,
deterrence, and restitution); Diver at 1461-1472. SEPs that
address the violation or harm caused could serve the goals of
deterrence, compensation, or restitution. In determining the
reasonableness of a consent decree, courts do examine whether the
consent decree serves enforcement purposes.7
C. EPA's Draft Policy will help assure that settlements
with SEPs are a reasonable exercise of enforcement
discretion.
The Draft Policy sets out criteria for settlements with SEPs
to help assure that EPA settlements as a whole serve enforcement
goals and meet the standard of review for consent decrees. First
and foremost, the Draft Policy points out that. EPA seeks
substantial monetary penalties in civil penalty actions, and
requires settlements to include a monetary penalty, generally at
the level which captures the economic benefit of noncompliance
plus some appreciable portion of the gravity component of the
penalty. This requirement clearly serves enforcement goals of
7 Courts have approved consent decrees negotiated by EPA
and defendants, to settle judicial civil penalty enforcement
actions, when the settlements included environmentally beneficial
projects in addition to civil penalties. See e.g. U.S. v. city
of Sarasota No. 87-210-CIV-T-15B (D. Fla. .1988); U.S. v. Amoco
Oil Co. No. 80-0801-CV-W-5 (D. Mo. 1984); U.S. v. City of
Englewood. Civ. No. 78-1033 (D. Colo. 1978); U.S. v. Molvcorp
Inc.. Civ. No. 81-0785 M.(D. N.M. 1981); U.S. v. CitV Of Los
Angeles and State of Cal.. Civ. No. CV-773047-HP (C.D. Cal.
1980); and U.S. v. Longoria. Civ. Action No. C-90-205 (S.D. Tx.
1992). In Longoria. the court approved a consent decree with
penalties and a SEP, settling a case alleging violations of §203
of the CAA for tampering with automobile emission control
devices. Specifically, the.defendant agreed to sponsor a public
information compliance program designed to educate persons who
service exhaust systems of motor vehicles in the Corpus Christi,
Texas area. Although the court did not specifically address the
legality of the SEP, the court approved the consent decree and,
therefore, did not consider the settlement beyond the
government's authority or an abuse of enforcement discretion.
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deterrence and helps meet the judicial review standard of
reasonableness.
The Draft Policy also requires that there be a close
relationship or "nexus" between the violation (or harm caused)
and the benefits to be derived from the SEP. The Draft Policy
provides that a SEP can have a nexus to the violation if it
remediates or reduces the probable overall environmental or
public health impacts or risks to which the violation at issue
contributes, or if the project is designed to reduce the
likelihood that similar violations will occur in the future. We
believe the nexus requirement is an important part of the Draft
Policy. The nexus requirement serves as a surrogate for several
legal requirements and ensures that SEPs meet these legal
requirements.- Most importantly, the nexus requirement helps
assure that SEPs further enforcement goals of deterrence and/or
restitution and the goals of the statute being enforced.
Additionally, a project related to remedying the harm caused or
risk posed by the violation is within EPA's enforcement
authority, and should not appear to' be an EPA or federal program
that could give rise to the appropriations issues raised by GAO
and discussed in section IV.
In addition to the nexus requirement, the Draft Policy also
requires that a SEP advance at least one of the declared
objectives of. the environmental statutes that are the basis of
the enforcement action.8 This requirement is consistent with
criteria set out by courts discussed above. Most SEPs under the
Draft Policy should further enforcement goals because of the
nexus requirement. However, even if a SEP did not specifically
address enforcement goals, the requirement that- the SEP advance
at least one of the declared objectives of the underlying statute
that is the basis for the enforcement action, should make a
settlement with penalties and a SEP a reasonable exercise of-
enforcement discretion because the penalties, which are required
to be included in the settlement, will further specific
enforcement goals such as deterrence, while the SEP serves the
underlying statutory goals.
The Draft Policy also lists and describes seven categories
of projects that may qualify as acceptable SEPs, and prohibits ^
projects of the type that have been cited by GAO and Congress as
8' For example, the declaration of purpose of Congress in
enacting the CAA is to "protect and enhance the quality of the
Nation's air resources so as to promote the public health and
welfare and the productive capacity of its population." CAA
§10l(b)(i), 42 USC §7401(b)(l). The CWA provides that a primary
goal of the Act "is to restore and maintain the chemical,
physical, and biological integrity of the Nation's waters." CWA
§101(a) , 33 U.SC §1251(a).
