1. Environmental Compliance and Sustainability in the Retail Industry Sean M. Sullivan Williams Mullen 301 Fayetteville Street, Suite 1700 Raleigh, NC 27601 (919) 981-4312 ssullivan@williamsmullen.com

2. Major Topics EPA Enforcement Priorities and Trends Considerations for Compliance Auditing Vapor Intrusion at Brownfields Sites Disaster Planning Sustainability In Retail

3. EPA Enforcement Priorities and Trends Stormwater Hazardous Air Pollutants Underground Storage Tanks Hazardous Waste Issues Recent Enforcement Cases involving Retailers

4. EPA Enforcement Priorities and Trends EPAs Nationwide Priorities for FY 2010-2013 include: –Stormwater compliance (construction and industrial). –Emissions of air pollutants from boilers and generators. –Underground Storage Tanks.

5. EPA Enforcement Priorities and Trends Stormwater Compliance –Construction sites continue to be a high priority for EPA. –Depending on the structure of a development transaction, anchor stores may find themselves as permittees for stormwater discharges. The owner of a construction site is usually the target of enforcement.

6. EPA Enforcement Priorities and Trends Stormwater Compliance –Can be a major source of pass through costs in leases. In NC, DENR has proposed rules that require commercial developments to retrofit pollution controls due to water quality problems in a Raleigh lake. Landlords may be able assess tenants for those costs.

7. EPA Enforcement Priorities and Trends Stormwater Compliance –In Chesapeake Bay Watershed, state and local governments will be forced to install additional controls and meet stricter discharge limits. Higher utility fees and taxes. Local governments may also impose additional regulations to meet these stricter limits.

8. EPA Enforcement Priorities and Trends Hazardous Air Pollutants –EPA issued new emissions rules for industrial and commercial boilers in early 2011. Apply to both major and minor sources of HAP emissions. Operators of heating boilers (for example) have varying compliance obligations based on: –Type of fuel source –Whether they emit more than 10 tpy of any one HAP or 25 tpy of all HAPs.

9. EPA Enforcement Priorities and Trends Hazardous Air Pollutants –Generators All non-emergency generators are regulated. Emergency generators installed after June 12, 2006 are regulated. Emissions and fuel limits, records, notifications. Generators can become non-emergency if: –New generator is used for demand management or is part of a financial arrangement with a third party. –Existing generator runs > 15 hours per year for demand management or demand shaving deal.

10. EPA Enforcement Priorities and Trends Underground Storage Tanks –Not only an issue for retail operations but also for distribution centers. –Leak detection, recordkeeping and reporting of potential releases are primary requirements. Have had several cases where maintenance staff ignore a faulty sensor because others are working or ignore release alarms because other parts of system indicate no release has occurred. You have to fix the faulty sensor or resolve the source of the release alarm, or its a violation. EPA hits parties hard for not reporting failed leak detection tests.

11. EPA Enforcement Priorities and Trends Hazardous Waste Issues –Pesticides, paint, batteries and fluorescent light bulbs are all hazardous waste when disposed or sent for recycling. –Some of this material must be managed as hazardous waste and some can be managed as universal waste. Standard procedures are an easy way to ensure these materials are handled properly.

12. EPA Enforcement Priorities and Trends Hazardous Waste Issues –Procedures should not be too generalized. Had a case where a client treated any spill of any material with an MSDS as hazardous waste. Changed some operations at a distribution center and had a number of spills in one month. Between the normal amount of hazardous waste generated, they crossed the LQG threshold one month. Had an inspector come through a month later and the facility was not in compliance with LQG rules. Could have avoided the violations by not treating absorbents as hazardous waste automatically.

13. EPA Enforcement Priorities and Trends Federal Enforcement Data –Available in the ECHO database. –Trends over the last five years A number of retailers were caught in the silly string cases. Numerous retailers have had generator-status violations UST violations for gasoline sales, retail distribution centers, and generator fuel. Failure to have and comply with Spill Prevention Control and Countermeasures Plans. Construction stormwater enforcement cases.

