STATE WATER RESOURCES CONTROL BOARD

POLICYON
SUPPLEMENTAL
ENVIRONMENTAL PROJECTS

Adopted December 5, 2017
Effective May 3, 2018

CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY

Supplemental Environmental Projects Policy - December 5, 2017
This page is intentionally blankTABLE OF CONTENTSI.

INTRODUCTION ................................................................................................................... 1
A. Using this Policy .......................................................................................................... 1
B. Applicability .................................................................................................................. 2II.

SUPPORTING THE WATER BOARDS’ MISSION ............................................................... 2
A. Human Right to Water .................................................................................................. 3
B. Environmental Justice ................................................................................................. 3
C. Climate Change ............................................................................................................ 3

III. DEFINITION AND CHARACTERISTICS OF A SEP ............................................................ 3
IV. LEGAL GUIDELINES............................................................................................................ 4
V.

CATEGORIES OF SEPs ....................................................................................................... 5
A. Public Health................................................................................................................. 5
B. Pollution Prevention .................................................................................................... 5
C. Pollution Reduction ..................................................................................................... 5
D. Environmental Restoration and Protection ............................................................... 6
E. Assessments and Audits............................................................................................. 6
F. Environmental Compliance Promotion ...................................................................... 6
G. Other Projects ...............................................................................................................7

VI. PROJECTS NOT ACCEPTABLE AS SEPs ......................................................................... 7VII. PROJECT SOLICITATION AND SELECTION ..................................................................... 8
A. SEP Proposal Solicitation and Guidance ................................................................... 8
B. SEP Evaluation Criteria and Potential SEP Lists ...................................................... 8
VIII. REQUIREMENTS FOR SETTLEMENTS THAT INCLUDE A SEP ...................................... 9
A. Water Boards’ Restrictions ......................................................................................... 9
B. Amount of SEP ............................................................................................................. 9
C. Settling Party and Third Party-Performed SEPs ..................................................... 11
D. Third Party-Administered SEPs ................................................................................ 11
E. Liability........................................................................................................................ 11
F. Nexus........................................................................................................................... 12
G. Oversight..................................................................................................................... 12
H. Accounts .....................................................................................................................13
I.

Third Party Financial Audits ...................................................................................... 13

J. Publicity ...................................................................................................................... 13
Page i

K. Public Reporting of SEP Information ....................................................................... 13
IX. ADDITIONAL REQUIREMENTS FOR STIPULATED ORDERS THAT INCLUDE A SEP . 14
A. Project Scope and Schedule ..................................................................................... 14
B. Funding ....................................................................................................................... 14
C. California Environmental Quality Act ....................................................................... 15
D. Reporting and Certificate of Completion ................................................................. 15
E. SEP Acceptance ......................................................................................................... 16

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I. INTRODUCTION
The State Water Resources Control Board (State Water Board) or Regional Water Quality
Control Boards (Regional Water Boards, collectively Water Boards) may allow a settling party1
to satisfy part of the monetary assessment imposed in an administrative civil liability (ACL) orderarising out of a settlement by completing or funding one or more Supplemental Environmental
Projects (SEPs).
Assembly Bill 1071 (AB 1071), enacted in October 2015 as Public Resources Code section
71118, in part (a)(3), defines a SEP as “an environmentally beneficial project that a person
subject to an enforcement action voluntarily agrees to undertake in settlement of the action andto offset a portion of a civil penalty.” 2,3
The State Water Board supports the inclusion of SEPs in the settlement of an enforcement
action, so long as these projects meet the criteria specified in this Policy to ensure that the
selected projects have environmental value, further the enforcement goals and other important
policies of the Water Boards, and are subject to appropriate input and oversight by the Water
Boards. These broad objectives should also be considered when the Water Boards agree to a
SEP as part of the settlement of civil litigation.
SEPs and Enhanced Compliance Actions (ECAs)4 are an adjunct to the Water Boards’
enforcement program and can never be the basis or reason for bringing an enforcement action.
While SEPs can be useful in the facilitation of settlements, the funding of SEPs is not a primary
goal of the Water Boards’ enforcement program, nor is it necessary that a SEP always be
included in the settlement of an enforcement action that assesses a monetary liability or penalty.

A. Using this Policy
This Policy on SEPs (Policy) establishes a framework for the Water Boards to use in exercising
their enforcement discretion to determine appropriate settlements. To include a proposed
project in a settlement as a SEP, the appropriate Water Boards’ staff should:(1) Ensure that the project conforms to the basic definition of a SEP (Section III);(2) Ensure that all legal guidelines are satisfied (Section IV);
(3) Ensure that the project fits within one (or more) of the designated categories of SEPs
(Section V) and is not prohibited (Section VI);
(4) Ensure that project solicitation and selection criteria are utilized in choosing the SEP(Section VII);1

