ACT Penalty Policy Comments – August 2011

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August 30, 2011

Re:       Project No. 2011-034-070-CE; Chapter 70 – General Enforcement

Dear Mr. Sinclair:

The following comments relating to the above-referenced rulemaking project are submitted by Alliance for a Clean Texas [ACT], an alliance of environmental, public interest, consumer rights and religious organizations dedicated to improving public health, quality of life and the environment in Texas.  As you are aware, ACT actively participated in the recent TCEQ Sunset review process, both at the Sunset Commission level and in the Legislature.  ACT has significant interest in the implementation of H. B. 2694, the TCEQ Sunset legislation, and especially relating to TCEQ enforcement policies and procedures.

The above-referenced rulemaking project proposes to revise 30 TAC Chapter 70 to implement Section 4.09 of H. B. 2694, which directs the TCEQ to adopt by rule a general enforcement policy that describes the commission’s approach to enforcement.  Some of the TCEQ’s general enforcement policies currently exist in Chapter 70.  You indicated at the August 2^nd stakeholder meeting that the proposed rulemaking project is simply “putting in rule things that were already in policy or guidance or standard operating procedures.”  You likewise stated that the intent in adopting general enforcement policy in rule is to “make the policy more transparent to the regulated community and the public in general.”

The following comments, which supplement those comments made orally on behalf of ACT at the August 2, 2011 stakeholder meeting, highlight four basic areas: adoption or incorporation of all existing penalty policies in the enforcement rules; analysis and use of economic benefit of noncompliance in penalty adjustments; use of “speciation” in certain penalty assessments; and the methodology by which violations are counted in assessing penalties.

I. The TCEQ’s current, formal Enforcement Penalty Policy, as well as all currently existing internal guidance documents relating to penalty policies should be adopted or incorporated in the enforcement rules.

ACT wholeheartedly supports rulemaking that will put the TCEQ’s enforcement policies in rule, thus creating more transparency of applicable enforcement policies and procedures to the regulated community and the general public.  ACT has consistently supported such actions in the recent TCEQ Sunset Review process and in the last Legislature.  However, we strongly believe that the TCEQ’s current, formal Enforcement Penalty Policy [2002 version],  as well as all currently existing internal guidance documents relating to penalty policies should be incorporated into the enforcement rules.

The TCEQ has developed, adopted and utilizes numerous policies relating to penalties in order to effectuate and administer the statutory administrative penalty authority and its directives.  For the most part, these policies have been compiled into the TCEQ’s formal Enforcement Penalty Policy document, but some policies that are regularly and routinely utilized arise outside that formal document.  For example, Chapter 70 provides very general rules governing enforcement actions at the TCEQ, but these rules authorize the Executive Director [ED] to use enforcement guidelines that are neither rules nor precedents, but rather announce the manner in which the agency expects to exercise its discretion in future proceedings.

When first developed in 1997, the Penalty Policy was intended to function for a period of time and then be adopted in rulemaking, incorporating lessons learned from its implementation.  However, none of the TCEQ’s established penalty policies, or the statutory directives set forth in Water Code Sec. 7.053, have ever been explicitly adopted into TCEQ rules.  A primary and significant component of the TCEQ’s Enforcement Review Process in 2003/2004 was the review of the agency’s Penalty Policy and its application, resulting in a number of recommendations by the ED to amend/reform the Penalty Policy.  As a result of all the various discussions and all written stakeholder comments received regarding the penalty policy, the ED drafted a proposed rule that incorporated all the Penalty Policy issues, and proposed to present that proposed rule package to the Commissioners prior to the end of calendar year 2006, as directed by the

Commissioners.  However, the Penalty Policy rulemaking project was placed on hold, and, to date, no proposed penalty policy rule package has ever been scheduled for Commission consideration.

In the TCEQ Sunset Review process, the Sunset staff expressly found:

“TCEQ’s enforcement policies are unclear, limiting regulated entities’ and the public’s ability to understand TCEQ’s enforcement decisions.

No clear path exists for someone to understand and follow TCEQ’s enforcement decision process. First, very little of TCEQ’s general approach to enforcement is in rule, including when and how it applies enforcement sanctions. The Commission adopted TCEQ’s penalty policy most recently in 2002. However, the adopted policy does not reflect how the agency actually applies it, since the Commission has further shaped the policy through Commission decisions. The Commission has had eight meetings since 2004 where it made significant decisions that affect application of the penalty policy, but TCEQ has no central resource for this information. Without a clear, updated penalty policy, people cannot know how the agency calculates penalties. In addition, without a clear penalty policy, TCEQ or the State Office of Administrative Hearings, which conducts hearings on TCEQ enforcement cases, risk inconsistently applying penalties in the future.”

