UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
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Date Signed: May 25, 1994
MEMORANDUM
SUBJECT: New Public Water System Supervision Program Settlement Penalty Policy
FROM: James R. Elder, Director
Office of Ground Water and Drinking Water
TO: Regional Water Management Division Directors
Regional Counsels
Attached is the Agency's new penalty policy to be used in establishing appropriate
settlement penalties in the Public Water System Supervision Program. We wish to thank you
and your staff for their comments on the May 1993 and earlier drafts of this policy. Those
comments have been carefully considered and incorporated in the final policy.
This policy applies to all civil judicial actions and to all administrative complaints for
penalties files or issued against public water systems after the effective date of this policy. In
addition, this policy applies to all pending civil judicial actions in which the government has not
yet transmitted to the defendant an oral or written proposed settlement penalty figure which has
been approved by Agency Headquarters.
The effective date of this policy is May 25, 1994. This policy implements the Agency's
Policy on Civil Penalties (#GM-21) and A Framework for Statute Specific Approaches to
Penalty Assessments (#GM-22).
This penalty policy is intended to promote a more consistent, Agency-wide approach to
calculation of settlement penalties in the Public Water System Supervision program. We believe
that this penalty policy, when effectively applied, will promote the goals of improving recovery
of the economic benefit of noncompliance, providing substantial deterrence for noncompliance,
and providing fair and equitable treatment of the regulated community.
In the coming weeks, we will ensure that sample calculations are sent to you to provide
guidance in performing calculations in accordance with this policy. We will also determine
whether there is a need to conduct training workshops to provide further guidance on the
application of this policy. In the interim, questions on the application of this policy may be
directed to Andy Hudock at 202-501-6032 or David Hindin at 501-6004.
Attachment
cc: (w/attachment)
ORC Water Branch Chiefs
Regional PWSS Branch Chiefs
John Cruden, DOJ
Joel Gross, DOJ
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U.S. Environmental Protection Agency
Public Water System Supervision Program Settlement Penalty Policy
for Civil Judicial Actions and Administrative Complaints for Penalties
Effective May 25,1994
I. INTRODUCTION
This document sets forth the policy of the U.S. Environmental Protection Agency for
establishing appropriate settlement penalties in civil judicial actions and in administrative
complaints for penalties in the Public Water System Supervision (PWSS) Program. This policy
applies to all civil judicial actions and to all administrative complaints for penalties initiated after
the effective date of this policy, and to all pending civil judicial actions in which the government
has not yet transmitted to the defendant an oral or written proposed settlement penalty figure
which has been approved by Agency Headquarters. This policy provides, based on the
circumstances of the case, the lowest penalty figure which the Federal Government is generally
willing to accept in settlement; however, there may be circumstances so egregious that the
Federal Government should instead seek the statutory maximum and should not even consider
acceptance of a lower figure. This policy implements the Agency's Policy on Civil Penalties
(#GM-21) and A Framework for Statute Specific Approaches to Penalty Assessments (#GM-22).
An appropriate penalty is one that accomplishes three objectives. First, it should deter
violations of the law by placing the violator in a worse position financially than those in the
regulated community who have complied in a timely fashion. Second, there must be fair and
equitable treatment of the regulated community. Therefore., the penalty should be consistent
with the Agency's penalty policy and promote a consistent and logical approach to the
assessment of civil penalties, while allowing for factors unique to the PWSS Program. Third, the
penalty should result in expeditious resolution of the identified problem(s). Such resolution can
be achieved through an incentive, such as mitigating the penalty for supplemental environmental
projects, or a disincentive, such as increasing the penalty figure for recalcitrance or for degree of
willfulness if settlement negotiations are drawn out.
Penalty figures are calculated using several components which are based on the three
objectives set forth above. The quantitative application of each of these components is described
in detail in Section III of this policy.
II. STATUTORY BASIS
The Safe Drinking Water Act (SDWA) requires the Agency to protect public water
supplies (PWSs). Part B of the SDWA requires EPA to promulgate National Primary Drinking
Water Regulations (NPDWRs). Part D provides the Agency with the authority to deal with
"emergencies" and Part E (among other things) provides the Agency with the authority to order
monitoring and reporting for contaminants and conduct inspections. To promote effective
enforcement of the NPDWRs, several sections of the SDWA grant civil penalty authority to the
Agency. These sections are as follows:
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PARTB:
(a) Section 1414(b): The court may, taking into account the seriousness of the
violation, the population at risk, and other appropriate factors, impose on the
violator a civil penalty not to exceed $25,000 for each day in which such violation
occurs.