For ease of reference and because this Policy applies broadly to classes of parties commonly referred
to in a variety of ways, including, but not limited to, “dischargers,” “diverters,” “regulated public,”“violators,” and “responsible parties,” the term “settling parties” is used universally throughout whenreferring to the party who has agreed to a SEP to settle a portion of its administrative civil liability.
2
Water Code section 13385(l)(2) also defines a SEP as “an environmentally beneficial project that aperson agrees to undertake, with the approval of the regional board, that would not be undertaken in theabsence of an enforcement action under this section.” Water Code section 13385(i) allows limited use of
SEPs associated with mandatory minimum penalties.
3
Similarly, Water Code section 13399.35(b) defines a SEP as “an environmentally beneficial project thata person agrees to undertake, with the approval of the regional board, which would not be undertaken in
the absence of an enforcement action under [Water Code] Section 13399.33” and allows limited use of
SEPs for up to 50 percent of a penalty assessed under section 13399.33.
4
ECAs are defined at Section IX of the 2017 Water Quality Enforcement Policy and are also subject tothe terms and conditions of this Policy.
2017 Supplemental Environmental Projects Policy, Page 1

(5) Ensure that all requirements for settlements that include a SEP are satisfied(Section VIII); and(6) Ensure that all additional requirements for stipulated orders that include a SEP aresatisfied (Section IX).
In some cases, strict application of every requirement of this Policy may not be appropriate. In
such cases, the Director of the State Water Board’s Office of Enforcement (OE) may approve analternative or modified approach, so long as it substantially complies with the Policy.

B. Applicability
This Policy revises and supersedes the State Water Board’s February 2009 Policy on
Supplemental Environmental Projects, adopted under Resolution No. 2009-0013. This Policy
applies to settlements of all administrative enforcement actions filed after the effective date ofthis Policy and to all pending cases in which the Water Boards have not reached agreement inprinciple with the settling party on the specific terms of a SEP.
This Policy applies to all administrative enforcement actions taken under the authority of theenvironmental statutes and regulations that the Water Boards administer, and applies to theState Water Board’s Office of Enforcement; the Division of Water Quality and the Regional
Water Boards; the Division of Drinking Water and its Districts; and the Division of Water Rights(hereafter referred to as Regional Water Boards and Divisions or Water Boards). Nothing in thisPolicy restricts Water Boards from establishing additional, more stringent criteria for SEPs
through the appropriate public process.
This document is a settlement policy for administrative enforcement actions and is not intended
to be binding on the Water Boards, settling parties, or courts in a trial. This Policy is intended
for use by Water Boards’ enforcement personnel in settling administrative enforcement casesand does not create any right or benefit, substantive or procedural, enforceable at law by a party
against the Water Boards, its staff, or any person. This document is not intended to supersede
any statutory or regulatory requirements. Any inconsistencies between this document and any
statute or regulation should be resolved in favor of the statutory or regulatory requirement. The
Water Boards reserve the right to change this Policy at any time through the appropriate public
process. This Policy does not create any rights, duties, or obligations, implied or otherwise, in
any third parties.

II.

SUPPORTING THE WATER BOARDS’ MISSIONSEPs can provide environmental and/or public health benefits in addition to those achieved bycompliance with applicable laws. Therefore, SEPs are an important component of the Water
Boards’ enforcement program, although they may not be appropriate in the settlement of allcases. SEPs can also help to further the Water Boards’ mission “to preserve, enhance, andrestore the quality of California’s water resources and drinking water for the protection of theenvironment, public health, and all beneficial uses, and to ensure proper water resource
allocation and efficient use, for the benefit of present and future generations.” Part of thismission includes, but is not limited to: furthering the human right to water, ensuring
environmental justice, and addressing climate change.

2017 Supplemental Environmental Projects Policy, Page 2

A. Human Right to Water
On February 16, 2016, the State Water Board adopted Resolution No. 2016-0010 which
identifies the human right to water as a top priority and core value of the Water Boards.
Pursuant to Water Code section 106.3, “every human being has the right to safe, clean,affordable, and accessible water adequate for human consumption, cooking, and sanitary
purposes.” Section VIII of this Policy sets forth specific provisions designed to encourage
settling parties to consider SEPs related to drinking water that would benefit public health andfurther the human right to water.

B. Environmental Justice
Government Code section 65040.12(e) defines environmental justice (EJ) as “the fair treatmentof people of all races, cultures, and incomes with respect to the development, adoption,
implementation, and enforcement of environmental laws, regulations, and policies.” Section VIIIof this Policy sets forth specific provisions designed to encourage settling parties to consider
funding SEPs in communities where there are EJ concerns (EJ Communities). SEPs can help
promote the health, safety, and well-being of residents who spend significant portions of theirtime in, or depend on food and water sources located in EJ Communities near the areas
affected by violations5.

C. Climate Change
On March 7, 2017, the State Water Board adopted Resolution No. 2017-0012 requiring aproactive approach to climate change in all Water Board actions and programs. Projects that
address reducing greenhouse gas emissions and building resilience to climate change impacts
on ecosystems or infrastructure may qualify as SEPs if they benefit groundwater, surface water,or drinking water quality or quantity and the beneficial uses of waters of the State, or if theymeet the requirements for multi-media SEPs set forth in Section V of this Policy.