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15
problems in the past. By limiting SEPs to these categories, in
addition to the requirement that SEPs have a nexus to the
violation, the Draft Policy guides the exercise of enforcement
discretion to ensure that settlements with SEPs are reasonable
and within EPA's authority.
Finally, the Draft Policy- provides that SEPs cannot be
something which the defendant is otherwise legally required to
perform, nor can SEPs be something which the defendant could be
required to do. This latter requirement prevents penalties from
being improperly mitigated.
All the requirements in the Draft Policy discussed above
help assure that a SEP is a reasonable exercise of enforcement
discretion.
D. EPA's Draft Policy addresses GAO's concern about EPA's
authority for public awareness SEPs that are.not
related to correction of the violation.
In its 1992 letter, GAO concluded that EPA did:not have
authority to settle mobile source air ..pollution enforcement
actions under §205 of the CAA by allowing violators to fund
certain public awareness projects (CAA opinion). The public
awareness projects at issue included an American Automobile
Association training program to instruct high-school automotive
instructors on the most recent emissions control technology and
sponsorship by the alleged violator of public events to promote
clean air such as marathons, bicycle races, airplane towing
messages, and "Clean Air Days." GAO concluded that EPA's
enforcement authority did not extend to these remedies which were
unrelated to correction of the violation. GAO pointed out that
EPA's 1991 SEP Policy allowed public awareness projects without
requiring any relationship between the project and the violation
at issue.9
The Draft Policy, which will supersede the 1991 SEP Policy,
addresses this concern. As discussed above, the Draft Policy
requires nexus for all SEPs. Additionally, the Draft Policy
specifically prohibits general public awareness SEPs.
GAO also raised appropriations issues concerning the mobile
sources SEPs, which are discussed below.
9 We do not believe GAO's opinion suggests that all SEPs
are inappropriate or beyond EPA's authority. However, to the
extent the opinion could be read in such a manner, we disagree
for the reasons set out in this memorandum.
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16
IV. The Draft Policy addresses GAO's concerns about the
Miscellaneous Receipts Act (MRA) and improper augmentation
of appropriations.
GAO concluded that EPA's practice of settling Notices of
Violations (NOVs) under the CAA by reducing penalties in return
for the defendant funding a public awareness project relating to
mobile source violations, violated the MRA and improperly
augmented Agency appropriations. GAO based this conclusion on
two previous opinions it had issued, In the Matter of: Nuclear
Regulatory Commission7s Authority to Mitigate Civil Penalties
(NRC opinion) (B-238419), 70 Comp. Gen. 17 (1990), and In the
Matter of: Commodity Futures Trading Commission B-210210 (Sept.
1983) (CFTC.opinion). Both matters involved the agencies
proposing to allow violators to donate money to educational
institutions for research in lieu of civil penalties, and in both
instances, GAO thought that the agencies would be improperly
augmenting appropriations by such actions. In the NRC opinion,
GAO concluded that the NRC's proposal to allow violators to
contribute the amount of the penalty to a uhiversity or nonprofit
institution to fund nuclear safety-related research would result
in an unlawful augmentation of appropriations because the Atomic
Energy Act of 1954 authorized the NRC to award contracts to
nonprofit educational 'institutions to conduct nuclear safety-
related research. GAO reasoned that the NRC would be
circumventing the appropriations process by controlling the
amount of funds available for nuclear safety research projects.