(b) Section 1414(g)(3): Violation of an administrative order can result in a $5,000
maximum penalty assessed administratively; up to $25,000 per day of violation
may be obtained in a civil action to enforce the order.
PARTD:
(c) Section 1431(b): The statutory maximum is $5,000 per day in a civil action for
violation of an emergency order.
(d) Section 1432(c): Tampering with a PWS carries a maximum civil penalty of
$50,000; a maximum civil penalty of $20,000 can be imposed for an attempt or
threat to tamper with a public water supply,
PARTE:
(e) Section 1445(c): The statutory maximum penalty is $25,000 in a civil judicial
action for failing or refusing to keep appropriate records, make reports or conduct
monitoring, or allow the Agency or the Comptroller General (or his or her
representatives) to conduct any audits or inspections to assist in the development
of regulations.
III. PENALTY CALCULATION
Development of a settlement penalty amount under this policy is a two-step process.
First, the calculation includes computation of an economic benefit component and a gravity
component, which incorporates the concepts of seriousness of the violation and population at
risk. Then, this figure is adjusted using other components, such as degree of willfulness and/or
negligence, history of noncompliance, litigation considerations, and ability to pay.
The result of these adjustments, within the constraints of the policy, is the lowest penalty
figure which the Federal government is generally willing to accept in settlement, or in other
words, the "bottom-line" penalty amount. In accordance with the Agency's Policy on Civil
Penalties (#GM-21), this represents the penalty figure that is the minimum acceptable settlement
in civil judicial actions and administrative penalty actions. As new or better information is
obtained in the course of litigation or settlement negotiations, or if protracted litigation or
settlement negotiations unduly extend the expected duration of the violation, this "bottom-line"
penalty amount shall be adjusted further, either upward or downward, consistent with the various
policy factors, and subject to concurrence by Headquarters.
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The overall equation for the settlement penalty calculation under this policy is generally:
Penalty = economic benefit + (gravity x degree of negligence/willfulness x history of
noncompliance) - litigation considerations = ability to pay.
Attachment I contains a worksheet to be used to calculate the settlement penalty.
As a general goal, the Agency should always seek a penalty that, at a minimum, recovers
the economic benefit of noncompliance, plus some amount reflective of the gravity or
seriousness of the violation. Legitimate litigation considerations or ability-to-pay
considerations, however, may preclude that goal in some specific instances. However,
regardless of calculations, as a matter of policy, in no instances shall the "bottom-line"
settlement penalty be less than $1,000 in administrative cases and $5,000 in civil judicial cases.
If the calculated "bottom-line" settlement penalty amount exceeds the maximum penalty
that can be obtained administratively, the Agency shall instead proceed judicially. In rare
circumstances, the calculated "bottom-line" settlement penalty in civil judicial cases may exceed
the statutory maximum; in such circumstances, the statutory maximum penalty will serve as the
new "bottom-line" penalty.
A. Economic Benefit
PWSs that violate the SDWA are likely to have obtained an economic benefit or savings
as a result of expenditures that were delayed or completely avoided during the period of
noncompliance. In calculating economic benefit in a PWSS Program case, one must consider
the amount of money saved by avoiding or delaying expenditures such as, but not limited to:
• Sampling and analysis (including laboratory, fees, cost of mailing samples, and
the cost of the operator's time to take the samples);
• Capital equipment improvements or repairs, including engineering design,
purchase, installation, and replacement;
• Public notifications, including printing and mailing;
Operation and maintenance expenses and other annual expenses;
One-time acquisitions (such as land purchase); and
Development and implementation of a source water protection program.
The Agency's standard method for calculating the economic benefit of delayed and
avoided pollution control expenditures is through the use of the Agency's BEN model. Please
refer to the "BEN User's Manual (Office of Enforcement, December 1993, or any subsequent
revision) for specific information on the operation of BEN. In some circumstances, it may be
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necessary to perform a series of BEN runs in order to better account for different types of
violations involving different avoided costs occurring over different periods of noncompliance.
