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OECA's Operating Principles for Project XL Participants

Office of Enforcement and Compliance Assurance's Operating Principles for Project XL Participants

The following is the text from a Memorandum, dated 2 October 1995, from Steve Herman, Assistant Administrator for Office of Enforcement and Compliance Assurance.

The purpose of this memorandum is to establish the overall operating principles for how the Agency intends to handle enforcement and compliance issues which may arise during the development and implementation of projects for facilities in Project XL. Project XL is an effort to link regulatory flexibility with positive environmental results, and to create and evaluate real world tests of performance-based environmental protection in specific XL projects. The results of XL projects will help set the Agency's regulatory reform agenda in the coming years. These general operating principles are intended to foster the spirit of cooperation that underlies Project XL, and at the same time address legitimate enforcement and compliance-related concerns at the outset.

In our efforts to develop a framework in which to determine how the Agency's enforcement authorities would most appropriately be employed in the context of Project XL, we have sought to ensure that the discretion afforded the Agency is exercised in a judicious and thoughtful manner. To this end, we have worked closely with the Office of Policy, Planning and Evaluation (OPPE) and the Office of General Counsel (OGC) in crafting the principles articulated in this memorandum. Additionally, we anticipate that the experience gained from negotiating and developing XL projects may indicate that these principles need to be refined, modified, or otherwise amended to address unanticipated fact patterns, circumstances, or new information. Accordingly, where there are compelling reasons to do so, we are open to incorporating such necessary changes. Of course, any modifications would only be made in consultation with OPPE, OGC, and the Regional XL contacts.

The May 23, 1995 Federal Register notice on Project XL outlines the different phases of an XL project: solicitation of proposals, selection, development of final project agreement, implementation and evaluation. Enforcement-related concerns are likely to arise in two distinct contexts: (1) in determining the response to violations which come to light during the negotiation of a final project agreement; and (2) in determining an appropriate response to statutory or regulatory violations during the course of an XL project. This memorandum addresses how the Agency intends to handle enforcement-related concerns in both these contexts.

The enforcement response framework discussed in Sections I and II of this memorandum applies only to those regulated facilities in the final project agreement development phase of an XL project, which is that period between the selection of a project for development of a final project agreement that sets forth the obligations of the Agency and the project sponsor, and the signing of such an agreement. Section III of this memorandum contains guidance on the appropriate use of enforcement discretion for dealing with noncompliance issues which may arise during implementation of an XL project, and how these issues should be addressed during negotiation of the final project agreements. The principles contained in this memorandum are in all fundamental respects similar to those contained in the October 31, 1994, memorandum on OECA's Operating Principles for the Common Sense Initiative. From an enforcement policy perspective, facilities in the negotiation phase of an XL project are most closely comparable to general participants in the CSI. It is our belief that these principles are consistent with the Administrator's goals of fostering a new generation of environmental protection, while at the same time maintaining the integrity and effectiveness of the enforcement program.

Certain key principles contained in the Operating Principles for the Common Sense Initiative memorandum bear repeating in this context: First, that no one will be singled out for enforcement as a result of participation in Project XL, but neither will anyone be fully immunized from enforcement because of their participation in XL. Second, there should be a line of demarcation between those circumstances in which information about a violation comes to our attention solely by virtue of a company's participation in XL (i.e., but for XL the violation would not have occurred, or it would not have been discovered), and circumstances in which information about a violation is obtained as a result of compliance monitoring activities which are separate and apart from Project XL.

While discussed in more detail below, the application of these principles generally means that where information about a violation is obtained as a result of participation in XL, a range of mitigated enforcement responses -- including the exercise of enforcement discretion not to pursue the violation -- is generally an appropriate manner in which to recognize the interest of XL participants and the public interest in promoting Project XL, and to acknowledge the good faith of the project sponsor's participation in Project XL. However, for those violations which are not discovered as a result of XL participation, or which come to light through means wholly apart from a facility's XL participation, the Agency will evaluate the appropriateness of any response in accordance with applicable Agency enforcement response policy(s), without regard to the participant's involvement in XL. Nevertheless, the fact of a project sponsor's participation in Project XL may be considered a relevant factor for mitigating penalties in the event a formal enforcement action is taken for such violation(s).

I. Selection of Project Proposals and Approval of Final Project Agreements

In reviewing XL proposals and developing final project agreements, the Agency should be aware of and consider whether a particular facility is currently scheduled for a planned inspection, under investigation, or involved in an enforcement action with the Agency, the State, local government, or citizens. Information about planned or pending EPA enforcement actions will be shared on a confidential basis within EPA, and with applicable states as appropriate, and should, for obvious reasons, be taken into account in considering whether to undertake a particular project. The selection of a given proposal and whether or not the final project agreement is ultimately approved by EPA should depend in part on the gravity of any compliance problem under review.