III. DEFINITION AND CHARACTERISTICS OF A SEP
Public Resources Code section 71118 (a)(3) defines a SEP as “an environmentally beneficial
project that a person subject to an enforcement action voluntarily agrees to undertake, insettlement of the action and to offset a portion of a civil penalty.” The four bolded key partsof this definition are described in more detail below.
(1) “Environmentally beneficial” means a SEP must improve, protect, or reduce risks topublic health or the environment. While in some cases a SEP may provide the settlingparty with an incidental benefit, there must be no doubt that the project primarily benefits
public health and/or the environment.
(2) “Voluntarily agrees to undertake” means the SEP shall not be an action, process, or
product that is otherwise required of the settling party by any rule or regulation of any
federal, state, or local entity, or that is proposed as mitigation to offset the impacts of asettling party’s project(s). A SEP shall only consist of measures that go above andbeyond the otherwise applicable obligations of the settling party. The settling party must
voluntarily agree to a SEP. A SEP cannot be compelled by the Water Boards. SEPs
5 Since SEPs only arise in the context of a settlement and settlements do not always involve admitted orproven violations, the term “violations” used in this Policy should be construed to include admitted,
proven, or even “alleged violations.”2017 Supplemental Environmental Projects Policy, Page 3

cannot include actions which the settling party, or any other regulated third party, is likely
to be required to perform, such as:a. Injunctive relief, including as a mitigation project;b. Injunctive relief in another legal action the Water Boards, or another regulatory
agency, could bring;c. Part of an existing settlement or order in another legal action; ord. By any other federal, state, or local requirement.
(3) “In settlement of an enforcement action” means:a. The settling party’s commitment to perform the SEP is included in a legally
enforceable settlement document, i.e., the Settlement Agreement and Stipulation
for Entry of Administrative Civil Liability Order (stipulated order or order);b. The appropriate Water Board has the opportunity to review and comment on thescope of the project selected by the settling party and recommended by staff
before it is implemented; andc. The project is not commenced until after the Water Board has identified aviolation and the stipulated order is in effect.
(4) “To offset a portion of a civil penalty” means that the Water Boards may allow asettling party to satisfy up to 50 percent of the monetary assessment imposed in an ACL
order arising out of a settlement by completing or funding one or more eligible SEPs.
The amount of the monetary assessment satisfied by a SEP is treated as a suspended
liability until the Water Boards find that the SEP has been satisfactorily completed. The
remaining portion of the monetary assessment is paid to the appropriate fund authorized
by statute for specific environmental purposes (e.g., the Cleanup and Abatement
Account [CAA], the Waste Discharge Permit Fund [WDPF], or the Water Rights Fund[WRF]) in accordance with statutory requirements and/or the terms of the stipulatedorder.
The Water Boards may never agree to compromise the stringency or timeliness of a regulatory
requirement in exchange for a SEP. Performance of a SEP does not alter a settling party’s
obligation to remedy a violation expeditiously and return to compliance or comply with allapplicable regulatory obligations. Projects or actions already required by law or regulation are
not acceptable as SEPs or ECAs, and projects that reflect standard industry practices, aregenerally not acceptable either, but may be considered as part of the injunctive relief package ofthe stipulated order.

IV. LEGAL GUIDELINES
The Water Boards have broad discretion to settle cases, including the discretion to include
SEPs as an appropriate part of a settlement. In addition to other statutory authority in the Water
Code regarding the use of SEPs, Government Code section 11415.60 has been interpreted by
the State Water Board’s Office of Chief Counsel to allow the imposition of SEPs as part of thesettlement of an ACL. The evaluation of whether a proposed SEP is within the Water Boards’
authority and consistent with all statutory requirements may be a complex task. This Policy is
informed by Public Resources Code section 71118 (b), which requires each board, department,
or office (BDO) within the California Environmental Protection Agency (CalEPA) to establish a
policy on SEPs that benefit disadvantaged communities (DACs). The Public Resources Coderequires the mandatory DAC SEP policies to include all of the following:(1) A public process to solicit potential SEPs from DACs.
(2) An allowance that up to 50 percent of an administratively-imposed civil liability be eligible
to fund a SEP.
2017 Supplemental Environmental Projects Policy, Page 4

(3) Compilation of an annual list of SEPs that may be selected by settling parties to settle a
portion of an administratively-imposed civil liability.
(4) A consideration of the relationship between the location of the violation and the locationof the proposed SEP (also referred to as nexus).
How the Water Boards implement these guidelines is detailed in Sections VII and VIII of thisPolicy.