The standard BEN model may not be appropriate in situations in which the violator is a
privately-owned regulated utility. The Agency is exploring the possibility of developing a.
separate benefit model to estimate the savings that a regulated utility may have obtained by
delaying compliance expenditures. In the interim, a privately-owned regulated utility's economic
benefit may be computed through a profit analysis specific to the particular utility. A profit
analysis can be performed by financial consultants available to the Agency.
B. Gravity Component
The gravity component includes two factors which are quantified and then multiplied
together for each type of violation: 1) a factor related to the seriousness of the violation, in terms
of actual or potential harm to human health; and 2) a factor related to population exposure,
which reflects the extent of time that the service population was subjected to actual or potential
risk due to noncompliance. The gravity component must be at least $1,000 for all PWSS, in
order for the penalty to have some deterrence value in addition to just recapturing economic
benefit.1
The gravity factor related to the seriousness of the violation is selected separately for
each type of violation. In Attachment 2, violations by type are listed in priority order (from
highest, with a corresponding factor of 2.5, to lowest, with a corresponding factor of 1. 1) based
on actual or potential impact on human health. The current significant noncompliance (SNC)
definition is incorporated into these types. If the maximum contaminant level (MCL) and the
SNC level are the same numerical values for a particular contaminant, the gravity factor chosen
shall correspond to the higher violation level, based on Attachment 2.
These gravity seriousness factors represent only the minimum factors that should be
used; the Agency may choose to use higher factors in some circumstances. For example, if the
violator has monitoring or reporting (M/R) violations and has a past history of MCL violations
for those same contaminants, those M/R violations are considered as if they were MCL
1 EPA should be particularly firm in calculating the gravity component for violations of
orders issued under, or civil cases filed under §1431 of the SDWA (e.g., the emergency
provisions). Because §1431 actions address "imminent and substantial endangerment" to human
health, EPA should respond swiftly and severely. In civil judicial cases where the water system
owner/operator violated a §1431 order, the gravity shall reflect the seriousness of the violation.
The maximum statutory penalty is $5,000 in a civil judicial action for violation of the emergency
order itself. If, however, the §1431 order was issued in response to violations of the NPDWRS,
and if the Region determines that a higher penalty is more appropriate, then the Region could
choose to prove these underlying violations and could assess a penalty of up to $25,000 per day
per violation in a civil judicial action taken under §1414 and/or §1431. For guidance on using
§1431 authorities, please refer to the "Final Guidance on Emergency Authority under Section
1431 of the Safe Drinking Water Act, dated September 27, 1991 (PWSS Water Supply guidance
#87).
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violations for the purposes of this settlement penalty calculation. If the violator has not sampled
for those contaminants as required, and therefore does not have a demonstrated history of
compliance for those contaminants, these M/R violations should be considered more serious and
should be considered as MCL violations, for the purposes of this penalty calculation. (Note that
continued M/R violations would generally make the. violator an M/R significant noncomplier
(SNC) by definition, increasing the associated gravity seriousness factor, as shown in
Attachment 2.)
In calculating the gravity factor related to the population exposure, the number of years
in violation (computed separately for each type of violation as the number of months divided by
twelve) is multiplied by the population served by the water system in violation.2 For example,
for a water system in violation of one requirement for one contaminant for 18 months and
serving 5000 people, the gravity component related to population exposure would be $7,500
(i.e., [5,000](18/12]). (For the purposes of this part of the calculation only, the Agency may
choose to use the population served at the time of the violation, rather than the current
population served.) The gravity factor related to the seriousness of the violation is then
multiplied by the gravity factor related to population exposure to determine the actual total
gravity portion of the penalty for each type of violation. The gravity components for each type
of violation are then added to determine the total gravity portion of the penalty.
C. Adjustment Components
After the economic benefit and gravity components are calculated, these amounts may be
modified according to several adjustment components. Adjustment components address the
following four concerns: degree of willfulness and/or negligence, history of noncompliance,
litigation considerations, and ability to pay. Adjustment components for the degree of
willfulness and/or negligence and for history of noncompliance are applied only to the gravity
component; adjustment components for litigation considerations and for ability to pay are
applied to the entire penalty amount, In general, adjustment components can either increase or
decrease the penalty. The penalty calculation worksheet in Attachment I incorporates the range
of possible values for each of these adjustment components, as discussed below.
