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U.S. EPA Penalty Guidance For Violations of UST Regulations OSWER Directive 9610.12 November 14, 1990

Directive Organization

NOTICE


NOTE: The document you are viewing is an HTML facsimile of OSWER Directive 9610.12 that has been reformatted for the Internet. This version maintains as much as possible of the original document integrity. Only a couple of non-essential elements are missing, namely facsimiles of the OSWER Directive cover page, and EPA Form 1315-17 (the Directive Initiation Request). Also, the original typed document had the directive number as a header on each page--in this version the directive number appears at the beginning of each new section.


OSWER DIRECTIVE 9610.12

NOTICE

The procedures set forth in this document are intended solely for the guidance of the U.S. EPA. They are not intended, and cannot be relied on, to create rights, substantive or procedural, enforceable by any party in litigation with the United States government. The U.S. EPA reserves its right to act at variance with this guidance and to change it at any time without public notice.

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OSWER DIRECTIVE 9610.12

CHAPTER 1. INTRODUCTION TO UST PENALTY GUIDANCE

This document provides guidance to U.S. Environmental Protection Agency (EPA) Regional Offices on calculating civil penalties against owner/operators of underground storage tanks (USTs) who are in violation of the UST technical standards and financial responsibility regulations. The methodology described in this guidance seeks to ensure that UST civil penalties, which can be as high as $10,000 for each tank for each day of violation, are assessed in a fair and consistent manner, and that such penalties serve to deter potential violators and assist in achieving compliance.

This penalty document is part of a series of enforcement documents which includes: (1) the Agency's UST/LUST Enforcement Procedures Guidance Manual (OSWER Directive 9610.11, July 1990), which provides guidance to U.S. EPA Regional personnel on taking enforcement actions against violations of the UST technical requirements; and (2) the draft "Interim Enforcement Response Strategy for Violations of UST Financial Responsibility Requirements," which provides guidance on taking enforcement actions against violations of the financial responsibility requirements. Although these enforcement documents are intended primarily for U.S. EPA Regional enforcement staff, State and local UST implementing agencies may find it useful to adapt some of the concepts and methodologies for their own UST enforcement programs.

This chapter briefly describes the U.S. EPA's authorities for taking enforcement action and assessing civil penalties. It also provides an overview of the enforcement actions that may be taken in response to UST violations, and indicates how the assessment of penalties fits into the enforcement framework.

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OSWER DIRECTIVE 9610.12

1.1 U.S. EPA PENALTY AUTHORITY

The U.S. EPA's authority for assessing civil penalties for violations of UST requirements is provided by Subtitle I of the Resource Conservation and Recovery Act (RCRA). Under the Hazardous and Solid Waste Amendments of 1984, Congress added Subtitle I to RCRA in response to the growing environmental and health problems created by releases from USTs. The statutory framework for the national UST program is set forth in Sections 9002 through 9004 of Subtitle I.

Under Section 9006 of Subtitle I, EPA is authorized to take enforcement actions and assess penalties against violators of requirements promulgated under Subtitle I, including technical standards and financial responsibility requirements. (Footnote 1) In particular, Section 9006(a) provides the authority to issue administrative orders requiring compliance within a reasonable specified time period. All such orders will be processed within the Agency according to the Consolidated Rules of Practice (CROP). (Footnote 2) Pursuant to Section 9006(d), a Section 9006 compliance order may assess a civil penalty, provided that the penalty does not exceed $10,000 for each tank for each day of violation of the technical standards and financial responsibility rules. (Footnote 3) This document presents guidance for determining the appropriate civil penalty amount for an administrative complaint and order, and discusses use of penalties in field citations.

In addition to administrative enforcement actions, EPA may initiate judicial enforcement actions under Section 9006 to compel compliance with Subtitle I's statutory and regulatory requirements. EPA's judicial enforcement actions are processed through Federal courts and are reserved for violations of administrative orders. Under such actions, EPA is authorized to seek judicial penalties of up to $25,000 for each day of continued noncompliance with an administrative order issued under Section 9006 or a corrective action order issued under Section 9003. In these cases, Agency personnel should seek the maximum penalty. (Footnote 4)

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OSWER DIRECTIVE 9610.12

1.2 OVERVIEW OF THE UST ENFORCEMENT PROCESS

The UST/LUST Enforcement Procedures Guidance Manual (OSWER Directive 9610.11, July 1990) describes the range of enforcement actions that may be taken in response to an UST violation. These enforcement options vary from initial responses, such as warning letters or notices of violation (NOVs), which encourage compliance, to more stringent actions, such as administrative orders and judicial injunctions, which compel compliance and, if appropriate, penalize violators. Exhibit 1 presents the various enforcement actions that may be taken once a violation of an UST requirement is identified. In general, enforcement personnel will take the least costly enforcement action that appears necessary to achieve compliance and create a strong deterrent, and will escalate the severity of the enforcement response if the initial action fails.

NOTE: Exhibit 1 is a flowchart: "Overview of Enforcement Response Options". This exhibit file contains a GIF image that is 29,203 bytes. View Exhibit 1.