Based on this expressed Sunset Review finding and recommendations associated with it, Section 4.09 of H. B. 2694 was adopted by the Legislature.  Under Section 4.09, the TCEQ is required to both adopt a general enforcement policy and also to “assess, update and publicly adopt specific enforcement policies regularly, including policies regarding the calculation of penalties and deterrence to prevent the economic benefit of noncompliance.”

ACT firmly believes that when the Legislature adopted Section 4.09 of H. B. 2694, they wanted to assure that there were both published general enforcement rules that the public and regulated community could see and understand, as well as any specific enforcement policies that implemented the general rule statements.  While there is no express requirement in Section 4.09 that the TCEQ adopt specific enforcement policies through rulemaking, other statutes require that agency policy statements such as the TCEQ’s Enforcement Penalty Policy be adopted by rule.  Texas Government Code Sec. 2001.005 prescribes that “a state agency rule, order, or decision made or issued on or after January 1, 1976, is not valid or effective against a person or party, and may not be invoked by an agency, until the agency has indexed the rule, order, or decision and made it available for public inspection as required by this chapter.”  Sec. 2001.003 of the Government Code defines “rule” as “a state agency statement of general applicability that implements, interprets, or prescribes law or policy; or describes the procedure or practice requirements of the state agency.”  [Emphasis added]  The TCEQ’s current Enforcement Penalty Policy is clearly a “rule” under the Government Code.

Furthermore, Texas Water Code Sec. 5.103 requires the TCEQ to adopt any rules necessary to carry out its powers and duties under the Water Code and other laws of this state.  It also requires that the TCEQ must adopt rules when adopting, repealing, or amending any agency statement of general applicability that interprets or prescribes law or policy or describes the procedure or practice requirements of an agency. [Emphasis added]  The TCEQ’s Penalty Policy is certainly an “agency statement of general applicability that interprets or prescribes law or policy or describes the procedure or practice requirements of the agency,” and as such is required to be adopted as a rule by the Water Code.

Therefore, ACT strongly urges the TCEQ to adopt the current, formal Enforcement Penalty Policy, as well as all currently existing internal guidance documents relating to penalty policies in the enforcement rules.  It is acknowledged and agreed that the TCEQ must have some flexibility in adoption of various necessary or appropriate penalty policies and other enforcement-related guidance documents.  If the Penalty Policy is adopted into the rules, the agency can then supplement/clarify the Penalty Policy through guidance documents, thus maintaining flexibility for agency discretion.  Likewise, ACT believes that flexibility can be ensured and maintained by incorporating the current penalty policies in the enforcement rules by reference.  To this end, a simple statement could be included in the Chapter 70 rules such as: “The Commission shall enforce compliance of its laws, regulations and rules through its Enforcement Penalty Policy, as adopted by the Commission and published and posted on the agency’s website. The Enforcement Penalty Policy may be amended as necessary by action of the Commission.”

There are numerous significant benefits to adopting the Enforcement Penalty Policy by rule, or at least incorporating it by reference in the enforcement rules. Doing so will:

• add strong legal basis at a SOAH hearing or judicial proceeding on penalty recommendations or assessments if the Penalty Policy is in rule rather than an informal policy document;

• add clarity/simplification/transparency of all the agency’s penalty policies through the rule-making process and incorporation of all policies approved by the Commission;

• facilitate settlement of more uncontested enforcement cases because a rule affords less room to negotiate;

• save agency resources when negotiations are limited;

• provide more uniform penalty recommendations and decisions;

• provide a transparent, reasoned justification for the policies through the Administrative Procedures Act rule-making processes; and,

• address any EPA concerns about enforcement during the public participation component of the rulemaking process.

II. The economic benefit of noncompliance provisions in the enforcement rules and the Penalty Policy should be strengthened.

Texas Water Code Sec. 7.053(3)(D) requires the TCEQ to “consider” the economic benefit of noncompliance (EBN) in setting penalties.  The TCEQ currently defines economic benefit as monetary gain derived from a failure to comply with any TCEQ regulation or State statute.  Once the EBN has been estimated and totaled for all violations included in the enforcement action, it is currently handled in two different manners.  One hundred percent of the avoided costs of compliance (i.e. economic benefit) are recovered through an adjustment under “other factors that justice may require,” to the extent allowed under the statutory penalty caps.  The only exception to this is that there is no attempt to recover avoided costs of compliance from governmental and non-profit entities.  The TCEQ also seeks to recover some of the delayed costs of compliance when the delayed costs exceed $15,000.  In these cases, the base penalty for the violation(s) is increased by 50%, as set forth in the Economic Benefit Matrix in the Penalty Policy.  The economic adjustment factor is capped so the adjustment amount does not exceed the economic benefit gained.  Inclusion of economic benefit cannot result in a final assessed administrative penalty that exceeds statutorily mandated maximums.