V. CATEGORIES OF SEPs
The Water Boards have identified six specific categories of projects which may qualify as SEPs.
Many SEPs may fall into more than one category. This Policy also establishes a seventh
category for “Other Projects” that meet all the requirements of this Policy, but do not fit into oneof specific categories. Allowing for “Other Projects” provides the Water Boards the flexibility
they need to adapt to unforeseen circumstances, so long as the general principles andrequirements of the Policy are met. SEPs in any category shall directly benefit groundwater,
surface water, or drinking water quality or quantity, and the beneficial uses of waters of theState. The requirement that a SEP directly benefit water may be waived where violations ofenvironmental laws and/or regulations affect media in addition to water and those violations areprosecuted primarily by another CalEPA BDO, or the California Department of Fish and Wildlife,
in addition to the Water Boards. SEPs in any category must also have an adequate nexus to
the location or the nature of the violation and meet all other requirements of this Policy.

A. Public HealthPublic health projects are projects that further the human right to water and/or sanitation in acommunity. Examples include, but are not limited to: providing replacement drinking water,
installation of water tanks, water distribution system infrastructure improvements or
consolidation assistance, private well testing, and focused community outreach regarding
drinking water safety.

B. Pollution Prevention
Pollution prevention projects prevent pollution at its source, before it is generated. Examples
include, but are not limited to: practices that reduce the quantity and/or toxicity of pollutants
entering a waste stream prior to treatment or disposal; equipment or technology modifications;process or procedure modifications; improvements in housekeeping, training, inventory control,
best management practices, or other maintenance procedures; and projects which protect
natural resources through conservation or increased efficiency.

C. Pollution Reduction
Pollution reduction projects result in a decrease in the amount and/or toxicity of any hazardous
substance, pollutant, or contaminant entering any waste stream or otherwise being released into
the environment by an operating business or facility by a means which does not qualify as“pollution prevention.” Examples include, but are not limited to: installation of a more effective
end-of-process control or treatment technology; stormwater low impact development installation;
improved containment; and safer disposal of an existing pollutant source.

2017 Supplemental Environmental Projects Policy, Page 5

D. Environmental Restoration and Protection
Environmental restoration and protection projects include those that benefit surface orgroundwater quality and enhance the condition of the ecosystem or immediate geographic area
adversely affected by the violation. Examples include, but are not limited to: water or soil
treatment; habitat restoration or enhancement; wetland, stream, or other waterbody protection,
restoration, or creation; conservation easements; stream flow or water quality augmentation;watershed management facilitation services; and non-point source program implementation.

E. Assessments and Audits
Assessment and audit projects may include pollution prevention assessments, environmental
quality assessments, compliance audits, or studies and monitoring programs.
Pollution prevention assessments are systematic, internal reviews of specific processes
and operations designed to identify and provide information about opportunities toreduce the use, production, and generation of toxic and hazardous materials and otherwastes that may pose threats to water quality, water supply, or human health.
Environmental quality assessments and studies are investigations of: the condition of
the environment at a site or sites not owned or operated by the settling party; theenvironment impacted by a site or facility regardless if owned or operated by the settlingparty; or threats to human health or the environment relating to a site or facility
regardless if owned or operated by the settling party.
Environmental compliance audits are independent evaluations of a settling party’s
compliance status with environmental requirements at a given point in time. In general,
compliance audits are acceptable as SEPs only when the settling party is a small
business, small community (less than 2,500 persons), or a state or local government
entity.

The Water Boards may not approve an assessment, study, monitoring program or audit SEP
performed by a settling party relating to that party’s facility or facilities and not primarily having abroader, Water Board program-based benefit without also requiring the settling party to address
the problems identified in the assessment, study, monitoring program or audit. An assessment
or monitoring project without a commitment to address the findings of the assessment ispermissible where the Director of OE determines that the SEP delivers other benefits worthy of
SEP credit. Assessments, studies, monitoring programs and audits are only acceptable as
SEPs when the settling party agrees to provide the Water Boards with a copy of the relevant
report and the results are made available to the public.

F. Environmental Compliance Promotion
An environmental compliance promotion project provides training or technical support tomembers of the regulated community other than the settling party in order to: identify, achieve,
and maintain compliance with applicable statutory and regulatory requirements; or go beyond
compliance by reducing the generation, release, or disposal of pollutants beyond legal
requirements. Environmental compliance promotion SEPs are acceptable only where theprimary impact of the project is focused on the same regulatory program requirements that wereviolated and where compliance in the sector would be significantly advanced by the proposed
project.

2017 Supplemental Environmental Projects Policy, Page 6

G. Other Projects
Projects that do not fit within one of the six specific categories above, but have environmental
and/or public health benefits and are otherwise fully consistent with all other provisions of thisPolicy, are allowable as SEPs subject to approval by the appropriate Regional Water Board orDivision. Examples may include, but are not limited to: water quality or drinking water-related
educational outreach; and collection system capital improvements.