As shown in Exhibit 1, there are two approaches to taking enforcement actions. Under the "traditional" approach, enforcement personnel may initially respond to a discovered violation by issuing a warning letter or NOV to inform the owner/operator of the violation, explain what actions need to be taken, and indicate possible consequences if the owner/operator fails to achieve compliance. If necessary, enforcement personnel may then meet with the owner/operator to negotiate an agreed-upon course of action for the owner/operator to follow to achieve compliance. However, for recalcitrant violators, or where violations pose a threat to human health and the environment, enforcement personnel will typically issue administrative complaints or take judicial action. To provide a deterrent effect, an administrative complaint may include an initial penalty target figure. Upon receipt of the complaint, a violator may pay the penalty specified, request an informal settlement conference, and/or request an administrative hearing. Regardless of the violator's response, the outcome generally will be a final penalty that the violator must pay or else face judicial prosecution. Exhibit 1 shows where the target and final penalties appear in the enforcement process.

As an alternative to the traditional approach, enforcement personnel may initiate an enforcement response using field citations (see Chapter 5). Field citations, similar to traffic tickets, are modified compliance orders issued by inspectors on-site at a facility when violations are discovered. However, the use of field citations is generally limited to first-time violators when compliance is expected and when the violation does not pose an immediate threat to human health and the environment. A typical field citation will not only require that the violator take actions to achieve compliance, but will also assess a pre-established, non-negotiable penalty. This penalty is usually fairly low (e.g., $100) to encourage prompt payment and response. In paying the citation penalty, the violator gives up the right to appeal and consents to the requirements specified; thus, the citation is analogous to the final penalty that results from settlement negotiations. This alternative path to arriving at a penalty is also shown in Exhibit 1. If the owner/operator fails to respond to the field citation, enforcement personnel may resort to enforcement actions under the traditional approach or may initiate judicial actions.

Under the UST program's franchise approach, States will undertake most of the enforcement actions. However, in certain cases (e.g., where an owner/operator is particularly recalcitrant or the State lacks sufficient enforcement authority), Federal assistance may be needed. In such cases, the Regional office may omit initial, informal responses and proceed directly with administrative or judicial actions. However, U.S. EPA enforcement also may be needed at the beginning of an enforcement case in certain circumstances (e.g., in States without active enforcement programs or on Indian Lands). In such cases, Regional enforcement personnel may begin with either the traditional responses or may determine that it is appropriate to use field citations.

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OSWER DIRECTIVE 9610.12

1.3 UST PENALTY ASSESSMENT FRAMEWORK

This document provides guidance on calculating penalties to be used in the administrative enforcement actions described above. Consistent with the U.S. EPA's Policy on Civil Penalties, penalties assessed under this methodology are intended to achieve the following goals: (Footnote 5) Exhibit 2 provides an overview of the major components used to set penalties at levels that will achieve these goals. Specifically, to deter the violator from repeating the violation and to deter other potential violators from failing to comply, the penalty must place the violator in a worse position economically than if he or she had complied on time. Such deterrence is achieved by:
  1. Removing any significant economic benefit that the violator may have gained from noncompliance (the "economic benefit component"); and
  2. Charging an additional amount, based on the specific violation and circumstances of the case, to penalize the violator for not obeying the law (the "gravity-based component").

NOTE: Exhibit 2 is a flowchart: "Process for Assessing UST Civil Penalties". This exhibit file contains a GIF image that is 65,678 bytes. View Exhibit 2.

The procedures for determining the economic benefit component and gravity-based component are discussed in Chapter 2 and Chapter 3. Furthermore, to support fair and equitable treatment of the regulated community, the penalty must allow for adjustments to take into account legitimate differences between similar cases. Thus, under this methodology, the gravity-based component incorporates adjustments that reflect the specific circumstances of the violation, the violator's background and actions, and the environmental threat posed by the situation.

The sum of the economic benefit component and the gravity-based component yields the initial penalty target figure that is assessed in the administrative complaint. (Footnote 6) For each case that involves more than one violation, the Regional case team will need to decide on the number of counts addressed in the complaint. Each count should be accompanied by an appropriate penalty calculation, and the sum of these penalties will be the initial penalty target figure assessed in the complaint. Once a complaint is issued, the Agency may enter into settlement negotiations with the owner/operator to encourage timely resolution of the violation. Such negotiations provide the owner/operator with the opportunity to present evidence to support downward adjustments in the penalty. The process of adjusting the penalty during settlement negotiations is addressed in Chapter 4. The outcome of such negotiations will be the final penalty.

For specific types of cases, enforcement personnel may issue field citations, which assess penalties while encouraging a swift return to compliance without a drawn-out appeals process. The use of field citations to assess penalties is addressed in Chapter 5.

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OSWER DIRECTIVE 9610.12

CHAPTER 2. DETERMINING THE ECONOMIC BENEFIT COMPONENT

As explained in the preceding chapter, to ensure that the penalty deters potential violators, the initial penalty target figure assessed in the complaint must include two fundamental components: This chapter discusses the process for determining the economic benefit component. The gravity-based component is discussed in Chapter 3.