In December 2003, the State Auditor’s Office, noting that the 2002 penalty policy revisions subject all entities that receive more than $15,000 in economic benefits from noncompliance to a penalty enhancement of only 50 percent of the base penalty, found that entities that are subject to the enhancement often have economic benefits that exceed their penalties, which could reduce their incentive to comply. Also, in a December 2003 report on the TCEQ’s TPDES enforcement program, the EPA recommended that the TCEQ change its penalty policy to “collect at least the economic benefit of noncompliance and the gravity portion for the actual time period of noncompliance. This practice would serve to ‘level the playing field’ and make it economically impractical to violate the permit requirements.”

At the September 7, 2007 Work Session, two Commissioners directed staff to lower the threshold for applying EBN relating to delayed costs of compliance to $7,500, and include that change in the proposed penalty policy rule.  However, since no proposed penalty policy rule has ever been considered by the Commissioners, that threshold change has never been implemented.

In the recent Sunset Review process, Sunset staff expressly found that “TCEQ’s enforcement policies are unclear, limiting regulated entities’ and the public’s ability to understand TCEQ’s enforcement decision.” As an example, they cited that “the Commission-adopted penalty policy does not direct TCEQ to recover economic benefit associated with the avoided costs of compliance. In its May 9, 2008 work session, the Commission directed TCEQ staff to assess penalties to recover this economic benefit from regulated entities other than political subdivisions and nonprofit organizations; however, this approach has never been incorporated into the penalty policy. Without knowing that the Commission had that particular discussion more than two years ago, and how to access and cross-reference Commission decisions, the public would have little ability to know TCEQ’s approach to economic benefit in calculating penalties.”  Accordingly, they recommended that the TCEQ should be required “to structure its general enforcement policy in rule and publicly adopt its resulting enforcement policies,” expressly stating that “in adopting these rules and policies, the Commission should consider and make clear its approach to and use of its statutory enforcement tools including, but not limited to, its approach to speciation and economic benefit in calculating penalties, as well as when it will use some of its other tools, such as emergency shut-down authority.” [Emphasis added]

Based on these Sunset Review findings and recommendations, Section 4.09 of H. B. 2694 was adopted by the Legislature.  Under Section 4.09, the TCEQ is required to “assess, update, and publicly adopt specific enforcement policies regularly, including policies regarding the calculation of penalties and deterrence to prevent the economic benefit of noncompliance.” [Emphasis added]  Thus, the Legislature expressly directed the TCEQ to specifically address and publish its policy on deterrence of the economic benefit. Under the proposed Chapter 70 rules, TCEQ is suggesting adding very general language relating to how economic benefit is to be considered.  Yet, the suggested language does not address how the TCEQ will actually assess economic benefit other than it can be used to adjust the penalty upwards.  It does not address the questions of whether all economic benefit will be recovered; whether the Commission will look at both delay and avoidance; and whether the interest of that delay will also be considered. Thus, the proposed language, without a specific reference to the Penalty Policy, is not helpful in informing the regulated community and the general public how exactly EBN will be handled.

ACT understands the need to have a general enforcement policy on EBN, but believes more specificity is needed.   ACT also favors the actual recovery of all economic benefit, avoided and/or delayed, as opposed to only an adjustment of the base penalty for economic benefit. Below is some possible language. To these ends, language could be included in the Chapter 70 rules such as: “The Commission may establish a threshold above which it will recover the economic benefit of noncompliance. When applied, the Commission shall recover the economic benefit of noncompliance.”

III. The enforcement rules and the Penalty Policy should authorize the use of speciation under appropriate enforcement circumstances.

Texas Water Code Sec. 7.052 sets the maximum penalties that may be assessed per violation per day.  These statutory maximum penalties are problematic in some specific enforcement situations and/or penalty components.  For example, when violations result from significant and severe events that occur over a very short duration, such as unauthorized air emissions events at upsets or wastewater bypasses, with documented harm to human health or the environment, the statutory maximum penalty may prevent the calculated/assessed penalty from being an amount adequate to address the particular violation(s) and/or provide an appropriate deterrent effect.