14. EPA Enforcement Priorities and Trends Interesting Individual Enforcement Cases –Operation of large capacity cesspools in Hawaii. Highlights risks in relying on state guidance. –Releases of hydraulic fluid containing PCBs from a shopping mall elevator. Neither retailer nor mall owner cleaned up known spills of fluid. –Failure to repair known refrigerant leaks at retailers corporate offices (multiple locations). Violations can occur anywhere.

15. EPA Enforcement Priorities and Trends Pesticide / Product Labeling Issues –If a products labeling claims to control pests, it must be registered as a pesticide. –Distribution of an unregistered pesticide in commerce is a violation of FIFRA, and enforcement actions against retailers are common. Situation also forces retailers to remove large quantities of merchandise from shelves. –Recent example is mold and mildew cases.

16. EPA Enforcement Priorities and Trends Mold and Mildew Cases –Critical question is whether the product claims the ability to control a living organism. –Claim to prevent mold and mildew can only be made for registered pesticide. Safeway paid a $600K civil penalty for this type of claim on its house brand toilet bowl cleaner.

17. EPA Enforcement Priorities and Trends Mold and Mildew Cases –Compare Safeway claim to: Claim to prevent mold and mildew stains. Claim to clean and remove mold and mildew stains. Claim to prevent tough odors. EPA has a fact sheet for cleaning products on its website.

18. Major Topics EPA Enforcement Priorities and Trends Considerations for Compliance Auditing Vapor Intrusion at Brownfields Sites Disaster Planning Sustainability In Retail

19. Considerations for Compliance Auditing Basic Truth – EPA does not recognize any audit privilege created by state law. –Audit reports will be admissible as evidence in any federal proceeding. Exception – Attorney-client privilege and attorney work product doctrines. –If a consultant prepares the report in order to allow an attorney to provide legal advice, the report is protected from disclosure.

20. Considerations for Compliance Auditing Running compliance audits through internal law departments provides a cost effective means of keeping reports confidential. Select an attorney whose role in the company is clearly legal. –To the extent a lawyer functions in a business role, there is an argument no privilege exists. –Using outside counsel eliminates this risk.

21. Considerations for Compliance Auditing Maintain the confidentiality of compliance audit reports. –Limit availability in document management system and distribution among employees. –Extent of permissible distribution varies. –Disclosure during transactional due diligence can waive privilege.

22. Major Topics EPA Enforcement Priorities and Trends Considerations for Compliance Auditing Vapor Intrusion at Brownfields Sites Disaster Planning Sustainability In Retail

23. Vapor Intrusion at Brownfields Sites Trend towards urban redevelopment commonly involves sites with environmental contamination. Certain types of groundwater contaminants produce gas that rises through the soil to the surface. –Typically chlorinated solvents, dry-cleaning chemicals and gasoline. –Result is indoor air quality problems.

24. Vapor Intrusion at Brownfields Sites Many states follow EPAs 2002 guidance on vapor intrusion. –Lays out a multi-tiered process for evaluating whether groundwater contamination poses a vapor risk. –Depending on site-specific factors, soil gas sampling and then indoor air sampling may be warranted.

25. Vapor Intrusion at Brownfields Sites States are finding that the screening levels in the 2002 guidance are not conservative enough. –Reopening closed sites to evaluate human health risk. –NC has initiated a fundamental re-evaluation of its vapor intrusion program. Immediate indoor air sampling is not a good idea, though. –Soil gas sampling is the better approach.

26. Major Topics EPA Enforcement Priorities and Trends Considerations for Compliance Auditing Vapor Intrusion at Brownfields Sites Disaster Planning Sustainability In Retail

27. Disaster Planning Has been an issue recently in North Carolina with the tornado outbreak. Environmental issue is disposal of materials in a store that are damaged or destroyed. Two major concerns: –Products. –Building and its fixtures.