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OSWER DIRECTIVE 9610.12

2.1 DEFINITION OF ECONOMIC BENEFIT COMPONENT

The economic benefit component represents the economic advantage that a violator has gained by delaying capital and/or non-depreciable costs and by avoiding operational and maintenance costs associated with compliance. (Footnote 7) The total economic benefit component is based on the benefit from two sources: (1) avoided costs; and (2) delayed costs. All penalties assessed must include the full economic benefit unless the benefit is determined to be "incidental" (i.e., less than $100).

Economic Benefit Component = Avoided Costs + Delayed Costs

Avoided costs are the periodic, operation and maintenance expenditures that should have been incurred, but were not.

Delayed costs are the expenditures that have been deferred by the violation, but will be incurred to achieve compliance.

The Agency-wide penalty policy prescribes the use of two methods for calculating a violator's economic benefit from noncompliance:(Footnote 8) (1) the rule-of-thumb approach; and (2) the software program called BEN.(Footnote 9) The rule-of-thumb approach (described in the sections that follow) should be used for making an initial estimate of the economic benefit of noncompliance. If the initial estimate is less than $10,000, the rule-of-thumb calculation may be used as a basis for the economic benefit assessed in the penalty. If, however, the estimate indicates that the economic benefit is greater than $10,000, the BEN model should be used. The BEN model should also be used if the violator rejects the rule-of-thumb calculation.

The BEN model, which is accessible by computer from anywhere in the country, uses a financial analysis technique known as "discounting" to determine the net present value of economic gains from noncompliance. BEN determines the economic benefit for an individual violator based on 12 specific factors, or inputs, including the violator's initial capital investment, nondepreciable expenditures, and operation and maintenance costs. For some inputs, such as income tax rate, annual inflation rate, and discount rate, BEN will provide standard values if the user does not have actual figures. This use of standard values allows for national consistency in determining economic benefit. Because the majority of UST violations will be associated with an economic benefit of less than $10,000, the rule-of-thumb approach will be used in most cases.

The procedures for calculating the economic benefit of noncompliance using the rule-of-thumb approach are described below. Because of the fundamental differences between avoided and delayed costs, the process for determining the economic benefit component will depend on the type of cost involved. The sections that follow describe methods for calculating each type of cost.

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OSWER DIRECTIVE 9610.12

2.2 AVOIDED COSTS

Avoided costs are the operation and maintenance expenditures that are averted by the violator's failure to comply. These are considered to be avoided because they will never be incurred even if the violator comes into compliance. For example, a violator who has failed to maintain product inventory records in the past never will have to make up for the costs saved, even if he is directed to start maintaining inventory records now. Other examples of avoided costs include: (1) failure to conduct a required periodic test; (2) failure to obtain financial assurance by the phase-in date; and (3) failure to conduct periodic maintenance of equipment. The violator's benefit from avoided costs is generally expressed as the avoided expenditures plus the interest potentially earned on the money not spent.

DETERMINING AVOIDED COSTS

                          Avoided = {Avoided    + Avoided  x Interest x Number} x (1-Marginal)
                        Costs      Expenditures Expenditures          of Days      Tax Rate
                                    -------------------------------------------
                                                      365 Days

Avoided Expenditures are estimated using local, comparable costs.
Interest is the equity discount rate provided in the BEN model (currently 18.1 percent).
Number of Days is from the date of noncompliance to the date of compliance.
365 Days is the number of days in a year.
Marginal Tax Rate is based on corporate tax rates or financial responsibility compliance class.

To determine the value of the interest, compounded annually, the equity discount rate should be used. This represents the risk-free rate (T-bill) plus the cost of financing for pollution control equipment. This rate can be obtained by calling the EPA Office of Enforcement or by accessing the BEN computer model. (Footnote 10) As of the beginning of FY91, the equity discount rate was 18.1 percent. When used in the formula, this number should be expressed as a decimal and not a percentage (e.g., 0.181, instead of 18.1%).

The marginal tax rate (MTR) used in calculating the avoided costs will vary depending on the size of the business. Exhibit 3 provides a list of appropriate tax rates based on the facility or company's taxable income. As with the interest rate, this number should be expressed as a decimal, not a percentage (e.g., 0.15 instead of 15%). To determine the taxable income, enforcement staff should contact EPA's National Enforcement Investigations Center (NEIC) to determine whether the business in violation is listed in the Dun and Bradstreet Business Information Report data base.(Footnote 11) The data base provides information on the annual incomes of a large number of companies across the country, including the smaller, "Mom and Pop" businesses. Although most of the incomes listed in the data base are those reported to Dun and Bradstreet, the data base also includes some estimated incomes for companies that have not reported.

If information on annual income cannot be obtained from NEIC, enforcement staff may use the company's financial responsibility compliance class as a basis for determining the appropriate marginal tax rate, as follows:

MARGINAL TAX RATES BASED ON FINANCIAL RESPONSIBILITY COMPLIANCE CLASS

Compliance Classa Tax Rate
FR Classes 1 & 2 0.34 (34%)
FR Class 3 0.25 (25%)
FR Class 4 0.15 (15%)

aCompliance class is determined as follows: Class 1 - large petroleum marketing firms with 1,000 or more USTs or any firm with net worth over $20 million; Class 2 - large and medium-sized petroleum marketing firms with 100 to 999 USTs; Class 3 - small petroleum marketing firms with 13 to 99 USTs; and Class 4 - very small marketing firms with 1 to 12 USTs or less than 100 USTs at one site, all other firms with net worth of less than $20 million, and municipalities.