GAO viewed EPA's mobile source SEPs as similar to the proposals
by NRC and CFTC.10
As discussed below, we believe that EPA's exercise of its
enforcement discretion to settle cases with a mix of penalties
10 GAO also stated, in a footnote, that had Congress
intended to authorize EPA to fund projects with civil penalties
it could have said so in the statute. To support.this, GAO
points to* the 1990 amendment of the CAA adding to the citizens
suit provision in §304(g) that penalties assessed in citizens
suits shall be deposited in a special fund in the Treasury for
use by EPA to "finance air compliance and enforcement
activities." We do not believe that the penalty fund provision
added to the citizens suit section of the CAA restricts. in any
way EPA's authority to settle civil penalty'cases under the
separate, enforcement provisions of the CAA by accepting a mix of
penalties and a SEP. The penalty fund established in the CAA
citizens suit provision does not preclude EPA from including SEPs
in settlements of EPA enforcement cases, nor does it prevent
citizens from settling their suits with the defendant agreeing to'
perform an environmental project. There is no legislative
history of the 1990 CAA amendment showing any Congressional
intent at odds with this conclusion.
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17
and a SEP does not. violate appropriations law. The Draft Policy
sets forth the circumstances under which settlements may include
SEPs to help assure that SEPs do not violate appropriations law,
and will not allow the types of projects that GAO found offensive
in the NRC, CFTC. and CAA opinions.
A. EPA's exercise of its discretion to settle cases
and consider a defendant's agreement to undertake
a SEP in determining an appropriate penalty, should
not violate the MRA.
1. The only money received for the use of the Federal
government is the monetary penalty designated in the
settlement as a penalty.and that penalty must be
deposited in the Treasury when it is collected.
The Constitution places the power of the purse in Congress:
"No Money shall be drawn from the Treasury, but in Consequence of.
Appropriations made by Law. . ." U.S. Const, art. I, §9, cl.7.
Congress' appropriation authority goes not ^ust to the amount,
but also to specifying how appropriated money will be spent. In
specifying how the money will be spent, Congress defines the
limits of the Federal government. The MRA serves to implement
Congress' appropriation authority by providing that "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). Pursuant to the MRA, all funds received for use
of the government are public funds subject to. congressional
control. All such funds must be deposited in the Treasury. Once,
money is deposited into the general fund of the Treasury, it
takes an appropriation to get it back out. 3 Comp. Gen. 296
(1923); 13 Comp. Dec. 700, 703 (1907). The effect of the
Appropriations Clause and the MRA is to assure that the Executive
branch remains dependent on the congressional appropriations
process (except where Congress has enacted exceptions to the
requirement: that all money received by the government must be
deposited in the Treasury).
Clearly, under the MRA, any money received by EPA must be
deposited in the Treasury (unless otherwise provided by statute).,.
However, in settlement of civil penalty cases for a combination
of civil penalties and a SEP funded by a defendant, the only
"money received for the government" is the monetary penalty
designated as a civil penalty in the settlement* EPA has no
authority to require that a defendant pay money to the government
unless and until EPA has prevailed in the enforcement action. In
administrative enforcement actions, EPA generally demands a
specific penalty amount in the Complaint. But this penalty
demand is only a prayer for relief, and no specific penalty
amount is due until the Complaint is resolved, either through a
settlement or through a final order which is not timely appealed.
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In judicial cases, EPA generally pleads in the Complaint for an
appropriate penalty amount up to the statutory maximum. Thus, no
specific penalty amount in a judicial case is due until a
settlement is entered, or until a court issues an order which is
not timely appealed.
In mitigating penalties as part of a settlement from those
originally sought by EPA in ah enforcement case, EPA is not
giving up collection of funds which are clearly due to the
government, but rather EPA has decided to settle on terms which,
in consideration of relevant factors (e.g., acts of the
defendant, litigation risks, agency resources) it has determined
achieve the goals of the statute.11 In exchange for the savings
of additional cost and risk to the litigants, the parties.each
give up something they might have won had they proceeded with the
litigation. This is a classic exercise of prosecutorial
discretion and settlement authority. Settlement is encouraged,
particularly where the settlement "will contribute significantly
toward ultimate achievement of statutory terms." . Hooker
Chemicals and Plastics Corp. (citing cases).; Patterson v.
Newspaper & Mail Deliverers Unitan of New York. 514 F.2d 767 (2d
Cir. 1975), cert, denied. 439 U.S. 911 (1976).