II. Compliance Problems at Facilities During Development of XL Projects

Project XL should not insulate facilities from enforcement when, either because of or apart from Project XL, information comes to light that calls for enforcement. However, as a general rule, the mere fact that a facility has been selected to participate in Project XL will not by itself subject the facility to greater scrutiny from an enforcement perspective. With this general framework in mind, we offer the following guidelines:

1. OECA will endeavor to ensure that those within the Agency who are responsible for managing the XL effort are aware of impending enforcement strategies and actions involving facilities that are developing XL projects. Additionally, in keeping with the spirit of openness that XL is intended to engender, OECA will ensure that advance notice is provided to facilities with XL projects in development before a civil or administrative action is brought against them. [Footnote 1]

2. The Agency must be free to respond to circumstances which may present an imminent and substantial endangerment or other threat to human health or the environment or are criminal in nature, even when discovery of such circumstances is through Project XL. With respect to civil violations which do not rise to the level of an endangerment, the Agency's enforcement response policy will necessarily depend on the nature of the violation and the manner in which it becomes known to the Agency. As appropriate, and subject to such conditions as the circumstances require, the Agency may give facilities with XL projects in development a time-limited opportunity to disclose and self-correct violations (see, e.g., "Interim Policy on Compliance Incentives for Small Businesses," June 13, 1995; "Interim Policy on Voluntary Self-Policing and Self-Disclosure," March 30, 1995).

3. Since, at the project development phase, neither the Agency nor the project sponsor have made any commitments to an alternative environmental strategy, planned and regularly scheduled inspections, on-going investigations, and enforcement activities should continue. [Footnote 2] Similarly, the deployment of enforcement and compliance resources based on current Agency priorities and information not secured through Project XL will continue. However, as part of its participation in Project XL, OECA will work closely with the XL teams to determine how to address compliance concerns.

4. If, consistent with the foregoing, a facility for which an XL project is under development becomes subject to an enforcement action, the facility's commitment to Project XL may, consistent with Agency policy, be considered as a mitigating factor for penalty assessment purposes.

III. Use of Enforcement Discretion to Address Prospective Compliance Problems at Facilities With Final Project Agreements

As noted in the May 23, 1995 Federal Register notice, XL projects, by their very design, may result in the violation of existing statutory or regulatory requirements during implementation of these projects. As a general matter, the exercise of the Agency's discretion to refrain from enforcing against these violations during the duration of projects is warranted where necessary to advance the purpose of the project. As discussed in the May 23 Federal Register notice, EPA will sign a final project agreement for an XL project only upon concluding that, among other things, the project is expected to achieve environmental results superior to those that would have been achieved through strict compliance with all applicable requirements. Under these circumstances, it does not make sense to direct the Agency's limited enforcement resources toward redressing these violations. This conclusion is in keeping with the Administration's broader policy of targeting enforcement actions against significant violations that present the greatest risks to human health and environment. See the President's Report "Reinventing Environmental Regulation" (March 16, 1995) at 12, Item 12.

In order to ensure that the Agency's enforcement discretion is appropriately exercised, the Agency and the participants in an XL project should enter into a written agreement prior to engaging in these projects which specifies the terms, conditions, and obligations of the project. Additionally, if the XL project will involve violation of statutory or regulatory requirements, those should also be identified with specificity in the agreement, as well as all of the environmentally beneficial measures the participant has agreed to undertake in exchange for (if necessary) the Agency's statement regarding the exercise of its enforcement discretion. Therefore, both the XL participant's obligations and the Agency's enforcement response to such anticipated violations should be addressed during the negotiation of the final project agreement.

This memorandum does not specify particular language to be contained in the final project agreement to address such violations; [Footnote 3] however, it is our policy to consider use of the full range of available enforcement mechanisms on an as-needed basis to facilitate the successful implementation and completion of XL projects. This may include statements of the Agency's intent to refrain from instituting an enforcement action for certain violations by XL participants in some circumstances, a finding that the purpose and objectives of the requirement are satisfied (i.e., that there is no "substantive" violation, even though there may be a technical violation), or other mechanism. However, statements regarding the exercise of the Agency's enforcement discretion would only be warranted where the participant is in full compliance with an XL project agreement in which the participant is carrying out environmentally beneficial actions, the decision not to enforce is clearly in the public interest, human health and the environment is protected, and no other mechanism exists to address the situation at hand.