In the absence of specific information on the violator's FR compliance class, enforcement staff should assume that the violator is in FR Class 4 (which will result in the highest penalty).

							  
		

Exhibit 3

		
		  
		

Applicable Tax Rates for Determining Avoided Costs

		
		
			   MARGINAL TAX RATE BASED ON FEDERAL CORPORATE TAX RATES
						 (from 1989 U.S. Master Tax Guide):
		
				Taxable income over      Not over          Tax rate
				___________________________________________________
                         $0               $50,000             15%			
                    $50,000               $75,000             25%
                    $75,000              $100,000             34%
				   $100,000              $335,000             39%*
				   $335,000              ........             34%
		
				 *An additional 5% tax is applied to income between
				  $100,000 and $335,000 to phase out the benefits
				  of the graduated rates in that income range.
		
		The marginal tax rate is applied to each increment of income
		specified above (e.g., for an income of $75,000, 15% is applied
		to the first $50,000 and 25% to the next $25,000).  The weighted
		average tax rates below have been calculated for each $10,000
		increment in income to reflect the actual tax burden at each
		income level.  These values will facilitate the determination of
		penalty amounts by eliminating the need to calculate the tax burden
		on each increment of marginal taxable income.  To find the weighted
		tax rate, round the estimated taxable income to the nearest $10,000
		and use the tax rate indicated in the table.

WEIGHTED AVERAGE TAX RATES BY INCOME LEVEL**

		
		
			   Taxable Income    Tax         Taxable Income    Tax
			   not greater than  Rate        not greater than  Rate
		   ------------------------------------------------------------
		  $50,000        0.15          $200,000        0.31
		  $60,000        0.17          $210,000        0.31
		  $70,000        0.18          $220,000        0.31
		  $80,000        0.19          $230,000        0.32
		  $90,000        0.21          $240,000        0.32
		 $100,000        0.22          $250,000        0.32
		 $110,000        0.24          $260,000        0.33
		 $120,000        0.25          $270,000        0.33
		 $130,000        0.26          $280,000        0.33
		 $140,000        0.27          $290,000        0.33
		 $150,000        0.28          $300,000        0.33
		 $160,000        0.29          $310,000        0.34
		 $170,000        0.29          $320,000        0.34
		 $180,000        0.30          $330,000        0.34
		 $190,000        0.30          $340,000        0.34
		
				  **This table includes the additional 5% tax 
				  applied to incomes between $100,000 and $335,000.
		

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OSWER DIRECTIVE 9610.12

2.3 DELAYED COSTS

Delayed costs are the capital expenditures and one-time non-depreciable costs that have been deferred because the violator failed to comply with the requirements. Examples of delayed costs include: (1) failure to install required equipment, such as cathodic protection; and (2) failure to clean up a spill. These expenditures are considered only to be delayed, and not avoided altogether, because the violator will eventually have to incur these costs to come into compliance. The benefit from delayed costs is generally expressed as only the return on investment that could have been earned on the money not spent.

DETERMINING DELAYED COSTS

                     Delayed  =  Delayed        x    Interest    x    Number
                     Costs       Expenditures                         of Days
                           --------------------------------------------
                                     		365 Days
		

Delayed Expenditures are estimated using local, comparable costs.
Interest is the equity discount rate provided in the BEN model (currently 18.1 percent).
Number of Days is from the date of noncompliance to the date of compliance.
365 Days is the number of days in a year.

For delayed costs there is no computation of the tax rate. Although there may be a modest tax consequence for the violator because of delayed costs, this effect was deemed to be insignificant. Furthermore, such a tax consequence only would be incurred if the violation were to span more than one of the violator's tax years.

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OSWER DIRECTIVE 9610.12

CHAPTER 3. DETERMINING THE GRAVITY-BASED COMPONENT

The second component of a penalty, and the one that serves to deter potential violators, is the gravity-based component. The purpose of the gravity-based component is to ensure that violators are economically disadvantaged relative to owner/operators of those facilities in compliance, and to penalize current and/or past noncompliance. The gravity-based component consists of four elements:

The gravity-based component is then added to the economic benefit component to arrive at the initial penalty target figure assessed in the complaint.

DETERMINING THE GRAVITY-BASED COMPONENT
                                            Violator-    Environmental  Days of
                   Gravity-Based = Matrix x Specific   x Sensitivity  x Noncompliance
                      Component    Value    Adjustments  Multiplier     Multiplier


Matrix Value is based on potential for harm and deviation from the requirement.

Violator-Specific Adjustments to the matrix value are based on violator's cooperation, willfulness, history of noncompliance, and other factors.

Environmental Sensitivity Multiplier (ESM) is a value based on the environmental sensitivity associated with the location of the facility.