1. Degree of Willfulness and/or Negligence: Ignorance of the law or regulation is not a reason
to reduce a penalty. Therefore, the "sophistication" of the violator would only serve to increase
the penalty. Given the relatively ample resources and personnel of the larger water systems, this
adjustment component should be frequently applied to large water systems, but it could well
apply to smaller systems too.
2 In computing the duration of noncompliance for M/R violations, for the settlement
penalty calculation, estimate the length of time that monitoring has been and will be delayed or
avoided, starting from the last day of the compliance period, or, if applicable, from the date
specified in an order or consent decree.
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In assessing the degree of willfulness and/or negligence of the water system
operator/owner, all persons are expected to comply completely with applicable requirements. If
a violator has shown disregard for regulations and has been uncooperative with the Agency
and/or the State in its efforts to return the system to compliance, the Agency uses this component
to increase the penalty by up to 100% of the gravity component. However, if the violator has
been only mildly uncooperative, the penalty will be increased by a smaller amount, reflecting the
degree of cooperation. Therefore, this factor, if appropriate, could increase the gravity
component by 1% to 100%, by multiplying the gravity by a factor between 1.01 and 2.00.
Otherwise, this factor remains at 1.00.
2. History of Noncompliance: The history of noncompliance of the violator must be
considered in setting a penalty. The Agency must consider whether any enforcement actions had
previously been taken by the Agency or by the State against the water system for violations
within the past five years, and whether the violator returned to compliance in. response to those
enforcement actions. Other considerations could include similarity of current violations to
previous violation(s), how recent any previous violations were, the number of previous
violations, and the violators responsiveness to addressing these violations.
This factor increases the total gravity by between 10% and 30% for each enforcement
action against this violator as follows:
10% for each notice of violation or equivalent action;
20% for each administrative order or equivalent action; and
30% for each emergency order, complaint for penalties, or equivalent action.
Further, if the violator has a history of previous violations and an absence of ensuing
enforcement actions, this factor is set at 20%. Even if the enforcement actions address the same
violations, this factor is still applied for each enforcement action. This factor is applied
regardless of whether enforcement actions are taken by States or by EPA, and regardless of
distinctions among types of administrative orders (e.g., "boil-water" orders or consent orders).
As an example of the correct application of factors for history of noncompliance,
consider a system which has been issued a notice of violation and two administrative orders in
the past five years. The adjustment to the gravity component of the penalty for history of
noncompliance equals: 1.10 (for the notice of violation) x 1.20 x 1.20 (for the two
administrative orders). In this example, the gravity component would be multiplied by this total
adjustment or 1.58 (1.10 x 1.20 x 1.20) for history of noncompliance, and also multiplied by the
adjustment factor for degree of willfulness/negligence in order to obtain the adjusted gravity
component.
3. Litigation Considerations: Some enforcement cases may have weaknesses or equitable
problems that may persuade a court to assess a penalty less than the statutory maximum amount
The simple existence of weaknesses in a case, however, should not automatically result in a
litigation consideration reduction of the preliminary penalty amount (i.e., economic benefit +
gravity + adjustments for willfulness and history of noncompliance). The government should
evaluate every penalty with a view toward the potential for protracted litigation and attempt to
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ascertain the maximum civil penalty the court is likely to award if the case proceeds to trial. The
basic rule for litigation considerations is that the government may reduce the amount of the civil
penalty it will accept at settlement to reflect these considerations (i.e., weaknesses or equitable
issues) where the facts demonstrate a substantial likelihood that the government will not achieve
a higher penalty at trial.
Because the settlement penalty is meant to represent a reasonable compromise of EPAs
claim for the statutory maximum, before making a settlement offer, EPA must determine the
statutory maximum penalty and estimate how large a penalty the government might obtain if the
case were to proceed to trial. Given the limited number of judicial opinions on the issue of
penalties in cases involving PWSS, Agency legal staff must use their best professional judgment
in determining what penalty a court might assess in the case at hand. Any adjustments for
litigation considerations must be taken on a factual basis specific to the case.