The MRA was not intended to limit an agency's lawful
exercise of its authority to settle cases and mitigate.penalties
as part of a settlement from those originally sought by the
agency. See e.g. 17 Op. Att'y Gen. 592 (1883) (Enactment of the
MRA did not "touch the powers of the Secretary as regards the
superintendence [sic] of suits, or the mitigation of
penalties."). The MRA was enacted to curb unlimited discretion
of tax collectors to withhold payments from the Treasury for a
period of time for their own use before turning it over the
Treasury. U.S. v. Forsvthe. Fed. Cas.'No. 15,133 (1855). Thus,
the MRA is intended to prohibit agencies that receive money from
using that money for their own purposes rather than depositing.it
in the Treasury. EPA's exercise of its enforcement authority to
settle cases by mitigating penalties from those EPA originally
sought in its Complaint in exchange for a defendant's agreement
to perform a SEP does not result in EPA receiving money
equivalent to the value of the SEP within the meaning of the
MRA.12
11 See Sierra Club v. ECD. supra. (payments made in the
context of settlements were not penalties, but merely payments,
and as such were not required to be deposited in the U.S.
Treasury).
1 12 See Donald W. Stever^ "Environmental Penalties and
Environmental TrustsConstraints on New Sources of Funding for
Environmental Preservation," in 17 Environmental Law Reporter
10356 (Sept. 1987), for a discussion of the MRA and civil
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SEPs, as structured by the Draft Policy, are not an
alternative to.penalty payment. Once a civil penalty is reduced
to a sum certain and is due to be paid under a settlement
agreement in accordance with the Draft Policy, the penalty must
be deposited in the Treasury when the Agency has collected it.
Similarly, after a civil penalty action has been adjudicated,
either by a court or an Administrative Law Judge and a penalty
has been assessed in an order, the penalty must be deposited in
the Treasury when the Agency has collected it. Of course, if the
defendant were to appeal the finding of liability or the amount
of the penalty assessed,, or if a defendant disputed that a
penalty is actually due, the same discretion and considerations
in deciding whether to settle the original action for mitigated
penalties in return for a SEP would be operable on appeal. The
parties could decide to settle after an appeal is filed, the same
as they would do at the time of the original adjudication, to
save themselves the time, expense, and risk of further
litigation. In a-settlement at either stage, the defendant is
only agreeing to perform a SEP in the context of the settlement
whose terms represent a weighing of the time, expense, and risks
of litigation to both parties,
2. The Draft Policy sets out criteria for SEPs to help
assure that fePA does not constructively receive the
money a defendant spends in carrying out a SEP.
There are no judicial opinions of which we are aware that
address how the MRA applies to the government's settlement of
administrative or judicial enforcement actions seeking civil
penalties from a violator where those settlements result in the
defendant paying less as a penalty than the government originally
sought in its Complaint and undertaking other actions as part.of
the settlement such as a SEP.
However, a 1980 legal opinion by the Department of Justice
rendered in the context of a proposed settlement of a case
involving a claim for civil damages filed by the government,
found that the MRA applies to money "constructively" as well as
actually received. In Re Steuart Transportation Company. U.S.
Department of Justice, 4 Office of Legal Counsel Opinion (OLC)
684 (1980). That is, if a federal agency could have accepted
possession and retains discretion to direct use of the money, it
has constructive receipt of the money, and( the money must go to
the Treasury ("cash touching the palms of a federal official" is
irrelevant). Id.
In Steuart. the United States and the State of Virginia sued
Steuart seeking, among other remedies, damages for the death of
migratory waterfowl. A term of the settlement specified that the
penalties.
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20
U.S. and the State would share an entitlement to the damages and
that the defendant would donate this money to an environmental
organization to be designated by the U.S. and the State. Thus,
the proposed settlement would have designated the money to be
donated as "damages" and would have allowed the U.S. to retain
discretion to direct the use of those funds after entry of the
settlement. For these reasons, OLC concluded that the U.S.
constructively received the funds because the U.S. "could have
accepted possession and retains discretion to direct the use of
the money". Id. The concept of constructive receipt relied upon
by OLC is derived from tax law. According to tax law,
constructive receipt occurs when the taxpayer has unfettered
control or command of the money. "Though not reduced to
possession, it must be available to the taxpayer without
restriction or limitation." Bennett v. United States. 293 F. 2d
323, 326 (9th Cir. 1961); Pittsburgh-Des Moines Steel Co. v.