Here, speciation, the process of assessing/imposing penalties for multiple violations in a single, short-term event based on the speciated [separate and discrete] components of the emission or discharge, could reasonably help offset the limitations imposed by the statutory penalty cap. If a penalty is calculated only on the basis of the single event, the total assessed penalty cannot exceed the daily statutory cap.

Water Code Sec. 7.052 sets maximum penalties that may be assessed per violation per day.  Permits issued by the TCEQ specifically list separate and distinct pollutant parameters as permit limitations.  If an entity does not comply with any specific permit parameter, then that is a violation.  So, if an entity has 10 specific pollutant parameters that are regulated by its permit and 5 of those specific parameters are violated in a significant pollution event, then that is reasonably 5 separate violations under Sec. 7.052.  If penalties are calculated for the multiple violations in a single event based on the speciated components, the statutory cap would apply to each violation. In the example above, the maximum daily penalty should reasonably be $125,000 — 5 violations x $25,000/day per violation.

The TCEQ applies speciation when calculating penalties in most water quality violations; i.e. a noncompliant wastewater discharge is assessed penalties for each parameter violated, such as biochemical oxygen demand, total suspended particles, nitrogen, dissolved oxygen, etc.  However, the TCEQ does not speciate when calculating penalties in other media violations, especially air violations.  The Attorney General [OAG] routinely applies speciation when pursuing civil penalties in judicial enforcement proceedings referred to that office by the TCEQ, and the OAG’s statutory authorization is worded exactly as the TCEQ’s; i.e. penalties may be assessed “per violation per day.”

In 2007 and 2008, the TCEQ Enforcement staff was using speciation when assessing penalties for some violations that resulted from significant and severe events that occurred over a very short duration.  By memo dated July 24, 2007, the Executive Director directed enforcement staff: “when calculating penalties for significant emission events that occur over a short duration, speciation of that event is an appropriate means to ensure that the calculated penalty is of an amount adequate to address the violation and provide an appropriate deterrent effect.” However, a majority of the Commissioners directed staff to cease using speciation for assessing penalties, stating the position that speciation “violated the legislative policy expressed by the maximum daily penalty cap.”  Currently, if TCEQ enforcement staff are handling a case involving violations from a significant and severe event occurring over a very short duration, with documented harm to human health or the environment, and it is determined that the statutory maximum penalty may prevent the calculated/assessed penalty from being an amount adequate to address the particular violation(s) and/or provide an appropriate deterrent effect, staff may refer the case to the OAG for judicial enforcement — where speciation is used — rather than process the case as an administrative enforcement case at the TCEQ.

In the recent Sunset Review process, Sunset staff, in recommending that the TCEQ should be required “to structure its general enforcement policy in rule and publicly adopt its resulting enforcement policies,” expressly stated that “in adopting these rules and policies, the Commission should consider and make clear its approach to and use of its statutory enforcement tools including, but not limited to, its approach to speciation and economic benefit in calculating penalties, as well as when it will use some of its other tools, such as emergency shut-down authority.” [Emphasis added]

Based on these Sunset Review findings and recommendations, Section 4.09 of H. B. 2694 was adopted by the Legislature, which requires the TCEQ to “assess, update, and publicly adopt specific enforcement policies regularly, including policies regarding the calculation of penalties …”  During the debate over H.B. 2934, a proposed amendment was offered to the House by Representative Warren Chisum [Amendment No. H2-17] that would have expressly prevented the TCEQ from “speciating.”  However, facing significant opposition and concern, that amendment was withdrawn, thus maintaining the TCEQ’s authority, discretion and flexibility to recover penalties on different pollutant violations released during an event.

Therefore, ACT strongly urges the TCEQ to expressly authorize the use of speciation, under appropriate enforcement circumstances [e.g. when violations result from significant and severe events that occur over a very short duration], in the enforcement rules and the Penalty Policy.

IV.       The enforcement rules and the Penalty Policy should re-define the methodology used to determine the number of violation events in assessing penalties.

The current TCEQ Penalty Policy provides that the number of violation events that will be assessed a penalty depends on the number of times the violation is observed, the specific requirement violated, the duration of the violation, and other case information.

Certain violations will typically be considered discrete events. Discrete violations are situations that are observed and documented during an investigation – a discrete interval in time. These violations involve practices or actions that do not occur continuously. If they recur, they do so in individual instances that are separate in time. For these violations, one penalty event will be assessed for every documented observation. Examples of violations that would be discrete events are the failure to submit annual reports, the failure to collect or report monitoring data, the failure to perform a hazardous waste determination where required, and the failure to show a certificate of self-certification prior to accepting a fuel drop. For discretely occurring violations, one penalty event will be assessed for every documented observation of the noncompliance (e.g. for each sample analysis documenting a violation).