Although there is no universal list of litigation considerations, there is a list of factors
that should be considered in evaluating whether the preliminary settlement penalty exceeds the
penalty the Agency would likely obtain at trial. Potential litigation considerations could include:
a. Known problems with the government's evidence proving liability or supporting a
civil penalty;
b. The credibility, reliability, and availability of witnesses;3
c. The informed, expressed opinion of the judge assigned to the case (or person
appointed by the judge to mediate the dispute), after evaluating the merits of the
case.4
d. The record of the judge in any case presenting similar environmental issues. (In
contrast, the reputation of the judge, or the judge's general demeanor, without a
specific penalty or legal statement on a similar case, is rarely sufficient as a
litigation consideration.)
3 The credibility and reliability of witnesses relates to their demeanor, reputation,
truthfulness, and impeachability. For instance, if a government witness has made statements
significantly contradictory to the position he is to support at trial, his credibility may be
impeached by the respondent or defendant. The availability of a witness will affect the
settlement bottom-line if the witness cannot be produced at trial. The inconvenience or expense
of producing the witness at trial is not a litigation consideration and therefore, should not affect
the bottom-line penalty.
4 This factor should not be applied in anticipation of arguments, or at the stage of initial
referral. The Agency should not be unduly influenced by taking at face value what a judge
attempting to encourage a settlement might say.
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e. Statements made by Federal, State or local regulators that the respondent or
defendant may credibly argue led it to believe it was complying with the Federal
law under which EPA is seeking penalties.
f. The payment by the defendant of civil penalties for the same violations in a case
brought by another plaintiff.5
g. The development of new, relevant case law.6
h. A blend of troublesome facts and weak legal positions such that the Agency faces
a significant risk of obtaining a negative precedent at trial of national
significance.
In evaluating the list of possible litigation considerations set forth above, the Region shall
evaluate each consideration for the impact it is likely to have on the Agency's ability to obtain a
trial penalty in excess of the "bottom-line" penalty amount. The application of litigation
considerations before a complaint is filed would usually be premature, because at that time the
Agency generally does not have enough information to fully evaluate litigation risk. Reductions
for litigation considerations are more likely to be appropriate after the Agency obtains an
informed view, through discovery and settlement activities, of the weaknesses in its case and
how the specific court views penalties in the case.
The Agency recognizes that this evaluation of litigation considerations often reflects
subjective legal opinions. Thus, except as discussed below in instances in which a special
litigation consideration for non-profit entities may apply, a Regional office may reduce the
penalty by up to one-third of the adjusted gravity amount (after adjustments for degree of
willfulness and/or negligence and adjustments for history of noncompliance) for litigation
considerations without Headquarters approval. Of course, this reduction must be clearly
explained in the settlement case file.
In evaluating possible litigation considerations, Agency staff should recognize that
litigation considerations do not include:
5 If the defendant has previously paid civil penalties for the same violations to another
plaintiff, this factor may be used to reduce the amount of the settlement penalty by no more than
the amount previously paid for the same violations. Because a violator is generally liable to
more than one plaintiff, the prior payment of a civil penalty should not generally result in a
dollar-for-dollar reduction of the Agency penalty settlement amount. If the previous case
included other violations, only a portion of the penalty already paid should be considered in
reducing the penalty in the case at hand.
6 Between the time the Region initiates or refers a case, new case law relating to liability
or penalty assessment may affect the strength of the Agency's legal arguments. In that
circumstance, the Region may apply litigation considerations to adjust its initial penalty
settlement figure. Of course, favorable new case law would be used to bolster the preliminary
settlement amount.
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a. The Region's desire to minimize the resource investment in the case.
b. A generalized goal (in opposition to established Agency policies) to avoid
litigation or to avoid potential precedential areas of the law.7
c. A duplicative statement of elements included or assumed elsewhere in the Penalty
Policy, such as inability to pay, "good faith" or a "lack of willfulness" by a
respondent or defendant.
d. Off-the-record statements by the court, before it has had a chance to evaluate the
specific merits of the case, that large penalties are not appropriate, are generally,
by themselves, not a reason to reduce the preliminary settlement penalty amount.
e. By itself, the failure of a regulatory agency to initiate a timely enforcement action
is not a litigation consideration.
Cases in which the owner of the PWS is a non-profit entity, such as a municipality, may
involve special litigation considerations because of the perceived reluctance of some Federal
courts to order non-profit entities to pay very large penalty amounts to the Federal Treasury. In
these cases in which the penalty amount is extremely large relative to the size of the
municipality, the Agency may elect to reduce the penalty, based on a "per capita" national
litigation consideration. This litigation consideration, to be used only in actions involving non-
profit entities, is calculated as follows:
Step 1. Calculate the product of the service population multiplied by $2 per person, times the
total number of months in which any violation occurred in the past five years (without "double-
counting" months, up to a maximum of 60 months), divided by 12.