United States. 360 F. Supp. 597, 600-601 (W.D. Pa. 1971) ..
The circumstances of the proposed, settlement described in
Steuart are different from those presented by EPA's settlements
of civil penalty actions using SEPs, and thus'it does not appear
that the reasoning used by OLC in Steuart applies to the
situation involved in EPA civil penalty settlements and the use
of SEPs in such settlements under the Draft Policy.
First, Steuart involved a claim by the U.S. of entitlement
to damages based on an injury to the public. As set forth in the
Draft Policy, SEPs do not mitigate claims for damages or for
injunctive relief. They are used only in settlement of civil
penalty actions.
Second, the proposed Steuart settlement apparently would,
have acknowledged that.the U.S. was entitled to be paid damages
(to be shared with the State o'f Virginia) and would have
explicitly provided that those damages would be paid to a third-
party waterfowl preservation organization rather than sent to the
Treasury. Under the Draft Policy, EPA's entitlement to the
amount designated as a "civil penalty" in the settlement will be
clearly established. The SEP will be designated separately as a
condition of the settlement and is not a "civil penalty" to which
EPA would have any claim.13 Thus, EPA settlements involving
civil penalties and SEPs do not establish that EPA is in 'any way
"entitled" to the money that will be spent* by the defendant to
carry out the SEP.
Third, under the proposed Steuart settlement, the U.S. would
have retained the authority, after the settlement was entered, to
designate the waterfowl preservation organization to whom the
defendant would be required'to pay the money. Under the Draft
13 See discussion in Section IV.A.l., supra.
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21
Policy, EPA does not retain any authority, after the settlement
is entered, to manage or administer how money is spent on. a
SEP.14
However, even if we were to assume that the reasoning in the
Steuart opinion were to apply somehow to settlement of civil
penalty cases which include a SEP, EPA settlements of civil
penalty actions under the Draft Policy will be different from the
situation in Steuart and, thus, will avoid the problem of
constructive receipt that would have occurred in the proposed
settlement in Steuart. Under the Draft Policy, any money
involved in carrying out a SEP will clearly not be a civil
penalty for these purposes; EPA will clearly not be entitled to
obtain that money; and EPA will not retaih discretion to decide
how the SEP funds will be spent. Rather, the Draft Policy
requires that the terms and conditions of the SEP to be carried
out will be specifically set out in the settlement document.
Additionally, the Draft Policy guards against. EPA control or
command of a SEP by prohibiting EPA or any other federal agency
from playing any role in managing or controlling funds that may
be set aside or escrowed.for performance of a SEP.
The Draft Policy allows settlements to contain conditions
requiring the defendant to submit progress reports on the project
and specifying that the defendant pay stipulated penalties for
violation of the settlement agreement if it fails to carry out
the SEP. These conditions are appropriate and would hot cross
the line described in Steuart. They do not amount to EPA control
over the project or the funds spent on the SEP, but are merely to
assure the defendant's compliance with the underlying settlement
agreement.
B. The Draft Policy addresses GAO appropriations.concerns.
GAO's "rule" against augmentation of appropriations is based
mostly on the MRA,15 but also rests on Congress' appropriations
14 EPA oversight to ensure that the terms of the settlement
agreement, including the SEP are properly carried out would not
be the sort of management or administration that was at issue in*.
Steuart.
15 According to the Comptroller General, the rule against
augmentation of appropriations is derived from three different
statutes: 31 U.S.C. §3302(b) (the MRA); 31 U.S.C. §1301(»)
(restricting use of appropriated funds to their intended
purposes); and 18 U.S.C. §209 (prohibiting payment of,
contribution to, or supplementation of the salary of a government
officer or employee as compensation for his or- her official
duties from any source other than the government of- the United
States).
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22
authority. Generally stated, GAO's position is that an agency
cannot resort to other sources of funds to supplement its
appropriations. This is a corollary to the separation of powers
doctrine in that it assures that federal agencies do not engage
in activities beyond those authorized by appropriations.