Days of Noncompliance Multiplier (DNM) is a value based on the number of days of noncompliance.

If the complaint results in settlement negotiations, certain factors used to adjust the matrix value may be re-assessed during negotiations to determine whether a downward adjustment in the gravity-based component is appropriate. In general, it is the violator's responsibility to provide evidence in support of reducing the penalty assessment during the settlement stage (see Chapter 4).

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OSWER DIRECTIVE 9610.12

3.1 DETERMINING THE MATRIX VALUE

The first step in determining the gravity-based component is determining the initial matrix value. The matrix value is based on the following two criteria:
  1. Extent of deviation from requirement - An assessment of the extent to which the violation deviates from the UST statutory or regulatory requirements.
  2. Actual or potential harm - An assessment of the likelihood that the violation could (or did) result in harm to human health or the environment and/or has (or had) an adverse effect on the regulatory program.
A matrix has been developed in which these two criteria form the axes (Exhibit 4). Three gravity levels apply to each of these criteria -- major, moderate, and minor -- and form the grid of the matrix. Thus, the matrix has nine cells, each of which contains a penalty amount. The specific cell to be used in determining the matrix value is identified by selecting a gravity level for both factors. As a guide to determining the appropriate gravity level, Appendix A provides a list of selected violations of the Federal UST requirements and the associated deviation from the requirements and potential for harm.

NOTE: Exhibit 4 is a chart: "Matrix Values for Determining the Gravity-Based Component of a Penalty". This exhibit file contains a GIF image that is 30,511 bytes. View Exhibit 4.

Based on the type of violation (see Appendix A), penalties will be assessed on a per-tank basis if the specific requirement or violation is clearly associated with one tank (e.g., tank upgrading). If the requirement addresses the entire facility (e.g., recordkeeping practices), the penalty will be assessed on a per-facility basis. For requirements that address piping, the unit of assessment will depend on whether the piping is associated with one tank or with more than one tank. Appendix A indicates the suggested unit of assessment for specific violations.

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OSWER DIRECTIVE 9610.12

3.1.1 Extent of Deviation from Requirements
The first factor in determining the matrix value is the extent of deviation from the requirements. The categories for extent of deviation from the requirements are the following:

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OSWER DIRECTIVE 9610.12

3.1.2 Potential for Harm
The second criterion for determining the matrix value of a violation is the extent to which the owner/operator's actions resulted in, or were likely to result in, a situation that could cause harm to human health or the environment. When determining this factor, it is the potential in each situation that is important, not solely whether the harm has actually occurred. Violators should not be rewarded with lower penalties simply because no harm has occurred. The potential extent of this harm, if it were to occur, is addressed by the environmental sensitivity multiplier, discussed in Section 3.3 of this chapter.

The potential-for-harm factor will also be applied to violations of administrative requirements (e.g., recordkeeping and notification requirements) that are integral to the regulatory program. For violations of these requirements, enforcement personnel should consider the "importance" of the requirement violated. For example, failure to submit tank notification data may be considered to have significant potential for harm because the Agency has few other sources of information on the location of USTs. For purpose of this guidance, the categories for potential for harm are the following:

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OSWER DIRECTIVE 9610.12

3.2 VIOLATOR-SPECIFIC ADJUSTMENTS

In general, adjustments to the matrix value may be made at both the pre-negotiation and settlement stages of penalty assessment to address the unique facts of each case and to resolve the case quickly. Prior to settlement negotiations, enforcement personnel have the discretion to use any relevant information to adjust the matrix value upwards or downwards. These adjustments are solely at the discretion of EPA enforcement personnel.

Specifically, to ensure that penalties are assessed in a fair and consistent manner, and take into account case-specific differences, enforcement personnel have the option of adjusting the matrix value based on any information known about the violator's: (1) degree of cooperation or noncooperation; (2) degree of willfulness or negligence; (3) history of noncompliance; and (4) other unique factors.

VIOLATOR-SPECIFIC ADJUSTMENTS TO THE MATRIX VALUE

Adjustment Factor Range of Percentage Adjustment
Degree of Cooperation/Noncooperation Between 50% increase and 25% decrease
Degree of Willfulness or Negligence Between 50% increase and 25% decrease
History of Noncompliance Up to 50% increase only
Other Unique Factors Between 50% increase and 25% decrease

The sections that follow discuss these four adjustment factors. In addition, the matrix value should be adjusted to reflect the environmental sensitivity and the days of noncompliance, which are discussed in Section 3.3 and Section 3.4. Subsequent adjustments made during the settlement stage, including adjustments for inability to pay, are discussed in Chapter 4.

To ensure that the penalty maintains a deterrent effect, enforcement staff should consider adjustments toward increased penalties in all cases (i.e., make upwards adjustments to the matrix value). It is up to the violator to present information during settlement that mitigates use of such upward adjustments. However, to ensure that penalties are calculated fairly and consistently, any upwards adjustment may be made only if the circumstances of the case warrant such adjustments. Furthermore, for any adjustments made to the matrix value, justification must be provided on the penalty assessment worksheet (see Appendix B).