Step 2. If this product is greater than the preliminary penalty amount (calculated as economic
benefit + [gravity x adjustments for willfulness and history of noncompliance]) then this
litigation consideration does not apply and the preliminary penalty amount remains unchanged.
Step 3. If the product calculated in step 1 (above) is less than the preliminary penalty amount
(as defined in step 2 above), calculate the difference between the preliminary penalty amount
and the product. Next, take 10% of that difference and add it to the product, thus computing the
adjusted penalty amount.
7 There are times when the Agency and the Department should fully litigate a civil or
criminal case as it may create a beneficial precedent for the Federal government. An example is
U.S. v . Midway Heights County Water District (695 F. Supp. 1072, 1076, E.D. Cal. 1988), in
which the court found that 1) the definition of human consumption extends beyond just ingestion
and is broader than merely whether the service population drinks the water, and 2) the presence
of organisms that were accepted indicators of the potential for the spread of serious disease
presented an imminent (and substantial) endangerment, regardless of whether actual illnesses
had been reported.
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This calculation may be simplified and represented as:
A = (0.9 x B) + (0.1 x C)
where A represents the adjusted penalty (not just the deduction for litigation considerations) after
applying this "per capita' national litigation consideration, B represents the product calculated in
step 1, and, C represents the preliminary penalty amount (calculated as economic benefit +
[gravity x adjustments for willfulness and history of noncompliance]).
This special litigation consideration may only be used for non-profit entities, and, even
then, only if the preliminary penalty amount (as defined above) is more than the product
calculated in step 1. This litigation consideration may be taken before the complaint is filed.8 If
this special litigation consideration is used, any additional penalty reductions must be justified
by compelling and extraordinary litigation problems or demonstrated financial inability to pay
and receive prior approval from Headquarters. If this special litigation consideration for non-
profit entities is used, the Region may not also reduce the penalty by up to one-third of the
adjusted gravity amount (including adjustments for degree of willfulness and/or negligence and
adjustments for history of noncompliance) for litigation considerations without Headquarters
approval. Further, supplemental environmental projects (SEPS) shall not be used to reduce the
cash penalty below the amount calculated according to this special litigation consideration.
4. Ability to Pay: The Agency typically does not request penalties/settlements clearly beyond
the means of the violator. The ability-to-pay adjustment component reduces the penalty to the
highest penalty amount that the violator can reasonably pay and still provide safe drinking water
to its customers.
An adjustment for ability-to-pay may only be made if the violator demonstrates and
documents that it has and will continue to have insufficient economic resources to pay the
calculated penalty. The violator must submit the necessary information demonstrating actual
inability to pay as opposed to unwillingness to pay. If the violator is unwilling to cooperate in
demonstrating an inability to pay the penalty, this adjustment should not be considered in the
penalty calculation, because, without the cooperation of the violator, the Agency will generally
not have adequate information to determine accurately the financial position of the violator.
At a minimum, the owner of a privately-owned water system should provide Federal tax
returns from the previous three years and should submit a list of assets and liabilities. This list of
assets and liabilities generally gives a truer picture of the violator's financial assets than do tax
returns. In addition, the violator can be required to provide a certified financial statement
prepared by a certified public accountant.
Municipal water systems do not submit Federal tax returns, but can submit documents
pertaining to the financial health of the community, such as bond ratings, median income of
residents, unemployment rate, user fees, and other socioeconomic indicators. The government
8 This national generic litigation consideration may be removed based on changes in the
Act, settlements, or case law.
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should carefully assess the accuracy of the actual or anticipated claim of inability-to-pay.
Evaluation by an outside expert or consultant may be necessary to fully evaluate the claim.
If the violator demonstrates an inability to pay the entire negotiated penalty in one lump
sum (usually within 30 days of consent decree entry), a payment schedule should be considered.
The penalty could be paid in scheduled installments with appropriate interest accruing to delayed
payments. Appropriate interest for a privately-owned PWS would be at least the existing prime
interest rate; for a municipal PWS, the appropriate interest rate would be at least equal to that
municipality's prevailing bond rate. The period allowed for such installment payments should
generally not extend beyond three years from the date of entry of the settlement or the issuance
of the final complaint for penalties.
