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Clean Air Act Compliance / Enforcement Guidance Manual -- Chapter
Eight: Section 120 Noncompliance Penalties
CHAPTER EIGHT
Section 120 Noncompliance Penalties
Chapter Contents Page
1 Introduction 8-1.
Role of States in Section 120 8-2.
2 Section 120 Noncompliance Penalties 8-3.
Sources Subject to Section 120 8-3.
Choosing Section 120 as the Enforcement Response 8-4.
Procedures for Assessment and Collection
of Noncompliance Penalties 8-5.
EPA's Response to Petition for Reconsideration 8-8.
Hearings on Petition for Reconsideration
for De Minimis Exemption 8-9.
Determination of Compliance 8-9.
Method of Payment 8-10.
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CHAPTER EIGHT
1 Introduction
The 1977 Amendments strengthened EPA's enforcement arsenal with the addition
of the noncompliance penalty program. Until the enactment of Section 120,
EPA could seek monetary penalties only in the Section 113(b) and Section 303
civil judicial actions described in the preceding chapter. Section 120
enables EPA to assess and collect penalties administratively from certain
noncomplying sources in an amount equal to the "economic value" of the
"delay in compliance." ( Section 120(d)(2)(A) ).
Section 120 relies exclusively on economic incentives to achieve
environmental objectives and, in so doing, constitutes a significant
theoretical departure from traditional regulatory enforcement methods.
The regulations governing the program ( see 40 C.F.R. Parts 66 and 67 ) were
promulgated on July 28, 1980, and became effective on October 27, 1980.
( See 40 Fed. Reg. 50,117 ( July 28, 1980 )). Those regulations were
upheld, with a few minor exceptions, by the U.S. Court of Appeals for the
District of Columbia Circuit in Duquesne Power and Light Co. v. EPA, 698 F.2d
457 ( D.C. Cir. 1983 ).
EPA's experience in implementing the program is in its developing stage. At
the end of 1983, EPA had initiated approximately two dozen proceedings to
assess and collect Section 120 penalties. The proceedings reached the
formal administrative hearing stage in only a few cases. Consequently, this
chapter reflects the requirements of the Part 66 regulations more than the
lessons of practical experience. The reader should also consult the
Agency's "Noncompliance Penalty Adjudicatory Hearing Manual" issued in 1981.
That manual provides detailed discussion of the administrative process in
general and a discussion of techniques useful in adjudicatory hearings.
Most importantly, the manual contains a set of "model" documents that may be
used at the different stages of the process.
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Role of States in Section 120
A state is not required to have a Section 120 program. However, a state may
have a Section 120 program if it is approved by the Administrator as meeting
the requirements of 40 C.F.R. Part 67. As of the end of 1983, no state had
received delegation of the Section 120 program.
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CHAPTER EIGHT
2 Section 120 Noncompliance Penalties
Sources Subject to Section 120
Subpart B of 40 C.F.R. Part 66 establishes two broad classes of sources
subject to penalty assessment and collection:
o Sources in violation of "applicable legal requirements" ( 40 C.F.R.
Section 66.11(a) ); and
o Sources where (a) the state program has been approved, (b) the state
has not sent a Notice of Noncompliance, or the state has not
diligently pursued the assessment and collection of penalties after
sending a Notice of Noncompliance, and (c) the source is in
violation of "applicable legal requirements." ( 40 C.F.R. Section
66.11(b) ).
"Applicable legal requirements" is defined at 40 C.F.R. Section 66.3(c) as
follows:
. o Major sources--emission limitations, emission standards, or
compliance schedules under EPA-approved SIPs ( regardless of whether
the source is subject to a federal or state consent decree );
. o Sources subject to NSPS or NESHAPs--emission limitations, emission
standards, standards of performance, or other requirements
(including work practice standards);
. o Sources subject to federal consent decrees, federally approved state
consent decrees, extensions, orders, or suspensions--interim
emission control requirements or schedules of compliance pursuant
thereto;
. o Certain nonferrous smelters--interim emission control requirements
or schedules of compliance pursuant to certain orders.
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Exemptions
If a source falls under one of the four categories listed above, it still
may not be subject to noncompliance penalties during the period for which it
qualifies for one of the following exemptions:
. o The source has received an order under Section 113(d)(4) or
113(d)(5);
. o The source demonstrates an inability to comply resulting from
reasons entirely beyond the control of the owner or operator of such
source or of any affiliated entity, and the source has received an
order under Section 113(d)(1) or is subject to a federal or federally
approved consent decree or order that has the effect of permitting a
delay in complying with the requirement, and the inability to comply
is demonstrated to have resulted from one of the situations listed in
40 C.F.R. Section 66.31(c), and the source took the steps listed in
40 C.F.R. Section 66.31(d);
. o The source demonstrates the existence of an energy or employment
emergency order issued under Section 110(f) or 110(g);
. o The source demonstrates that the violation is de minimis in nature
and duration ( see 40 C.F.R. Section 66.32 ); or
o The source demonstrates that the violation is de minimis in nature
and duration and was caused solely by a sudden and unavoidable
breakdown of process or pollution control equipment. ( 40 C.F.R.