In its opinions, GAO concluded that NRC's proposal to allow
alleged violators to contribute to universities for nuclear
safety research in lieu of paying part or all of a penalty,
CFTC's proposal to allow alleged violators to donate to
educational institutions for research and information programs on
futures trading in lieu of paying a penalty, and EPA's mitigation
of CAA civil penalties in return for alleged violators, among
other things, sponsoring public events to promote clean air, all
improperly augmented appropriations. Each situation involved an
alleged vio-lator funding a third party for research, to conduct a
training program, or to carry out a public event. The Draft
Policy does not allow projects that involve a defendant paying
money to a third party. These types af SEPs are more likely to
draw scrutiny from GAO and CongVess, who may question whether the
money donated was really public funds that should have gone to
the Treasury. Even though the settlement agreement may.specify a
use for the funds that has a nexus to the violation, the
appropriations issue s'till arises. For this reason and the fact
that the limitation addresses GAO augmentation concerns, we think
this limitation on SEPs is appropriate.
In the NRC and CFTC opinions, GAO also perceived that the
projects were being used by these agencies to supplement the
agencies' effort in carrying out their own statutory
responsibilities, thus GAO viewed this action as the agencies
devising a way to add to their appropriations. GAO did not
assert that the CAA mobile source public awareness SEPs were
activities that EPA was responsible for doing and for which EPA
had received appropriations. Certainly, a SEP that'undertakes
something EPA is mandated to do by its statutes could be viewed
as improperly augmenting EPA's appropriations. Generally,
actions undertaken by the U.S. Government or on behalf of the
U.S. Government by its agents (such as its contractors) must be
authorized by Congress and paid through appropriations. EPA does
have responsibilities to educate the regulated community.on what>.
is required to comply with the laws implemented by EPA. To
assure that SEPs do not cross over into areas where EPA has
responsibilities, the Draft Policy prohibits general public
awareness SEPs. It also directs that the SEP 1) cannot be
something which EPA itself is required by its statutes to do, 2)
must not provide EPA with additional resources to perform an
activity for which Congress has specifically appropriated funds,
and 3) should not appear to be an expansion, of an existing EPA
program. Additionally, the Draft Policy requires that the
project have a nexus.to the violation. As long as the SEP is
addressing the violation or harm caused, EPA is acting within its
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23
enforcement authority and the settlement is an exercise of
enforcement discretion, not an activity beyond EPA's authority
which raises the specter of augmentation. For the foregoing
reasons, we believe that the Draft Policy addresses GAO's
augmentation concerns.
CONCLUSION
We have carefully considered the Draft Policy and conclude
that it complies with applicable law. EPA has broad enforcement
authority under the federal environmental statutes it implements.
This authority includes broad discretion to settle cases and
mitigate penalties in the context of a settlement from those
originally sought by EPA. In fashioning settlements of civil
penalty cases, EPA can include remedies in addition to civil
penalties, and such remedies can go beyond addressing the
specific violation at issue, provided such settlements are within
the general scope of the Complaint and consistent with the
objectives of the statute upon which the action is based.
The limitations on EPA's exercise of its enforcement
discretion are that settlements with SEPs must be a reasonable
exercise of enforcement discretion and cannot be otherwise
contrary to law. As discussed in this memorandum,, we believe
that the Draft Policy sets out criteria which serve to keep SEPs
within EPA's enforcement authority and to prevent SEPs from
violating appropriations law. Additionally, the Draft Policy
addresses the criticisms raised by GAO in its CAA opinion.
Gaylene Vasaturo of my staff worked closely with your staff
in developing and analyzing the Draft Policy and is largely
responsible for substance of this memorandum. Gaylene is
currently on a detail to the Office of Regional Counsel in Region
V. If you have any questions about this memorandum, please ¦
contact me at 703-235-5300..
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"ft
M!
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 2 2 2002
MEMORANDUM
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
SUBJECT: Supplemental Environmental Projects (SEP) Policy
FROM: Sylvia K. Lowranc
Acting Assistant A
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 in 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 principles 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
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 the
relationship between the violation and the proposed project. This relationship exists only
by law.
if:
Internet Address (URL) http://www.ep6Lgov
Recycled/Recyclable Printed with Vegetable OH Based Inks on Recycled Paper (Minimum 30% Postconsumer)
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a) the project is designed to reduce the likelihood that similar violations will occur
in the future; o p.