If a payment schedule will not resolve the violator's ability-to-pay issue, as a last
recourse, the Agency can reduce the amount it seeks in settlement to a more appropriate amount
in situations in which inability-to-pay can be clearly documented and reasonably quantified.
IV. SUPPLEMENTAL ENVIRONMENTAL PROJECTS (SEPS)
According to Agency policy,9 where the Agency has legal authority, violators may
perform environmentally beneficial projects in exchange for receiving a smaller settlement
penalty. In order for a violator to receive a penalty reduction in exchange for performing such a
project, the Agency's SEP Policy, requires, inter alia that the project constitutes actions that go
beyond compliance (and which otherwise are not legally required) and, improves the injured
environment or reduces the total risk posed to public health or the environment by the violations.
If such projects are used, the provisions of the settlement must ensure that the project is
completed as expected, and that the designated funds for the project are expended.
Any penalty action that has the total cash payment amount reduced by inclusion of such a
SEP must be approved by the Office of Enforcement. The maximum penalty reduction for a SEP
shall not exceed the after-tax -net present value of the SEP.
Although SEPs help to fulfill EPA's goal of protecting and restoring the environment, the
existing Agency policy requires the assessment of a substantial monetary penalty in addition to
any SEP. A substantial monetary penalty is one that recaptures the violator's economic benefit
of noncompliance plus some appreciable (i.e., non-trivial) portion of the gravity component.
Evaluation as to whether particular types of SEPs are acceptable should be performed
based on the specifics of a particular case. The following are examples of such projects:
• Pollution Prevention Projects. Pollution prevention projects would serve to
greatly reduce contamination of ground or surface water supplies in the
surrounding community and therefore enhance public health by improving the
9 See EPA Policy on the Use of Supplemental Environmental Projects in Enforcement
Settlements, transmitted on February 12, 1991 by the Assistant Administrator for Enforcement,
or subsequent revisions.
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quality of drinking water. Source water protection programs and wellhead
protection programs are examples of pollution prevention projects (and are
possible SEPS, if the public water system is not otherwise required to implement
the protection program).
Pollution Reduction Projects: These projects could involve enhanced treatment,
or earlier or increased monitoring for certain pollutants by the violator, beyond
measures required to come into compliance. For example, the. water system
owner/operator could start sampling for contaminants which are either in the
process of being regulated or not regulated (e.g., Phase VIb contaminants).
V. PLEADING - Other Types of Penalties
This policy only establishes how the Agency calculates the minimum penalty for which it
would be willing to settle a case. The development of the penalty amount to plead in an
administrative or judicial complaint is developed independent of this policy except to the extent
the Agency may not seek a settlement penalty in excess of the statutory maximum penalty it is
seeking in the complaint. Further, at trial the Agency will seek a penalty based on the statutory
maximum and the penalty factors which the court is instructed to consider. Of course, the
Agency will not use this settlement Penalty Policy in arguing for a penalty at trial or in an
administrative penalty hearing. In pleading for penalties in civil or administrative complaints,
please refer to guidance by the Office of Enforcement regarding the distinctions among pleading,
negotiating, and litigating civil penalties for enforcement cases.10 Although the 'aforementioned
guidance was written for cases brought under the Clean Water Act, it is also useful in Safe
Drinking Water Act actions.
VI. DOCUMENTATION AND RELEASE OF INFORMATION
Each component of the settlement penalty calculation (including adjustments) must be
clearly documented with supporting materials and written explanations in the case file and
provided to Headquarters for review and approval as required. Any subsequent
recalculations of the penalty based on new information must also be included in the file.
Documentation and explanations of a particular settlement penalty calculation constitute
confidential information that is exempt from disclosure under the Freedom of Information Act, is
outside the scope of discovery, and is protected by various privileges, 'including the attorney-
client privilege and the attorney work-product privilege. While individual settlement penalty
calculations are confidential documents, this penalty policy is a public document and may be
released to anyone upon request. - Further, as part of settlement negotiations between the parties,
10 See Guidance on the Distinctions Among Pleading, Negotiating, and Litigating Civil
Penalties for Enforcement Cases Under the Clean Water Act., OECM/OW, January 19, 1989.