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OSWER DIRECTIVE 9610.12

3.2.1 Degree of Cooperation/Noncooperation
The first factor that may be considered in adjusting the matrix value is the violator's cooperation or good faith efforts in response to enforcement actions. In adjusting for the violator's degree of cooperation or noncooperation, enforcement staff may consider making upward adjustments by as much as 50 percent and downward adjustments by as much as 25 percent of the matrix value.

In order to have the matrix value reduced, the owner/operator must demonstrate cooperative behavior by going beyond what is minimally required to comply with requirements that are closely related to the initial harm addressed. For example, an owner/operator may indicate a willingness to establish an environmental auditing program to check compliance at other UST facilities, if appropriate, or may demonstrate efforts to accelerate compliance with other UST regulations for which the phase-in deadline has not yet passed. (Footnote 12) Because compliance with the regulation is expected from the regulated community, no downward adjustment may be made if the good faith efforts to comply primarily consist of coming into compliance. That is, there should be no "reward" for doing now what should have been done in the first place. On the other hand, lack of cooperation with enforcement officials can result in an increase of up to 50 percent of the matrix value.

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OSWER DIRECTIVE 9610.12

3.2.2 Degree of Willfulness or Negligence
The second adjustment that may be made to the matrix value is for willfulness or negligence, which takes into account the owner/operator's culpability and intentions in committing the violation. In assessing the degree of willfulness or negligence, the following factors may be considered: In certain circumstances, the amount of control that the violator has over how quickly the violation is remedied also can be relevant. Specifically, if correction of a violation is delayed by factors that the violator clearly can show were not reasonably foreseeable and out of his or her control, the penalty assigned for the duration of noncompliance may be reduced (see Section 3.4), although the original penalty for noncompliance should not be. In assessing the degree of willfulness, enforcement staff may consider making upward adjustments by as much as 50 percent and downward adjustments by as much as 25 percent of the matrix value.

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OSWER DIRECTIVE 9610.12

3.2.3 History of Noncompliance
The third factor to be considered in adjusting the matrix value is the violator's history of noncompliance. Previous violations of any environmental regulation are usually considered clear evidence that the violator was not deterred by previous interaction with enforcement staff and enforcement actions. Unless the current violation was caused by factors entirely out of the control of the violator, prior violations should be taken as an indication that the matrix value should be adjusted upwards. When assessing the history of noncompliance, some of the factors that may be considered are: For purposes of this document, a "prior violation" includes any act or omission for which an accountable enforcement action has occurred (e.g., an inspection that found a violation, a notice of violation, an administrative or judicial complaint, or a consent order). A prior violation of the same or a related requirement would constitute a similar violation.

In cases of large corporations that have many divisions and/or subsidiaries, if the same corporation is involved in the current violation the adjustments for history of noncompliance will apply. In addition, enforcement staff should be wary of a company that changes operators or shifts responsibility for compliance to different persons or organizational units as a way of avoiding increased penalties. A consistent pattern of noncompliance by several divisions or subsidiaries of a corporation may be found, even though the facilities are at different locations. Again, in these situations, enforcement staff may make only upward adjustments to the matrix value by as much as 50 percent.

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OSWER DIRECTIVE 9610.12

3.2.4 Other Unique Factors
This guidance allows an adjustment for unanticipated factors that may arise on a case-by-case basis. As with the previous factors, enforcement staff may want to make upward adjustments to the matrix value by as much as 50 percent and downward adjustments by as much as 25 percent for such reasons.

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OSWER DIRECTIVE 9610.12

3.3 ENVIRONMENTAL SENSITIVITY MULTIPLIER (ESM)

In addition to the violator-specific adjustments discussed above, enforcement personnel may make a further adjustment to the matrix value based on potential site-specific impacts that could be caused by the violation. The environmental sensitivity multiplier takes into account the adverse environmental effects that the violation may have had, given the sensitivity of the local area to damage posed by a potential or actual release. This factor differs from the potential-for-harm factor (discussed in Section 3.1.2) which takes into account the probability that a release or other harmful action would occur because of the violation. The environmental sensitivity multiplier addressed here looks at the actual or potential impact that such a release, once it did occur, would have on the local environment and public health.

To calculate the environmental sensitivity multiplier, enforcement personnel must first determine the sensitivity of the environment. For purposes of this document, the environmental sensitivity will be either low, moderate, or high. Factors to consider in determining the appropriate sensitivity level include:

Thus, a "low" sensitivity value may be given in a case where one tank containing petroleum is located in clay soil in a semi-residential area where all drinking water is supplied by municipal systems, and where little wildlife is expected to be affected. A moderate sensitivity value may be given if: several tanks were in violation; the geology of the site would allow for some movement of a plume of released substance; and several drinking water wells could have been affected. A high sensitivity value may be given if: a number of tanks (or very large tanks) were involved; there were several potential receptors of the released substance through drinking water wells or contact with contaminated surface water; and the contamination would be difficult to remediate. Each level of sensitivity is given a corresponding multiplier value, as provided below.