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
contact me or MED's Director, David Nielsen at (202) 564-4022, or have your staff contact Beth
Cavalier 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, Acting
Director, Site Remediation and Enforcement Staff, Federal Facilities Enforcement Office (FFEO)
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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
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.y*"%
(9
*
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 2 2 2DQ2
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Clarification of Interaction Between 1995 Clean Water Act Interim Settlement
Policy and the 1998 Supplemental Environmental Project Policy
This memorandum clarifies the interaction between the May 1995 Interim Clean Water
Act (CWA) Settlement Penalty Policy (CWA Policy) in regards to settlements with
municipalities that include supplemental environmental projects (SEPs), and the May 1998
Supplemental Environmental Project Policy (SEP Policy). This memorandum will clarify that
for purposes of settling CWA cases with municipalities, or other public entities (such as a sewer
authority), Regional and Headquarters CWA enforcement staff should follow the CWA Policy
when considering the appropriate balance between the cash penalty and SEPs.
The CWA Policy states on page 17, that for municipal cases, "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." Therefore, a
minimum of 60% of the gravity component should be collected in cash. This differs from the
SEP Policy, which provides for collection of a cash component of 10% of gravity plus economic
benefit, or 25% of gravity, whichever is larger. (See SEP Policy, page 12).
The rationale behind this limitation is that the municipality penalty chart on page 17 of
the CWA Settlement Policy already provides substantial penalty mitigation for municipalities.
TO:
Regional Counsel, Regions I-X
Water Division Directors, Regions I-X
Enforcement Division Directors, Region I-X
FROM: Mark Pollins, Director
Water Enforcement Divis
Office of Regulatory Enfc
David A. Nielsen, Direct
Multimedia Enforcement
Office of Regulatory Enforcement
Internet Address (URL) http://www.epa.gov
Recycled/Recyclable Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)
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2
As a result, additional mitigation for SEPs should be limited. However we recognize that there
may be specific circumstances that would necessitate deviating from the 60% cash minimum
when a particular municipality or public entity agrees to conduct a SEP as part of a CWA
settlement. In such situations, Regional CWA enforcement staff should contact the Water
Enforcement Division for consultation and approval.
Should you have any questions regarding this matter, please contact Mark Pollins,
Director, Water Enforcement Division at (202) 564-4001.
cc:
Enforcement Coordinators Regions I-X
SEP Regional and HQ Coordinators
W. Smith, DOJ
K. Dworkin, DOJ
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To: Amelia Katzen/Rl/USEPA/US@EPA, Rudolph
Perez/R2/USEPA/US@EPA, Catherine
King/R3/USEPA/US@EPA, William
Bush/R4/USEPA/US@EPA, Kathleen
Schnieders/R5/USEPA/US@EPA, Efren
Ordonez/R6/USEPA/US@EPA, Becky
Dolph/CNSL/R7/USEPA/US@EPA, James
Stearns/ENF/R8/USEPA/US@EPA, Allan
Zabel/R9/USEPA/US@EPA, Juliane
Matthews/R10/USEPA/US@EPA
cc: Ken Moraff/Rl/USEPA/US@EPA, Barbara
McGarry/R2/USEPA/US@EPA, Samantha
Fairchild/R3/USEPA/US@EPA, Sherri
Fields/R4/USEPA/US@EPA, Bruce
Miller/R4/USEPA/US@EPA, Tinka
Hyde/R5/USEPA/US@EPA, Walter
Biggins/R6/USEPA/US@EPA, Cecilia
Tapia/RGAD/R7/USEPA/US@EPA, Eddie
Sierra/ENF/R8/USEPA/US@EPA, Jim
Grove/R9/USEPA/US@EPA, Sally
Seymour/R9/USEPA/US@EPA, Lauris
Davies/Rl0/USEPA/US@EPA, Rosemarie
Kelley/DC/USEPA/US@EPA, Susan
OKeefe/DC/USEPA/US@EPA, Beth
Cavalier/DC/USEPA/US@EPA, Jeffrey
Clay/DC/USEPA/US@EPA, Charlie
Garlow/DC/USEPA/US@EPA, Kate
Anderson/DC/USEPA/US@EPA, Joan
Olmstead/DC/USEPA/US@EPA, Kathy
Clark/DC/USEPA/US@EPA
Subject: SEP resources/ideas
Hello everyone... hope you are all doing well....recently, a number of regions expressed
interest in doing renewable energy and energy efficiency Supplemental Environmental
Projects (SEPs) in settlements. Below are some examples of recent projects, as well as a
list of resources, based on discussions we've had with some Regions and the Department
of Energy.