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the Agency may choose to release parts of the case-specific settlement calculations. The release
of such informa6on may only be used for settlement negotiations in the case at hand and, of
course-, may not be admitted into evidence in a trial or hearing.
This policy is purely for the use of U.S. EPA enforcement personnel in settling cases. EPA
reserves the right to change this policy at any time, without prior notice, or to act at variance
to this policy. This policy does not create any rights, implied or otherwise, in any third
parties.
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ATTACHMENT 1
PWSS SETTLEMENT PENALTY CALCULATION WORKSHEET
INSTRUCTIONS: For each type of violation (see Attachment 2) to be alleged in the
administrative or Judicial complaint calculate the statutory maximum penalty, the economic
benefit and gravity and record the results in Part A of the worksheet. Complete a separate Part A
worksheet for each type of violation, then complete Part B.
NAME OF CASE:
COMPLETED BY:
Date Completed:
PART A
IDENTIFY VIOLATION TYPE:
1 . STATUTORY MAXIMUM PENALTY FOR THIS VIOLATION TYPE
a. Length of violation (in days)
b. Penalty Amount (see II. Statutory Basis in text of
Policy for amounts)
c. Maximum Penalty
nine l.a x line l.b if not administrative")
2. ECONOMIC BENEFIT FOR THIS VIOLATION TYPE
(attach BEN computer model printouts or other documentation)
3 . GRAVITY FOR THIS VIOLATION TYPE
a. Gravity factor amount (from Attachment 2 Types of
Violations)
b. Service population
c. Months in violation ( ) divided by 12
d. Gravity Component: Line 3. ax line 3. b x line 3. c
4. ECONOMIC BENEFIT + GRAVITY COMPONENT SUM
(line 2 + line 3. d)
ATTACHMENT 1
PWS PENALTY CALCULATION WORKSHEET
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PARTB
5.
TOTAL ECONOMIC BENEFIT + GRAVITY
(Sum of amounts in line 4 for each violation type from all
Part A worksheets)
6. ADJUSTMENT FACTORS
a. Degree of Willfulness/Negligence factor (Select a
factor value between 1.0 and 2.0)
b. Willfulness/Negligence Amount (line 5 x line 6. a)
c. History of Noncompliance factor (Select factor value
between 1.0 and 2.0 based on number of prior enforcement
actions)
d. History of Noncompliance Amount (line 5 x line 6c)
e. Total of Upward Adiustment Factors dine 6.d x line 6.b}
1.
PRELIMINARY PENALTY AMOUNT (line 5 + line 6.e)
8. LITIGATION CONSIDERATION REDUCTION AMOUNT
Attach legal explanation to justify any reduction on
separate sheet.
9.
10
ABILITY TO PAY REDUCTION AMOUNT
Attach financial analysis to justify any reduction
CREDIT AMOUNT FOR ANY SEPS
Amount may not exceed after-tax present value of
oroiectfs")
11 BOTTOM-LINE CASH SETTLEMENT PENALTY
AMOUNT
Line 7 - (line 8 + line 9 + line 10)
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ATTACHMENT 2
TYPES OF VIOLATION
TYPE OF VIOLATION
Violation of section 1431 order
TCR SNC violation
Violation of section 1414 order
TCR acute MCL violation (fecal coliform present)
Nitrate MCL violation
Violation of Short Term Acceptable Risk level (e.g., chem/rad
SNC)
Total coliform rule MCL (fecal coliform not present)
Turbidity MCL violation
SWTR violation
Lead/copper SNC violation
Lead/copper treatment technique violation (excluding SNC
type violation)
Non-SNC MCLs (except for bacteria, turbidity, nitrate)
Monitoring or reporting SNC violations (other than total
coliform rule)
Failure to do public notification for any type of violation
Monitoring or reporting violations for SWTR
Monitoring or reporting violations for total coliform rule
Monitoring or reporting violations for nitrate
Monitoring or reporting violations for other acute
contaminants (other than bacteria, turbidity and nitrate)
Monitoring or reporting violations for "chronic" contaminants
GRAVITY FACTOR
2.5
2.4
2.4
2.3
2.2
2.1
2.0
1.9
1.8
1.8
1.7
1.6
2
6
1.5
1.4
1.4
1.3
1.2
1.1
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