The Cost of Non-Compliance | Part 6: EPA’s Combined Enforcement Policy

June 13th, 2023 | , , ,

introduction

Uriah Donaldson presented a technical paper at the 2023 IIAR Conference titled The Cost of Non-Compliance: An Objective Analysis of Federal EPA’s Enforcement at Ammonia Refrigeration Facilities. This blog series includes excerpts from his technical paper.

Part 6: EPA’s Combined Enforcement Policy for CAA §112(r) and 40 CFR Part 68

In June 2012, the EPA revised its enforcement policy to create a consolidated and objective matrix for calculating penalties for violations of the RMP as required under CAA §112(r). Therefore, it is necessary to highlight one of the opening statements of this enforcement policy, which in practical terms, means that the EPA will typically issue a fine for any violation of CAA §112(r):

“In all but rare instances, EPA should seek penalties to address noncompliance, either by initiating a civil administrative action or a civil judicial referral. However, in limited circumstances, EPA may pursue a non-penalty action (emphasis mine).”(30)

The remainder of this section examines the key points of the enforcement policy by discussing the two primary components of the EPA’s calculation: (1) the Economic Benefit of Non-‍compliance and (2) the Gravity of the Violation.

Economic Benefit of Noncompliance

The Policy begins this section by stating: “An entity that has violated CAA §112(r) should not profit from its actions.”(31) This is called the economic benefit. If a business owner(s) takes home more money at the end of the fiscal year because they failed to reinvest capital funds into their facility for required maintenance or improvements, they have benefited economically by violating the RMP regulation. 

A practical example of this could be where an ammonia refrigeration facility conducts a mechanical integrity inspection which reveals that several sections of piping have severe corrosion. The recommendation is to replace these sections of pipe. If the business owner decides not to replace the pipes simply because they feel it is too expensive, the business owner has violated the RMP regulation by not adhering to the Mechanical Integrity prevention program element, and subsequently also has more money in the bank account at the end of the year by not replacing the pipe. 

The policy explains the economic benefit this way: 

“Economic benefit can result from a violator delaying or avoiding compliance costs or when the violator achieves an illegal competitive advantage through its noncompliance. A fundamental premise of the 1984 policy is that economic incentives for noncompliance are to be eliminated.”(32)

To calculate the economic benefit of a given violation, the EPA uses a computer model system called BEN 2.0. The model requires various data points such as, “the date the violation occurred, the date of compliance, the costs of compliance and the year the costs were estimated, and the date the penalty will be paid.”(33)

Below is a fictitious example of the Economic Benefit breakdown using real data points from multiple inspections.

Compliance Project BEN Type Capital Cost Violation Start Date Completed Date BEN
Process Safety Information (update P&IDs, installing signage, alarms and ventilation study) Delayed $29,500 March 2019 Nov. 2021 $7,990
Process Safety Information (Relief Valve Termination Piping Analysis) Delayed $10,000 Oct 2019 March 2021 $1,276
Process Hazard Analysis: (ER Doors, eyewash stations) Delayed $13,600 March 2019 Nov. 2021 $1,440
Mechanical Integrity (Vapor barrier repair, painting electrical conduit) Delayed $25,500 April 2019 July 2021 $3,770
Total BEN Calculation $14,476

Gravity of the Violation

The gravity of a violation is determined by calculating several components:

  • Seriousness of the Violation
  • Duration Component
  • Size of Violator
  • + or – Adjustment Factors

Because there is a subjective nature to the adjustment factors, we limit our discussion to the first three components using the following fictitious example:

An ammonia cold storage facility with a net worth of $7,000,000 and maximum intended inventory of 12,000 lbs.(34) performed a Process Hazard Analysis in January of 2017. The study resulted in 12 recommendations, such as installing a machinery room ventilation system (because a ventilation system was non-existent), obtaining U-1A forms for several pressure vessels, and conducting non-destructive testing (NDT) on corroded piping. The due date for these recommendations was one year from the completion of the PHA, January 31, 2018. The EPA performed an inspection in October 2019, and while all other PHA recommendations had been resolved, a ventilation system had still not been installed. The facility completed the ventilation system installation in May 2020.