VI. PROJECTS NOT ACCEPTABLE AS SEPs
The following are examples of the types of projects that are not allowable as Water Boards’
SEPs. This list is not exhaustive.
(1) General public educational or public environmental awareness projects (e.g., sponsoring
public seminars on water issues, conducting tours of environmental controls at a facilityor treatment plant, or promoting recycling in a community).
(2) General cash contributions to environmental research at a college or university that are
not directed towards a specific, approved project defined in the stipulated order and that
otherwise complies with this Policy.
(3) General cash donations to community groups, environmental organizations,state/local/federal entities, or any other third party that are not directed towards a
specific, approved project defined in the stipulated order and that otherwise complies
with this Policy.
(4) Projects for which the settling party does not retain full responsibility to ensuresatisfactory completion.
(5) Projects that are not clearly defined in the stipulated order to ensure adequate nexus
and transparency of the use of public funds.
(6) Projects which, though beneficial to a community or environment, are unrelated to theWater Boards’ mission (e.g., making a contribution to a non-profit, public interest,
environmental or other charitable organization, donating playground equipment, etc.).
(7) Studies, assessments, or monitoring projects except as described in section V.E.
(8) Projects which the settling party, SEP recipient, or SEP implementer has alreadycommitted to undertake based on existing commitments of federal or state loans,contracts, grants, or other forms of financial assistance or non-financial assistance.
(9) Projects that are expected to become profitable to the settling party within the first five
years of implementation (within the first three years for SEPs implemented by settlingparties that are small businesses or small communities) are prohibited. After that time
period, profitable projects where the environmental or public health benefit outweighs thepotential profitability to the settling party may be allowable with approval by the Directorof OE.
(10) Projects that provide raw materials only, with no commitment from the settling party for acompleted project utilizing the raw materials (e.g., donating rail ties and gravel for a fish
ladder but not actually ensuring that the ladder is built).
(11) Projects that are not complete, discrete actions with tangible water-related
environmental or public health benefits.
(12) Projects for which completion depends on the actions or contributions of individuals or
entities that are neither party to the settlement nor hired by the settling party as animplementer or administrator. The term “action” as used above does not include
permitting approvals or other action by a local, state, or federal agency necessary to
implement the project. Monetary contributions necessary to implement the project thathave been encumbered at the time of settlement specifically for the project are
permissible.
2017 Supplemental Environmental Projects Policy, Page 7

(13) SEPs may not include actions that a third party is legally required to perform by any
federal, state, or local law or regulation (also referred to as third party complianceprojects).

VII.

PROJECT SOLICITATION AND SELECTION

A. SEP Proposal Solicitation and Guidance
A SEP proposal form and guidance document will be made available to the public on OE’s SEP
webpage. As SEP proposals are submitted, OE will direct them to the appropriate Regional
Water Board or Division for further evaluation. Each Regional Water Board or Division may
choose to create its own SEP proposal form and guidance document, through the appropriate
public process, to be posted on its respective website.
Regional Water Boards or Divisions may perform additional outreach (e.g., public workshops) at
an appropriate frequency to gain community input and actively solicit SEP proposals in DACs,EJ Communities, or communities with a financial hardship.
Regional Water Boards or Divisions without adequate resources available to solicit and evaluate
SEP proposals in their jurisdictions may request assistance to comply with this Policy’s
solicitation and selection requirements in writing from the Director of OE.

B. SEP Evaluation Criteria and Potential SEP Lists
OE shall post a summary document on the SEP webpage outlining the process for evaluating
SEP proposals both for SEPs proposed by the settling party at the time of a specific ACL
settlement, and for SEPs proposed for inclusion on the statewide potential SEP list. Settlingparties, particularly public agencies, can perform SEPs themselves. These are referred to as“first party SEPs.” Settling parties can also elect to hire and pay a third party to perform the
SEP on their behalf. These are referred to as “third party SEPs.” Regional Water Boards orDivisions may elect to have an intermediary or agent administer to and oversee performance ofsome or all SEPs within the appropriate Water Board’s geographic or subject matter jurisdiction.
These SEPs are referred to as “third party-administered SEPs.”
Each Regional Water Board or Division may create additional SEP evaluation criteria, post themon its website, and state which criteria may provide a preference for particular projects that
address problems specific to the geographic region or subject matter through the appropriate
public process. Each Regional Water Board or Division is responsible for evaluating andresponding to SEPs proposed for inclusion on the SEP list within its jurisdiction on an annual
basis, at minimum. Water Boards shall inform interested parties that have submitted SEP
proposals within 30 days of updating their potential SEP list.
For the potential SEP list, each Regional Water Board or Division may choose to have theproposed SEPs:(1) Pre-approved by the appropriate Water Board at an appropriate frequency;(2) Prioritized based on established criteria; or(3) Placed on the list without pre-approval or prioritization.
Regional Water Boards and Divisions may also compile an interested parties list that, while they
may not have specific projects on the list, could be contacted at the time of settlement for a SEP
proposal.
2017 Supplemental Environmental Projects Policy, Page 8

Water Boards that work with a third party administrator for SEP oversight and implementation
shall work with OE to establish appropriate evaluation criteria and a timeline for selection and
Board pre-approval of the administrator.
Each Regional Water Board and Division shall maintain and post on its website a list of potential
SEPs. This list shall include information on project description, category, location, cost,
expected benefits, and the potential to benefit DACs, EJ Communities, communities with afinancial hardship, and the human right to water. Once a Regional Water Board or Division has
developed its potential SEP list, it shall submit the list to OE for compilation into the statewide
potential SEP list (see Section VIII.K).
Water Boards without adequate resources available to maintain potential SEP lists may request
in writing to the Director of OE that potential SEP lists for projects within that particulargeographic or subject matter jurisdiction be compiled by OE.