Section 66.33 ).
Choosing Section 120 as the Enforcement Response
Because Section 120 is an enforcement tool, the same basic goals of
deterrence, compliance, and fairness underlie the noncompliance penalties
program as underlie Section 113. In making a choice among enforcement
tools, the Agency chooses the tool best suited to accomplish the compliance
goal at hand.
Sections 120 and 113 differ in two fundamental respects. First, while one
factor of the civil penalty policy for civil judicial actions under Section
113 is the economic cost of compliance, Section 113 penalties may in
addition reflect mitigating and aggravating factors incident to
noncompliance.
The goal of Section 120, on the other hand, is exclusively to neutralize the
economic advantages conferred by noncompliance. It offers the prospect of
very substantial penalties that can be administratively imposed and quickly
collected. Second, Section 120 seeks to accomplish enforcement goals solely
through the imposition of monetary assessments. In contrast, Section 113
authorizes notices, immediate and delayed compliance orders, court-ordered
injunctions requiring compliance, court-ordered monetary penalties, and
criminal penalties.
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Section 120 is likely to be an appropriate enforcement response where the
noncompliance penalty itself, as opposed to any other remedy, will more
effectively provide the incentive for the source to comply. Whether Section
120 is likely to be effective is dependent on the size of the calculated
penalty and the reaction of the source to the amount of the penalty. Where
the penalty is large, sources are likely to move toward compliance more
quickly than if the penalty is small. However, if the penalty is large, it
is less likely that the matter will be settled without a full administrative
hearing.
The penalty is calculated in accordance with a formula, the parameters of
which are established by the Technical Support Document and the Instruction
Manual. ( See 40 C.F.R. Part 67, Appendices A, B, and C, and 45 Fed. Reg.
50117 (July 28, 1980 )). The formula is complicated and will not be
detailed here. However, for our purposes it is important to know that the
formula is most sensitive to the cost of compliance ( capital and operation
and maintenance ) and the length of the period of noncompliance. In other
words, the amount of the penalty will vary the most due to changes in either,
or both, of those parameters.
The benefit of noncompliance is basically the savings realized from the
deferral of the cost of pollution control equipment plus the cost of
operating and maintaining ( O/M ) the equipment during the period of
noncompliance. The O/M cost increases with the length of the period of
noncompliance. Thus, a source in violation of an applicable legal
requirement that can be remedied in a short time at little expense would be
assessed a smaller penalty than a source requiring large costs to comply and
long delay, all other things being equal. The penalty is usually higher for
pollution problems whose remedies require a major refurbishing of control
equipment, a major modification of control equipment, or installation of new
control equipment. In contrast, the penalty is usually smaller for problems
whose remedy requires a chemical reformulation or an operation and
maintenance technique involving only additional labor costs. Of course, the
higher the penalty, the more likely it will encourage compliance.
Procedures for Assessment and Collection of Noncompliance Penalties
The Section 120 enforcement process begins with the issuance of a Notice of
Noncompliance ( NON ) to the violating source. (If the source has not
already received a Section 113 Notice of Violation, it is advisable to issue
one along with the NON (or in the same document) to permit an expeditious
resort to federal district court if it is subsequently determined that
injunctive or civil penalty relief may be necessary to supplement the Section
120 enforcement process).
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Contents of the NON
The specific requirements for the content of NONs are established by 40
C.F.R. Section 66.12. The NON informs the source that it is in violation of
an applicable legal requirement; that it owes a penalty and must pay the
penalty; that it is obligated to calculate the penalty and the appropriate
schedule in accordance with the Technical Support Document and the
Instruction Manual enclosed with the NON; that if the source disagrees, it
may petition for a hearing on EPA's finding of violation or to claim an
exemption, or both; and that the penalty continues to accrue even during a
hearing if the noncompliance continues.
The NON should also invite the source to an informal conference to discuss
the situation, although the regulations do not require that a conference be
held. The conference can be very important because it permits the Agency to
explain the nature of the Section 120 model (i.e., that it is compensatory
and not punitive). While explaining the difference between compensatory
penalties and punitive penalties, the attorney conducting the informal
conference can take the opportunity to explain how the amount of the penalty
is ultimately determined by the source's activity. In other words, EPA
should explain to the source how the ultimate figure is "really in your
hands, not ours."