DETERMINING THE ENVIRONMENTAL SENSITIVITY MULTIPLIER

Environmental Sensitivity Multiplier (ESM) is based on the potential or actual environmental impact at a site, and is given a corresponding value as follows:

Environmental
Sensitivity

ESM
Low 1.0
Moderate 1.5
High 2.0

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OSWER DIRECTIVE 9610.12

3.4 DAYS OF NONCOMPLIANCE MULTIPLIER

The final adjustment that may be made to the matrix value takes into account the number of days of noncompliance. To determine the amount of the adjustment, locate the days of noncompliance multiplier (or DNM) in the table below that corresponds to the duration of the violation:

DETERMINING THE DAYS OF NONCOMPLIANCE MULTIPLIER

Days of Noncompliance Multiplier (DNM) is based on the number of days of noncompliance.

Days of
Noncompliance

DNM
0-90 1.0
91-180 1.5
181-270 2.0
271-365 2.5
Each additional 6 months
or fraction thereof
add 0.5

The DNM is then multiplied by the adjusted matrix value and environmental sensitivity multiplier to obtain the gravity-based component of the penalty, as follows:

DETERMINING THE GRAVITY-BASED COMPONENT
                                                  Violator-    Environmental  Days of
                         Gravity-Based = Matrix x Specific   x Sensitivity  x Noncompliance
                            Component    Value    Adjustments  Multiplier     Multiplier

The economic benefit component is added to the gravity-based component to form the initial penalty target figure to be assessed in the complaint. As discussed previously, this figure cannot exceed $10,000 for each tank for each day of violation.

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OSWER DIRECTIVE 9610.12

CHAPTER 4. SETTLEMENT ADJUSTMENTS

After the initial penalty target figure has been presented to the potential violator in a complaint, additional adjustments may be made as part of a settlement compromise. All such adjustments are entirely within the discretion of Agency personnel. The burden is always on the owner/operator to provide evidence supporting any reduction of the penalty.

In response to a complaint, the owner/operator may request an informal conference and/or a hearing to settle the penalty and violation. The Federal Consolidated Rules of Practice (CROP) procedures for administrative actions at 40 CFR Part 22 provide for a settlement conference and a right to a public hearing, giving the owner/operator the opportunity to present data to support a penalty adjustment. At a minimum, enforcement personnel may consider adjustments based on the four violator-specific adjustment factors discussed in Chapter 3, including:

The settlement adjustment is usually not made to the economic benefit component unless new and better information about the economic benefits is made available. The Agency should maintain a record that includes a statement of the reasons for adjusting the penalty.

In addition to the adjustment factors listed above, and because of the nature of the UST regulated community, one factor that commonly will be discussed during negotiations is the owner/operator's inability to pay. An adjustment may need to be made for inability to pay to ensure fair and equitable treatment of the regulated community. It is important, however, that this reduction not allow the regulated community to regard violations of environmental requirements as a way to save money. Furthermore, a penalty should not be reduced when a violator refuses to correct a violation, has a history of noncompliance, or in cases with egregious violations (e.g., failure to abate a release that is contaminating drinking-water supplies).

The Agency should assume that the owner/operator is able to pay unless the owner/operator demonstrates otherwise. The inability to pay adjustment should be based on the amount of the initial penalty target figure and the financial condition of the business, but it is the owner/operator's responsibility to provide evidence of inability to pay. The owner/operator may provide evidence, such as tax returns, to document his or her claims. In cases when the owner/operator fails to demonstrate inability to pay, the Agency should determine whether the owner/operator is unwilling to pay, in which case no adjustments to the initial penalty target figure should be made. In cases where the owner/operator can successfully demonstrate: (1) that the company is unable to pay; or (2) that payment of all or a portion of the penalty will preclude the violator from achieving compliance, the following options may be considered:

A reduction of the gravity-based component should be considered only after determining that the other four options are not feasible.(Footnote 14)

In order to evaluate a violator's claim regarding inability to pay, two sources of information are available to determine the likelihood that a company can afford to pay a certain civil penalty:

National Enforcement Investigation Center (NEIC). The NEIC of EPA's Office of Enforcement has developed the Superfund Financial Assessment System that can determine a company's ability to pay. For publicly owned companies, specific financial data is available from NEIC. If investigating a private company, enforcement staff can report financial data to NEIC and it will be keyed into NEIC's computerized economic computer model for analysis.(Footnote 15)

ABEL. EPA's Office of Enforcement developed the "ABEL" model as part of an ongoing effort to evaluate the financial health of firms involved in enforcement proceedings. The ABEL model has been used by EPA, Regions, and States to evaluate a firm's claim regarding inability to pay based on 21 inputs gathered from the company's Federal income tax returns from the previous 3 years. Enforcement staff may access ABEL by computer dial-up on a personal computer with a modem and an ABEL user ID number. (Footnote 16) In addition, OUST has developed a PC-based model called ABELPRO which is a simplified version of ABEL that is run on a PC using a LOTUS spreadsheet or Macintosh Excel.(Footnote 17)

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OSWER DIRECTIVE 9610.12

CHAPTER 5. USE OF FIELD CITATIONS

[Reserved]

The Office of Underground Storage Tanks (OUST) has been exploring the use of field citations as an alternative means of assessing civil penalties and obtaining compliance with UST requirements. Once the manner in which field citations will be used in the Federal UST program has been determined, this policy will be revised to reflect how field citations fit into the UST penalty policy.


