Lisa Brown, Cal/EPA February 2007 Penalty Calculations For Non-Hazardous Waste AEOs

What is there when there isn’t a matrix? The law Your judgment Examples from other programs and/or your neighbors The AEO TAG Some UPAs have their own matrixes for non haz waste programs

The Law: HSC Section (a) Authorizes UPAs to assess penalties for each program that is subject to the Administrative Enforcement Order (AEO) process Only HW has a penalty matrix established in state regulations (see Mickey’s class)

AEO Penalty Amounts (per day per violation) HW- up to $25,000 SPCC- up to $5,000 up to $10,000 for second or repeat violations UST- minimum $500 to $5,000, up to $10,000 for monitoring systems or leak detection tampering

AEO Penalty Amounts (per day per violation) BP & Inventory- $2,000, raises to $5-25,000 if knowingly done after prior notice Cal/ARP $2,000 raises to $25,000 if knowingly done after notice

AEO penalties do NOT apply to…. Minor violations [defined in HSC 25404(a)(3)] Unless not corrected or not certified corrected Violations of UFC

HSC Section (b) When setting an AEO penalty, the UPA shall consider: Nature, circumstances, extent & gravity of violation Violator’s past and present efforts to prevent, abate, or clean up Violator’s ability to pay The deterrent effect the penalty has on both the violator and the regulated community

Suggested Steps to Set an AEO Penalty Step 1 What is the violation (s) Step 2 How many occurrences of each violation Step 3 Apply statutory penalty factors Step 4 Come up with penalty amount Step 5 Repeat as needed

What is the violation? What statute or regulation section What is the penalty range in the statute?

How many occurrences of the violation? More than one violation on the same day? Example 10 drums w/o lids The same violation on more than one day? Example: 10 drums w/o lids for 2 weeks The same violation at more than one location? in the same facility? in a different facility (same owner)?

Evidence Check If multi day violations—are you sure you have evidence for the days other that the day you observed the violation?

Problem Area Multiple violations can result in very high penalty amounts Can either set a high one day penalty or a low daily penalty (or justify your penalty by using both methods to determine your number)

Possible adjustment for multiple violations (from haz waste matrix) A single initial penalty may be assessed when: -The facility has violated the same requirement in different location (e.g., units) within the facility. -The facility has violated the same requirement on different days, unless the facility has been notified of the violation and has had sufficient time to correct the violation. -Violations that are not independent or are not substantially distinguishable.

One time vs. ongoing violations Failure to submit a report (one day violation?) Failure to train (one day, but per E’ee) Operating without a permit (everyday is a violation) Operating without a designated operator (everyday is a violation)

Statutory Penalty Factors “Nature, circumstances, extent & gravity of violation”

Penalty Factors : Nature & Extent of the Violation How important is this requirement? Is it a new requirement? Degree of deviation from the requirement

Penalty Factors: “circumstances of the violation” Effort to comply before & after violation Cooperation Knew or should have known better Any previous/current problems with regulatory agencies Changes/unique circumstances

“Nature of the violation” includes Economic Benefit Compliance costs money To be aware of the regulatory requirements To stay current on regulatory requirements Capital costs (equipment, testing, O&M) Staff costs (employees, training) Delays required to be in compliance before you start a new activity or product

What Is Not Economic Benefit? Economic Benefit does not include Accounting for ability to continue in business Don’t discount costs the violator incurred in correcting the violation or cleanup

What to Consider in Determining Economic Benefit Time value of money Project/design alternatives Equipment costs - capital, shipping, installation, taxes, labor Developed procedures

What to Consider (continued) Labor costs – supervision and O&M  Training What was required? What additional training was needed?

Economic Benefit Steps  Determine what should have been done  When and/or how often  Estimate the type and cost of the actions, distinguish  delayed costs  avoided costs  Consider other economic benefits (e.g. continued production, early entry to market)  Do NOT adjust for expenditures to abate the effects

Avoided costs vs. Delayed costs Avoided costs (EB is time value of money) Not filing BP for two years Delayed costs (EB is the total cost +) E’ee training Equipment upgrade

Example UST upgrade deadline 1998 In 1998 UST contractors prices went higher as the deadline approached So upgrading in 1999 cost less than in 1998 Non upgraded stations made money in 1999 when should not have been open Gas Slurpies, beer, cigarettes Too complicated for an AEO?

What you will hear–” I didn’t make any money”! Net profit is only a part of economic benefit Economic benefit = you did not spend money you were supposed to You gained advantage by non compliance

Factor: Violator’s Ability to Pay May be used to adjust upward or downward the penalty that would otherwise be imposed You do not have to adjust to keep the violator in biz Some businesses cannot stay in biz and comply with the law Gov’t cannot subsidize violators

Ability to Pay The statute requires you “consider” ability to pay; NOT that you adjust the penalty so the violator can pay it and stay in businesses. Does not requires that UPA figure out what the violator can pay It’s a very broad concept

Factor: past and present efforts to prevent, abate, or clean up Training programs? Is compliance encouraged? Do they go “beyond compliance” in other areas?

Factor: Deterrent effect of the penalty on the violator Compliance costs money Deterrent effect on the violator Economic benefit factors here also

Factor: Deterrent effect of the penalty on the regulated community Is the penalty you want others to pay? You must be able to articulate and defend this penalty in future AEOs Are you being fair to those who are in compliance?

Deterrence— An economist’s approach Probability of violation being detected If detected, probability of enforcement If enforcement action taken, probability of penalty Discount rate (interest) Time between date of violation and payment of penalty

Ex: Initial Penalty Matrix – UST MajorModerateMinimal MajorMaxi $5,000 Avg $4,000 Min $3,000 $3,000 $2,500 $2,000 $1,500 $1,000 ModerateMax $3,000 Avg $2,500 Min $2,000 $2,000 $1,500 $1,000 $750 $500 MinimalMax $2,000 Avg $1,500 Min $1,000 $1,000 $500

Ex: Initial Penalty Matrix – Biz Plan (1st time violator) MajorModerateMinimal MajorMax $2,000 Avg. $1,750 Min. $1,500 $1,750 $1,500 $1,250 $1,500 $1,250 $1,000 ModerateMax $1,500 Avg $1,250 Min $1,000 $1,250 $1,000 $750 $1,000 $750 $375 MinimalMax $1,000 Avg $750 Min $500 $750 $500 $375 $250 $0

Caveat! If you use a matrix it must be designed and you must consider the statutory factors