VIII. REQUIREMENTS FOR SETTLEMENTS THAT INCLUDE A SEP
A. Water Boards’ Restrictions
A SEP shall never directly benefit, in a fiscal manner, a Water Board’s members, its staff, orfamily of members and staff. Any indirect benefits provided to members, staff, or family shall be
only those that are enjoyed by the public generally. A SEP shall not benefit or involve friends ofmembers, staff, or family where there could be an appearance of undue influence, suggestingan actual or apparent conflict of interest for the Water Boards. SEPs are not allowed toaugment the Water Boards’ budgets by replacing the Water Boards’ ordinary regulatory
functions.
Additionally, the Water Boards do not have authority to directly manage or administer a SEP.

B. Amount of SEP
While statutes governing the deposit of penalties and administrative liabilities for many otheragencies direct that they be paid into a general fund, administrative civil liabilities and civil
penalties assessed under the Water Code are paid into special funds for specific environmental
purposes. The State Water Board has a strong interest in monitoring the use of funds for SEPs
that would otherwise be paid into accounts for which it has statutory management and/or
disbursement responsibilities. Unless otherwise permitted by statute or approved by the
Director of OE based on a finding of compelling justification due to exceptional circumstances,as described below, no settlements shall be approved by the Water Boards that fund a SEP in
an amount greater than 50 percent of the total adjusted monetary assessment against thesettling party. The total adjusted monetary assessment is the total amount assessed, exclusiveof a Water Board’s investigative and enforcement costs.
If a Regional Water Board or Division proposes an order containing a SEP that exceeds
50 percent of the total adjusted monetary assessment, it shall affirmatively notify the Director of
OE of that proposal. The notification shall describe in detail the proposed SEP, the settlement
value of the SEP, the reasons why it proposes to accept the SEP in lieu of a monetary liability
payment, and the specific facts regarding why exceptional circumstances that constitutecompelling justification exist to justify exceeding the 50 percent limit.

2017 Supplemental Environmental Projects Policy, Page 9

The Director of OE may approve a proposed settlement to fund a SEP in an amount greaterthan 50 percent of the total adjusted monetary assessment after making evidence and/or
policy-based findings that:(1) There is compelling justification to do so due to exceptional circumstances; or(2) In cases where the SEP is located in or benefits a DAC, an EJ Community or acommunity that has a financial hardship, or where the SEP substantially furthers thehuman right to water.
“Disadvantaged Community” per Health and Safety Code section 39711 includes:
Areas disproportionately affected by environmental pollution and other hazards that canlead to negative public health effects, exposure, or environmental degradation; orAreas with concentrations of people that are of low income, high unemployment, lowlevels of homeownership, high rent burden, sensitive populations, or low levels of
educational attainment.

“EJ Community”, by reference to Government Code section 65040.12(e) includes:

A community that bears a disproportionate share of the negative environmental
consequences resulting from industrial, governmental, and commercial operations or
policies; or
A community without meaningful involvement in the development, implementation, andenforcement of environmental laws, regulations, and policies.

“Financial hardship” means that the community meets one of the following criteria:Median household income for the community is less than 80 percent of the California
median household income;The community has an unemployment rate of 10 percent or greater; orTwenty percent of the population is below the poverty level.

The “median household income,” “unemployment rate,” and “poverty level” of the population are
based on the most recent United States Census (U.S. Census) block group data or a local
survey approved by the appropriate Water Board in consultation with OE.
If the Director of OE determines that there is no compelling justification due to exceptional
circumstances, he or she shall notify the appropriate Water Board of that determination and the
SEP shall be limited to 50 percent of the total adjusted monetary assessment.
For settlements of violations giving rise to mandatory minimum penalties (MMPs) pursuant toWater Code section 13385 (h) or (i), where the penalty amount equals fifteen thousand dollars($15,000) or less, the entire penalty amount may be directed to be expended on a SEP without
prior approval from the Director of OE, provided the SEP meets the requirements of this Policy.
Where MMPs total more than $15,000, $15,000 plus 50% of the remaining civil liability may bedirected towards a SEP without prior approval from the Director of OE.
All SEP funds must be expended on the SEP specifically defined in the stipulated order within
36 months of the order’s adoption, unless the Executive Officer or Deputy Director of theappropriate Water Board grants an extension for good cause shown as to why the project has
been delayed. Examples of good cause include things beyond the project proponent's control
such as permitting delays. The Director of OE may approve a project implementation schedule
memorialized in a stipulated order allowing for SEP completion within 48 months based on afinding that the SEP provides an exceptional environmental benefit.
2017 Supplemental Environmental Projects Policy, Page 10

C. Settling Party and Third Party-Performed SEPs
First party (performed by the settling party) and third party (performed by a third party undercontract with the settling party) SEPs can be proposed by the settling party or chosen from thestatewide potential SEP list and shall be memorialized as part of a stipulated order. In either
case, the stipulated order shall satisfy all the requirements of this Policy prior to implementationof the SEP.