OSWER DIRECTIVE 9610.12

FOOTNOTES

Footnote #1: These are contained in two separate rules: the UST Technical Standards Rule, 40 CFR Part 280, Subparts A through G (promulgated September 23, 1988) and the UST Financial Responsibility Rule, 40 CFR Part 280, Subpart H (promulgated October 26, 1988). Back to Text
Footnote #2: 40 CFR Part 22, "The Consolidated Rules of Practice Governing the Administrative Assessment of Civil Penalties and the Revocation or Suspension of Permits." The CROP was extended to cover administrative enforcement actions under Section 9006 (see 53 FR 5373, February 24, 1988). Back to Text
Footnote #3: This $10,000 limit also applies to violations of the Interim Prohibition provisions and any requirement of an approved State program. For violations of the May 1985 (statutory) notification requirements, the penalty may not exceed $10,000 for each tank. Back to Text
Footnote #4: This guidance is in no way intended to limit the penalty amounts sought in civil judicial actions. In settling judicial cases, however, the Agency may use the narrative penalty assessment criteria set forth in this guidance to determine or justify the penalty amount that the Agency agrees to accept in settlement. Back to Text
Footnote #5: The "EPA Policy on Civil Penalties" (EPA General Enforcement Policy #GM-21, February 1984) and the "Framework for Statute-Specific Approaches to Penalty Assessment" (EPA General Enforcement Policy #GM-22, February 1984) establish a consistent Agency-wide approach to the assessment of civil penalties. Back to Text
Footnote #6: However, it should be remembered that the sum of the gravity-based component plus the economic benefit component cannot be greater than the statutory maximum of $10,000 for each tank for each day of violation of the technical standards and financial responsibility regulations. Back to Text
Footnote #7: This policy does not outline a methodology for the recovery, as a measure of economic benefit, of profits proximately attributable to illegal or non-compliant activities. Because the Federal UST regulations do not include a permitting process, the Agency is not presently aware of situations where such profits would be realized, or where we would expect to seek recovery of such profits as a measure of economic benefit in the Federal UST program. Should EPA determine that the recovery of such profits is appropriate in a particular case, the Agency will calculate such profits in a manner consistent with the RCRA Civil Penalty Policy (October 1990). Back to Text
Footnote #8: Revised guidelines for calculating the economic benefit from noncompliance are incorporated into a memorandum from Courtney Price (Assistant Administrator for Enforcement and Compliance Monitoring) entitled, "Guidance for Calculating the Economic Benefit of Noncompliance for a Civil Penalty Assessment" (November 5, 1984). Back to Text
Footnote #9: For information, contact the BEN/ABEL Coordinator in the Office of Enforcement at the U.S. EPA Headquarters by phoning (202) 475-6777 or FTS 475-6777. Back to Text
Footnote #10: To obtain the equity discount rate from the Office of Enforcement, or to access BEN, call the BEN/ABEL coordinator at (202) 475-6777 or FTS 475-6777. Back to Text
Footnote #11: For information from the Dun and Bradstreet data base call NEIC at (303) 236-3219 or FTS 8-776-3219. Using information on the violator's name and location (city and State), NEIC staff can search the data base for information on the company's annual income. Back to Text
Footnote #12: For information on establishing environmental auditing programs, see "EPA Policy on the Inclusion of Environmental Auditing Provisions in Enforcement Settlements," U.S. EPA, Office of Enforcement and Compliance Monitoring, November 1986. Back to Text
Footnote #13: Lack of knowledge of the legal requirements may not be used as a basis to reduce the matrix value. Rather, informed violation of the law should serve to increase the matrix value. Back to Text
Footnote #14: The Agency is currently developing cross-media guidance on environmental mitigation projects which, when final, will supersede the "Alternative Payments" section of the Agency's February 16, 1984 penalty policy (#GM-22). Until the revised Agency guidance is finalized, the Agency's 1984 penalty policy should be consulted for additional guidance. Back to Text
Footnote #15: For further information, contact the NEIC at (303) 236-5100 or FTS 8-776-5100. Back to Text
Footnote #16: To obtain the ABEL User's Manual and user ID numbers for computer hookup, contact the BEN/ABEL Coordinator at the U.S. EPA Headquarters, by phoning (202) 475-6777 or FTS 475-6777. Back to Text
Footnote #17: For information, contact the appropriate Regional Desk Officer at U.S. EPA Headquarters' Office of Underground Storage Tanks. Back to Text

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APPENDICES


OSWER DIRECTIVE 9610.12

APPENDIX A

Matrix Values for Selected Violations of Federal Underground Storage Tank Regulations


OSWER DIRECTIVE 9610.12

APPENDIX B

UST Penalty Computation Worksheet

OSWER DIRECTIVE 9610.12

APPENDIX C

UST Penalty Computation Examples (PDF) (33 pp, 1.3MB, About PDF)

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