Other violations are considered to be continuing, and not constrained by documented observations of the noncompliance. Examples of violations that would be considered to be continuing are the exceeding of permitted discharge or emission limits, groundwater contamination, unauthorized discharges/releases, endangerment, the commingling of good and bad water in a public water supply, operating without a required permit, and other such violations. For continuing violations, the number of events will be linked to the level of impact of the violation by considering the violation as if it recurred with the frequency shown as follows:

Continuing Violations

The duration of events concerning continuous violations, for the purposes of preparing an enforcement action, may begin with the initial date of noncompliance with a requirement, rule, or permit and extend up to the time that the enforcement documents are prepared.  In practice, continuous violations will be assessed beginning with the documented date of noncompliance (i.e., sample results, record review) or the date that the respondent “should have known,” whichever is appropriate, as the beginning point. The respondent is always considered knowledgeable of permit conditions.

The duration of events will be revised, as appropriate, to reflect extended noncompliance when cases fail to settle expeditiously and/or prior to referral to the SOAH.  Discrete violations are not revised because they are considered single events.

The number of events is determined by dividing the appropriate time frame into the duration of the violation. For this determination, any part of a day equals a “day;” any part of a month equals a “month;” any part of a quarter equals a “quarter.” For example an actual minor that is assessed as a quarterly event will have 5 quarters for a violation that continued for 13 months. A penalty is then calculated by multiplying the base penalty amount by the number of penalty events determined for the violation being considered. This step is done for each violation included in the enforcement action.

During the TCEQ’s 2004 Enforcement Review Process, significant comment focused on the component of the Penalty Policy as it related to determining the number of violation events when calculating appropriate penalties. There was general consensus among all stakeholders regarding a need for a better definition for determining the number of penalty events, but there were different viewpoints as to how to accomplish that and to what end.  As a result of the Enforcement Review and all the various discussions and comments received, the ED recommended that the methodology for determining the number of violation events be revised.  However, since this revision would be part of the Penalty Policy, it has not proceeded since the proposed Penalty Policy rulemaking package has never been scheduled for Commission consideration.

ACT believes that the level of severity of violations classified as continuous major programmatic violations vary widely, depending on the significance of the rule or permit requirement involved, given that programmatic violations are classified as major if more than 70% of any rule or permit requirement is not met.  To this end, the enforcement rules and Penalty Policy should explicitly state that a violation should be considered continuous only when there is no possible way to count it as a series of discrete events.

In the same context as determining the number of violation events, ACT also believes that the Penalty Policy does not presently handle well the scale of a violation. For example, the policy does not presently distinguish between situations where a facility fails to properly monitor two pumps for leaks and where a facility fails to properly monitor an entire unit. Also, the current policy fails to define the scale of a violation involving multiple units; i.e. should a violation covering several units at the same facility be counted as separate violations for each distinct operating unit or simply one violation for the entire facility.  Each operating unit should be cited as a violation because this approach would more accurately reflect the total scale of the noncompliance.

ACT strongly urges the TCEQ to re-define, and include in the enforcement rules and the Penalty Policy, the methodology used to determine the number of violation events in assessing penalties.  While the Penalty Policy outlines the current methodology, that methodology should be reviewed and revised.  ACT strongly urges that the methodology be re-defined to explicitly state that:  a violation should be considered continuous only when there is no way to count it as a series of discrete events; a violation covering several units at the same facility should be counted as separate violations for each distinct operating unit, not one violation for the entire facility; i.e. each operating unit should be cited as a violation to more accurately reflect the total scale of the offense; and,  if the violation is for failing to report under a permit, registration or order, it should be tied to the reporting frequency or the permit, registration or order term.   Specific language relating to the methodology used to determine the number of violation events in assessing penalties should also be included in Chapter 70.

In conclusion, ACT appreciates the opportunity to present these comments in furtherance of the TCEQ’s consideration of revising the Chapter 70 enforcement rules and the Enforcement Penalty Policy.  ACT looks forward to participating in a full discussion of all these issues in an open and comprehensive rule-making process.  As stated at the outset, ACT wholeheartedly supports rulemaking that will put the TCEQ’s enforcement policies in rule, thus creating more transparency of applicable enforcement policies and procedures to the regulated community and the general public.

Sincerely,

The Alliance for a Clean Texas

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