D. Third Party-Administered SEPs
Third party-administered SEPs are paid for by the settling party and shall also either be
proposed by the settling party or chosen from the statewide potential SEP list and memorialized
in a stipulated order. Similar to first and third party-performed SEPs, the stipulated orderauthorizing third party-administered SEPs shall satisfy all the requirements of this Policy prior to
implementation of the SEP.
Regional Water Boards or State Water Board Divisions that use a third party to administer SEPs
within their geographic or subject matter jurisdictions should ensure that the third party
administrator is both financially stable and capable of successfully implementing and completing
environmental projects. Third parties selected by Regional Water Boards or Divisions toadminister SEPs must provide written project status reports for all SEPs they are administeringto the Regional Water Board or Division and to OE on June 1 and December 1 of each calendar
year.

E. Liability
The portion of a monetary assessment adopted by a Board order that is satisfied by a SEP shallbe treated as a suspended liability. Unless otherwise required by law, any order imposing a
SEP shall state that if the SEP is not fully implemented in accordance with the terms of theorder and, if any costs of Water Board oversight or auditing are not paid, the Water Board isentitled to recover the full amount of the suspended monetary assessment, less any amountthat has been permanently suspended or excused based on the timely and successful
completion of any interim milestone. The recovered suspended monetary assessment shall be
paid to the appropriate fund authorized by statute (e.g., CAA, WDPF, or WRF). Full payment of
the suspended monetary assessment shall be in addition to any other applicable remedies fornoncompliance with the terms of the stipulated order.
Any portion of the monetary assessment that is not suspended shall be paid to the CAA, WDPF,
WRF, or other fund or account as authorized by statute and is paid at the time that the
stipulated order goes into effect. The order shall state that failure to pay any required monetaryassessment on a timely basis will cancel the provisions for suspended penalties for SEPs andthat the suspended amounts will become immediately due and payable.
It is the settling party’s obligation to pay the suspended amount(s) when due and payable,
regardless of any agreements between it and any third party it has contracted with to perform or
administer the project.
Upon completion of the SEP, the settling party (or the third party administrator) shall notify theappropriate Water Board and provide proof of project completion and use of funds (seeSection IX.D). The appropriate Water Board shall review the SEP documentation and shallprovide the settling party with a statement indicating that the SEP has been completed inaccordance with the terms of the stipulated order and that any remaining suspended liability is2017 Supplemental Environmental Projects Policy, Page 11

waived, with a courtesy copy to OE and the State Water Board’s Division of Administrative
Services payments unit.

F. Nexus
Public Resources Code section 71118 (b)(4) requires consideration of the relationship between
the location of the violation(s) and the location of the proposed SEP, also referred to in thisPolicy as a nexus. For the Water Boards, there must be a relationship between the nature or
the location of the violation and the nature or the location of the proposed SEP. A relationshipbetween the nature of the violation and the proposed SEP exists if the project demonstrates that
it is designed to reduce:(1) The likelihood that similar violations will occur in the future;(2) The adverse impact(s) to public health and/or the environment to which the violation atissue contributes; or(3) The overall risk to public health and/or the environment potentially affected by theviolation at issue.
SEPs may have a nexus even if they address a different pollutant in a different medium,provided the project relates to the underlying violation(s). A relationship between the location of
the violation and the proposed SEP may exist if the primary benefits to be attained from the
project are located at the same site where the alleged violation occurred, at a different site in thesame ecosystem, or within the immediate geographic area (e.g., in the same community, thesame watershed, or within a 50-mile radius), subject to approval by the appropriate Regional
Board or Division during settlement. The Director of OE may approve a SEP that benefits an EJ
Community, DAC, community with financial hardship or the human right to water without anexus based on findings that the violations occurred in a remote area with no nearby
communities and that there are no available program-related SEPs (e.g., when violations occur
at a remote abandoned mine, or other regulated site).