Accordingly, when negotiating XL projects in which violations of statutory or regulatory requirements are anticipated, the following inquiry should be made:

(1) Identify with specificity those statutory or regulatory requirements which are affected by the facility's compliance with the specified requirements of the XL project;

(2) determine whether the violation of such requirements is certain or likely to result from compliance with the project;

(3) if the violation is a necessary or likely consequence, determine whether any other mechanism exists to address the violation within a timeframe and under such circumstances as will accommodate the project (e.g., a statement of low enforcement priority for the violation(s), application for a legal variance or waiver, etc.); and

(4) only if no other mechanism is available, is it appropriate to consider forbearance from enforcing against such violations, provided that the Agency's exercise of its enforcement discretion is conditioned upon the project sponsor's performance of and compliance with the XL project as an environmentally beneficial project which is in the public interest. [Footnote 4]

In all cases in which an XL project will necessarily involve the violation of applicable regulatory or statutory requirements, those requirements and violations should be specifically identified on a facility-by-facility basis, and if necessary to advance the project a precise statement of the scope of the Agency's exercise of enforcement discretion should be included in the final project agreement (or an attachment or addendum thereto). Of course, any statements of intent to refrain from enforcing by the Agency must be in an area in which EPA has discretion not to act under applicable law. In addition, the agreement should acknowledge that there may be circumstances in which even if the XL participant is in full compliance with an XL agreement, the Agency must retain its discretion to respond to circumstances which may present an imminent and substantial endangerment or other threat to human health or the environment or are criminal in nature.

The agreement should also specify the consequences of non-compliance with the terms of the agreement, and of the failure of the project to meet its objectives. In this respect, the agreement should be clear that EPA's statement of intent not to enforce certain statutory and regulatory requirements is expressly conditioned upon the participant's compliance with the terms of the agreement. The agreements may, of course, be structured so that not every shortcoming results in immediate enforcement. For example, an agreement could specify a grace period for a participant to remedy minor non-compliance with the agreement, perhaps with stipulated payments as an incentive to adhering to an agreed-upon schedule (akin to "late fees"). Similarly, where appropriate, an agreement could specify certain supplemental environmental measures that the participant agrees to undertake should the project not achieve anticipated environmental objectives. Upon completion of the project, or upon a determination that the project has not achieved its objectives and termination is appropriate, the agreement should provide for establishment of a "phase-in" period for the participant to return to compliance with all statutory and regulatory requirements.

Finally, the agreement should include a unilateral termination provision to address serious or repeated violations. [Footnote 5] Of course, the nature of the Project XL effort, the attendant spirit of cooperation, and the mutually beneficial results expected from a successful project should serve to minimize the likelihood of serious noncompliance by an XL participant. Nonetheless, fairness to those XL project participants which are fully in compliance with their agreements dictates that those participants which are not in compliance be potentially subject to some form of sanction. The interest of all parties is best served if these issues are addressed in the terms of the final project agreement.


[Footnote 1]

This is consistent with current practice regarding the filing of civil complaints in federal court under the Civil Justice Reform Executive Order (12778).

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[Footnote 2]

Regulated facilities are often subject to inspection by State and Federal authorities at regular intervals; indeed, in some instances, inspection frequency is fixed by law (e.g., RCRA 3007). Moreover, a great deal of compliance information is, b y law, self-reported to EPA and the States. Thus, XL participants during the project development phase will be subject to compliance review as a matter of course.

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[Footnote 3]

For example, as stated in the 1984 Policy Against "No Action" Assurances, instances in which a formal statement that the Agency will exercise its discretion to refrain from taking an enforcement action for violations are considered "unusual cases." Whether such a statement is needed as a component of an XL project will therefore be a case-specific issue based on the particular facts and circumstances of the project, and as such there is no generic or "boilerplate" language specifying the terms of the Agency's prosecutorial discretion in those circumstances. Similarly, because each XL project is unique, provisions for how violations of the agreement itself are handled are likewise a fact- and case-specific issue to be negotiated and agreed to by t he Agency and the project sponsor.

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[Footnote 4]

Providing an agreement by the Agency not to enforce against specified violations of statutory or regulatory requirements in the context of a facility's compliance with an XL project is consistent with the Policy Against "No Action" Assurances, whic h recognizes an exception where a no action assurance "is clearly necessary to serve the public interest . . . and which no other mechanism can address adequately."

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[Footnote 5]

In this respect, negotiation of the terms and conditions of a final project agreement is similar to negotiation of a mutually agreeable judicial consent decree or administrative compliance order which specifies the terms of injunctive relief or of a suppl emental environmental project, and which specifies how the failure to live up to those obligations is handled. The chief differences between negotiating an XL project and a decree or order are that the negotiation of an XL project takes place in a non-ad versarial context, and that a project sponsor's failure to perform under the XL agreement places both the sponsor and the Agency in a different position because violations of the XL agreement may not also be violations of enforceable regulatory or statuto ry requirements, and so may not be directly enforceable.

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