28. Disaster Planning Product Disposal –Examples – Pesticides, paint, CFL light bulbs. –If these materials are in an area thats unsafe to enter, building demo may cause releases. –Depending on store configuration, spilled materials can enter storm drains and be released to surface waters.

29. Disaster Planning Building and Fixture Disposal –Fluorescent lighting. –Older buildings with asbestos. –Lead-based paint. Regulatory problem – the mixture rule. –Rule – if one mixes hazardous waste with non-hazardous waste, the entire mixture is now hazardous waste.

30. Disaster Planning Mixture Rule Problem –Application of the rule is within the states regulatory agencys discretion. –Key is convincing the regulator you have not intentionally mixed hazardous and non-hazardous waste. Minimize the potential for additional releases after the event has concluded.

31. Disaster Planning There are a number of studies regarding debris disposal after Katrina. As a result, EPA has directed states to develop debris management plans, which include staging areas for different classes of materials. Private businesses are still responsible for disposing of their own debris, but understanding the local plan may help facilitate disposal and rebuilding.

32. Disaster Planning Post-Katrina Enforcement Cases –Improper disposal of asbestos. –Dumping of materials in unpermitted locations. –Improper management of fluorescent light bulbs and ballasts. Key is understanding what you have in your store and how it needs to be managed ahead of time.

33. Major Topics EPA Enforcement Priorities and Trends Considerations for Compliance Auditing Vapor Intrusion at Brownfields Sites Disaster Planning Sustainability In Retail

34. Sustainability in Retail EPAs Definition of Sustainability – going beyond your regulatory obligations to protect the environment. Five Major Areas for Retail Industry –Buildings and Infrastructure –Facilities Management –Transportation/Logistics/Supply Chain –Merchandising (Packaging) –Customer Programs

35. Sustainability in Retail Buildings and Infrastructure –Advanced Refrigeration to avoid ozone depleting substances. Benefit of avoiding regulatory requirements under CAA, but ammonia-based systems have their own rules. –Building materials and designs that limit energy use and use materials with lesser environmental impact. Leases should be written to allocate savings to entity that bears the cost.

36. Sustainability in Retail Smart Growth – use of brownfields properties for new stores to reduce sprawl. Green Infrastructure – design sites with less impervious surfaces to reduce pollutant loads on utilities and volume of stormwater discharge.

37. Sustainability in Retail Facilities Management –Selecting boilers with greater energy efficiency ratings and potential for cogeneration. –Limit amount of fats, oil and grease you discharge to sewer system. –Landscaping to maximize pervious surface and minimize need for fertilizer and pesticide.

38. Sustainability in Retail Transportation and Supply Chain –Encourage public transportation use among employees. –Alternative fuels for fleet vehicles.

39. Sustainability in Retail Merchandising –Life Cycle Analysis – concept of evaluating the entire life of a product (from manufacture to ultimate disposal). Identify products with lower carbon footprint. Select offerings that limit use of hazardous chemicals during production.

40. Sustainability in Retail Merchandising –Packaging Activist shareholder groups have been advocating shareholder resolutions to stop retailers from using PVC-based packaging. Problem of plastic bags. –Supply Chain Management Selecting products whose life cycles have less environmental impact. Problem of enforcement of vendor contracts (ex – Silly String Cases)

41. Sustainability in Retail Supply Chain Management –Lacey Act Amendments of 2008 Prohibits the import or distribution in commerce of any plant harvested in violation of federal, state or foreign law. Also applies to certain products containing plants; phased in over time. Again, the problem of controlling the sources of raw materials and enforcing contractual provisions.

42. Sustainability in Retail Consumer Programs –E-Waste 20 States currently have programs requiring recycling of this material. Hazardous substances in electronics include: lead, cadmium, lithium, nickel Examples –California treats it as state-only hazardous waste –North Carolina requires manufacturers to establish recycling programs. Retailers can establish collection programs for their customers.

43. Contact Information Sean M. Sullivan Williams Mullen 301 Fayetteville Street, Suite 1700 Raleigh, NC 27601 (919) 981-4312 ssullivan@williamsmullen.com