The attorney should also offer to calculate the penalty for the source based
on rough estimations of the cost of compliance, the length of the period of
noncompliance, etc. The attorney should explain that the law requires that
EPA settle for no less than the figure as calculated by the model. In point
of fact, there is some small flexibility in adjusting the penalty figure;
EPA can reduce the penalty amount by a percentage figure equal to EPA's
projected chances of not prevailing on the merits at an administrative
hearing. (See March 19, 1985, memorandum entitled "Permissible Grounds for
Settlement of Noncompliance Penalties Under Section 120 of the Clean Air
Act.")
Delivery of the NON
The NON is transmitted to the source owner or operator either by personal
service or by registered or certified mail, return receipt requested. ( 40
C.F.R. Section 66.12(b) ).
Obligations of the Recipient of an NON
The recipient of an NON must make one of two choices within 45 days after
receiving the NON:
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o The recipient must calculate the penalty owed and the appropriate
quarterly payment schedule. The recipient must then transmit the
calculation and supporting data to the Administrator for verification;
or
o The recipient must submit a Petition for Reconsideration, which
either:
. -- Alleges that the source is not in violation of the applicable
legal requirement, or
. -- Asserts entitlement to an exemption, or
. -- Asserts both of the above.
The recipient is not permitted to petition for reconsideration on the
violation issue and then submit a second petition asserting entitlement to
an exemption. Both issues must be raised in the same Petition
for Reconsideration. The petition may be amended within the 45-day period.
After the 45-day period, amendment of the petition is permitted only if
based on "unforeseeable conditions occurring after termination of the 45-day
period, or upon consent of the Administrator." ( 40 C.F.R. Section
66.13(c) ).
Failure To Respond or Submission of Inadequate Response to an NON
If the recipient fails to respond to the NON or submits information that is
inadequate to enable EPA to verify the accuracy of the calculation, the
Administrator shall, within 30 days of receipt of the calculation or of the
expiration of the period for submitting the calculation, specify what
deficiencies exist and request the source owner or operator to supplement
the submission within 30 days of receipt of such request. If the
Administrator determines that the response and supplemental information
is still deficient, or if the recipient of an NON has not responded at all,
the Administrator is authorized to enter into a contract with any
independent qualified person to assist in determining the amount of the
penalty. ( 40 C.F.R. Section 66.51 ). The cost of the contract may be
added to the penalty assessed. ( 40 C.F.R. Section 66.22 ).
The source is obligated to pay the first installment of the penalty six
months after receipt of the NON (unless a Petition for Reconsideration on
grounds of exemption or compliance has been filed). ( 40 C.F.R. Section
66.61(a) ). Installments shall be paid quarterly thereafter until compliance
is achieved. ( 40 C.F.R. Section 66.61(b) ). Once compliance has been
achieved (see the last section of this chapter), the final penalty
calculation is made, and either the source pays what is still owed or EPA
reimburses the source for overpayment. ( 40 C.F.R. Section 66.72 ).
Failure of the source to make timely payment results in additional
"nonpayment penalties." ( 40 C.F.R. Section 66.63 ). Finally, if the source
does not pay, EPA may commence a civil judicial action to recover the
noncompliance and the nonpayment penalties pursuant to Section 113(b).
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EPA's Response to Petition for Reconsideration
Instead of transmitting a calculation and payment schedule, a source may
file, within the 45-day period, a Petition for Reconsideration that alleges
no violation of applicable legal requirements or asserts entitlement to an
exemption.
As a precautionary measure, the Petition for Reconsideration must be
reviewed by a different attorney from the attorney assigned to the Section
120 proceeding. EPA follows this procedure due to the potential
applicability of the decision in Bethlehem Steel Corp. v. EPA, 638 F. 2d
994, 1008 ( 7th Cir. 1980 ), which prohibited the same attorney from
handling a Section 113(b) enforcement action and a petition for a delayed
compliance order (DCO) under Section 113(d) involving the same source. The
Agency's decision in a DCO is "adjudicatory" in nature, thus requiring a
neutral hearing officer to ensure fairness. The enforcement attorney is not
considered neutral. In order to avoid allegations that the Agency improperly
"commingled" the Section 120 enforcement process and the quasiadjudicatory
decision on the Section 120 Petition for Reconsideration, EPA requires that
the petition be reviewed by a neutral attorney.
Within 30 days after receiving the petition, EPA must notify the source
owner or operator of EPA's decision, which is limited to one of the
following three rulings:
. o The NON is withdrawn, or modified, because the petition demonstrated
entitlement to part or all of the relief requested;
. o A hearing is granted on the issue of violation of applicable legal
requirements or entitlement to exemption; or
. o The information in the petition is inadequate to enable EPA to
determine whether the source is not in violation or is entitled to
an exemption. The source must respond to the specified inadequacies
in information within 30 days of the Administrator's response.
A fourth response permitted in the original regulations was struck down by
the court in the Duquesne Power and Light case. ( See 40 C.F.R. Section
66.41(b) (1980) ).