Calculating the Gravity of the Violation

1) Seriousness of the Violation

The seriousness of a violation is determined by a matrix based on the Potential for Harm and the Extent of Deviation. The Potential for Harm is categorized as major (undermining the ability to prevent or respond to releases), moderate (potential to affect the ability to prevent or respond to releases), or minor (little potential to affect the ability to prevent or respond to releases). The Extent of Deviation is also categorized as major (substantial non-compliance), moderate (significant deviation, but some requirements are met), or minor (the violator somewhat deviates, but most requirements are met).

Table I – The Part 68 Seriousness Matrix

Potential For Harm
Minor Moderate Major
Extent Of Deviation Major $25,000

$20,000

 $30,000

$25,000

 $37,500

$30,000
Moderate $10,000

$5,000

 $15,000

$10,000

 $20,000

$15,000
Minor $1,000

$500

 $3,000

$1,000

 $5,000

$3,000

In our example of failing to install a machinery room ventilation system, both the Potential for Harm and the Extent of Deviation would likely be categorized as major. This would result in a civil penalty of between $30,000 and $37,500 for the Seriousness of Violation component.

2) Duration of Violation

The Combined Enforcement Policy describes “Duration of Violation” as follows:

“The duration of a violation is based on the time period from the first day of violation for which the Region has evidence through the last provable date of the violation…. For example, if a facility fails to submit an RMP, the first date of violation is the day the plan was due. The violation continues until the day the facility submits the plan.”(35)

In our example, the Duration of Violation would be calculated using Table III as follows:

Table III – Duration of Violation

Months Penalty
0-12 $750/month
13-24 $1,500/month
25-36 $2,250/month
37+ $3,000/month

The ventilation system was due by January 31, 2018 and was installed in May 2020.

# of Months Dates of Non-Compliance Penalty / mo. Penalty
0-12 months Feb 2018 – Jan 2019 $750 x 12 $9,000
13-24 months Feb 2019 – Jan 2020 $1,500 x 12 $18,000
25-36 months Feb 2020 – April 2020 $2,250 x 3 $6,750
Total Duration of Violation Penalty 33,750

3) Size of Violator

The combined enforcement policy states on page 15 that the “EPA should scale the penalty to the size of the violator. The size of the violator is based on the company’s net worth.”(36) The following table is used to calculate the Size of Violator penalty.

Net Worth Size Adjustment
Under $1,000,000 $0
$1,000,000 – $5,000,000 $10,000
$5,000,001 – $20,000,000 $20,000
$20,000,001 – $40,000,000 $35,000
$40,000,001 – $70,000,000 $50,000
$70,000,001 – $100,000,000 $70,000
Over $100,000,001 $70,000 

+ $25,000 for every additional $30,000,000

Because the facility in our fictitious scenario has a net worth of $7,000,000, the Size of Violator penalty would be $20,000.

In summary, the single PHA violation of failing to install a ventilation system from our fictitious example would result in the following Gravity of Violation Penalty:

Description Penalty
Seriousness $33,250
Duration $31,500
Size of Violator $20,000
Gravity of Violation Total $84,750
(30) EPA Combined Enforcement Policy for CAA 112(r) and 40 CFR Part 68, June 20, 2012, Page 4; (31) EPA Combined Enforcement Policy for CAA 112(r) and 40 CFR Part 68, June 20, 2012, Page 7; (32) EPA Combined Enforcement Policy for CAA 112(r) and 40 CFR Part 68, June 20, 2012, Page 7; (33) https://www.epa.gov/enforcement/penalty-and-financial-models; (34) There are “two sets of tables for determining the seriousness of the violation component one for Part 68 violations and one for GDC violations.” This example uses Table I because the inventory is above 10,000 of ammonia which makes it subject to RMP [40 CFR Part 68].; (35) EPA Combined Enforcement Policy for CAA 112(r) and 40 CFR Part 68, June 20, 2012, Page 14; (36) EPA Combined Enforcement Policy for CAA 112(r) and 40 CFR Part 68, June 20, 2012, Page 15

The previous blogs in this series are available in the following links:

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