Example #1 - The Federal Bureau of Prisons, Federal Correctional Institution and the
Federal Medical Center are implementing SEPs as part of a settlement for Clean Air Act
New Source Performance Standards and State Implementation Plan violations. The SEPs
involved the installation of a compressed natural gas (CNG) pumping station and
replacement of thirty-five gasoline-powered vehicles with thirty-five CNG-powered
vehicles. This will serve as a pilot for other Bureau of Prisons Institutions to encourage
the use of CNG fueled vehicles.
Example #2 - As part of its settlement with EPA for violations of the New Source
Performance Standards and New Source Review provisions of the Clean Air Act which
caused excess emissions of NOx and SOx, Nucor agreed to provide funding for additional
wind turbines for the Utah Blue Sky program. This will allow the program to provide
electricity generated by wind power, thereby reducing emissions of NOx and SOx from
traditional power plants.
Melissa Raack
06/06/02 04:00 PM
AtftfcA* tit**A
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As always, it is important to ensure that any proposed project meets all of the criteria
discussed in the SEP Policy (May 1, 1998), including nexus requirements. It is not
enough that the SEP would be beneficial to an area near the source of the violations.
The Department of Energy has provided contacts from their Office of Energy Efficiency
and Renewable Energy and the National Renewable Energy Laboratory who are available
to assist regional staff in evaluating the cost and technology requirements of proposed
energy efficiency and renewable energy SEPs.
Department of Energy Contacts:
Jerry Kotas
Judy Lubow
John Atcheson
Roya Stanley
Karin Sinclair
NREL
303-275-47 14
DOE
303-275-4757
DOE
202-586-2369
NREL
303-275-3057
NREL
303-384-6946
(gerald_kotas@nrel .gov)_
(judy.lubow@ee.doe.gov)
(john.atcheson@ee.dne.gov)
(roya_stan ley @nrel. gov)
(karin_sinclair@nrel.gov)
Thanks everyone., if you have any questions, please feel free to contact me or Beth if you need
assistance evaluating any proposed SEPs, including energy efficiency and renewable energy
SEP projects.
Melissa
Melissa K. Raack
U.S. EPA
Office of Regulatory Enforcement
(202) 564-7039
202-564-0010 (fax)
raack.melissa@epa.gov
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EPA SEP Coordinators - June, 2002
Name
Region
Phone
Melissa Raack
Beth Cavalier
HQ (MED)
HQ (MED)
202-564-7039
202-564-3271
Amelia Katzen
I (Boston)
617-918-1869
Rudy Perez
II (New York)
212-637-3220
Catherine King
III (Philadelphia)
215-814-2657
William Bush
IV (Atlanta)
404-562-9538
Kathleen Schnieders
Mark Geall
V (Chicago)
V
312-353-8912
312-353-9538
Efren Ordonez
VI (Dallas)
214-665-2181
Becky Dolph
VII (Kansas City)
913-551-7281
James Stearns
VIII (Denver)
303-312-6912
Allan Zabel
IX (San Francisco)
415-744-1329
Juliane Matthews
X (Seattle)
206-553-1169
HQ Division SEP Contacts:
Angela Fitzgerald
Elyse Dibiagio-Wood
Kathy Clark
AED
WED
TPED
202-564-1018
202-564-8187
202-564-4164
Mike Northridge
Melanie Garvey
OSRE
FFEO
202-564-4263
202-564-2579
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