Hearings on Petitions for Reconsideration
When the Administrator grants a hearing on the Petition for Reconsideration
under 40 C.F.R. Section 66.41, the proceedings are governed by the
Consolidated Rules of Practice, 40 C.F.R. Part 22 and Subpart J of Part 66.
The Presiding Officer, who is appointed by the Agency's Chief
Administrative Law Judge, must issue an initial decision within 90 days
after the hearing is granted by the Administrator unless the hearing date or
the deadline for decision is extended by the Presiding Officer upon
agreement of the parties. ( 40 C.F.R. Section 66.42(c) ).
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At the hearing, EPA bears the burden of proof, by a preponderance of the
evidence, on the allegation of violation of applicable legal requirements.
The source bears the burden of proof, by a preponderance of the evidence, on
the issue of entitlement to an exemption. ( 40 C.F.R. Sections 66.94(a),
66.94(b), 66.94(d) ). The hearing is limited to consideration of the issues
of liability and exemption. In no event may the Presiding Officer entertain
arguments that the statute is more or less restrictive than the regulations.
( 40 C.F.R. Section 66.4 ).
The Presiding Officer's decision disposes of all issues raised in the
hearing in a single written decision. The losing party may appeal the
decision to the Administrator by filing a petition within 20 days from
receipt of the decision. Once the Administrator has notified the appealing
party of the decision on the appeal, the decision becomes a final Agency
action ( see 40 C.F.R. Section 66.81(b) ) appealable to the U.S. Court of
Appeals for the circuit in which the violation occurred. ( Section
307(b)(1) ). If EPA finds a violation, the source must submit, inter alia,
a penalty calculation within 45 days of the Agency's finding. ( 40 C.F.R.
Section 66.43 ). If EPA recalculates and determines that a different
penalty amount is appropriate, the source may petition for reconsideration of
that decision and, if necessary, force a hearing on it. ( 40 C.F.R. Part 66,
Subpart F ).
Hearings on Petition for Reconsideration for De Minimis Exemption
An exemption based on a de minimis, or de minimis and malfunction, claim may
be granted by the Administrator only after notice and opportunity for public
hearing. ( 40 C.F.R. Sections 66.32, 66.33 ). However, if a hearing
is granted based on either the de miminis or the de minimis and malfunction
exemptions, or both, and a hearing is granted on a Petition for
Reconsideration based on 40 C.F.R. Section 66.31, a consolidated hearing
under Subpart J is held. ( 40 C.F.R. Section 66.42(b) ).
Determination of Compliance
As noted, a recipient of an NON is obligated to pay the first installment of
the penalty six months after receiving the NON. Installments are to be paid
quarterly thereafter until compliance is achieved.
Subpart H of 40 C.F.R. Part 66 establishes the procedures for a source to
notify the Agency that compliance has been achieved and the procedure for
final calculation of noncompliance penalties owed by the source, or to be
reimbursed by the government due to overpayment.
When a source owner or operator believes that compliance has been achieved
and maintained, he or she must notify the Administrator in writing and
enclose any factual data, analytical materials, and legal arguments that
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would support the claim of compliance. The Administrator must make a
written determination within 30 days of receipt of the notice either that
the source is in compliance, is not in compliance, or that additional
material is needed to enable the Administrator to conclude whether the
source is in compliance. If more information is needed, the Administrator
is required to render a decision within 30 days from receiving the
supplementary information.
If the Administrator determines that the source has not achieved or
maintained compliance, the source may file a Petition for Reconsideration
within 30 days of receipt of the written determination.
If the Administrator determines that the source is in compliance, the source
is required to submit to the Administrator a revised penalty calculation
together with data necessary for verification. The Administrator then must
respond in writing within 30 days indicating that:
. o The calculation is correct;
. o The calculation is incorrect and has been recalculated on the basis
of the information submitted by the source or on the basis of other
data; or
. o The submitted data are inadequate to determine the amount of the
penalty, to which determination the source must respond within 30
days.
If the penalty recalculation is correct, the source must pay any deficiency,
plus interest, within 30 days, or the government must reimburse the source
for any overpayment within 30 days.
If the penalty is incorrect but has been recalculated by the Administrator,
the source is permitted to file a Petition for Reconsideration of the
calculation within 45 days of receipt of such notification.
If the source has not submitted any recalculation or has submitted a
deficient recalculation and does not respond to the Administrator's notice
of deficiency, the Administrator may recalculate the penalty or employ a
contractor to do so.
Method of Payment
Payments in excess of $10,000 must be made by wire transfer, payable to the
United States Treasury. Payments of less than $10,000 must be made by
certified or cashier's check, payable to the United States Treasury, and
sent by registered mail to the Administrator. ( 40 C.F.R. Section 66.62 ).
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