G. Oversight
For any SEP that requires oversight by a Water Board, the full costs of such oversight must be
paid for by the settling party. Based on its resource constraints, the Water Board may require
the settling party to select and hire an independent management company or other appropriate
third party, which reports solely to the Water Board, to oversee implementation of the SEP inlieu of oversight by Water Board staff. If no arrangement for the payment for necessary
oversight can be made, the SEP shall not be approved, absent exceptional circumstances. As
a general rule, and except as provided in Section VIII.B of this Policy, such oversight costs are
not costs that should be considered part of the direct cost of the SEP to the settling party for the
purposes of determining the value of the SEP for settlement purposes.
In cases where the SEP directly benefits a DAC, an EJ Community, or a community withfinancial hardship, or furthers the human right to water, the appropriate Water Board may
approve a SEP which includes oversight costs as part of the direct cost of the SEP. In all othercases, the Director of OE must make findings to support a determination that there is acompelling justification, based on exceptional circumstances, to allow oversight costs to be partof the total value of the SEP. Oversight costs allowed under this section should be limited to
5 percent, but may be up to 10 percent where a third party administrator performs SEP
program-related functions on behalf of the Regional Water Board or Division. Any allowance ofoversight costs must be memorialized in the stipulated order.

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H. Accounts
As contemplated by this Policy, a SEP is a project or group of projects, the scope of which isdefined at the time the SEP is authorized by a Water Board in a stipulated order. The
placement of settlement funds into an account or fund managed by a Water Board that is not an
account or fund authorized by statute, or otherwise allowed by the State Water Board, is not
permissible. If a Water Board wishes to establish any fund that is designed to receive moneythat is paid by a settling party to resolve a claim of liability under the Water Code, theappropriate Water Board should obtain the express authorization of the State Water Board.
Such authorization will be subject to any conditions that the State Water Board may place onsuch a fund.
The Water Boards shall not manage or control funds that may be set aside or escrowed for
performance of a SEP, unless placed in an account authorized by statute or permitted by theState Water Board. The State Water Board may authorize an account and SEP program that
does not strictly comply with the “specific project” requirements of Sections V.E., VI(2), VI.(3) or
IX.A of this Policy, including, but not limited to, those that fund regional monitoring programs.

I. Third Party Financial Audits
In addition to the Certificate of Completion (see Section IX.D), upon completion of the SEP andat the written request of the appropriate Water Board, the settling party shall submit an audit
report prepared by an independent third party acceptable to the Water Board providing suchparty’s professional opinion that the settling party has expended money in the amount claimedby the settling party. The audit report shall be provided to the requesting Water Board within
three months of notice of the need for an independent third party financial audit at the sole costof the settling party. The audit need not address any costs incurred by Water Board staff foroversight. Where a Water Board has entered a stipulated order authorizing a SEP with a direct
cost over one million dollars ($1 million), it shall require a third party financial audit be performed
after the completion of the project at the sole cost of the settling party.

J. Publicity
Whenever the settling party, or any third party with whom the settling party contracts to performa SEP, publicizes a SEP or the results of the SEP, it shall state in a prominent manner that the
project is being undertaken as part of the settlement of a Water Board enforcement action.

K. Public Reporting of SEP Information
By March 31 of each year, each Water Board with settlement agreements that include SEPs
shall provide OE with the following for the prior calendar year:Summary reports of each SEP completed in that calendar year in a format specified by
OE;
Results of any third party financial audits; andAn annual update to the list of potential SEPs.

OE shall compile a report on all completed SEPs statewide for the prior calendar year to beposted on the State Water Board’s SEP webpage and included in the State Water Board’s
Annual Performance Report. The SEP webpage shall also contain a live link to query theappropriate Water Board databases for the most current information on active and completed
SEPs statewide.

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OE shall also compile, based on information from the Regional Water Boards and State Water
Board Divisions, a statewide list of potential SEPs to be posted on the State Water Board’s SEP
webpage. The statewide potential SEP list shall be updated on an annual basis, at minimum,
and reported to CalEPA on an annual basis or at its request.

IX. ADDITIONAL REQUIREMENTS FOR STIPULATEDORDERS THAT INCLUDE A SEP
When SEPs are appropriate, they must be adopted as stipulated orders, in settlement of an
ACL complaint or some other order proposed to be entered under the authority of a Water
Board. There is no legal authority for an ACL complaint to contain a proposed SEP.
All stipulated orders that include a SEP must address the following items:

A. Project Scope and Schedule
Unless otherwise authorized by the State Water Board pursuant to Section VIII.H., the stipulatedorder must indicate a specific project, which includes or references a detailed scope of work anda budget. The order must also include a time schedule for implementation and may include
multiple milestones that identify the amount of liability that will be permanently suspended or
excused upon the timely and successful completion of each milestone. Milestones that allow fora portion of the liability to be permanently suspended must have an identifiable, or “standalone,” environmental benefit. Where a SEP will only have an identifiable environmental benefit
after full completion, milestones that allow for permanent suspension of a portion of the liability
are not allowed. Except for the final milestone, the amount of the liability suspended for any
portion of a SEP cannot exceed the projected cost of performing that portion of the SEP. A final
SEP completion date must be indicated in the order. The order must also contain or reference
performance standards and identified measures or indicators of performance in the scope ofwork.
The settling party is ultimately responsible for meeting these milestones, standards, andindicators, regardless of whether the project is a first party, third party, or a third
party-administered SEP.
During implementation of the SEP, any deviation in scope, budget, time schedule, milestones,
performance standards, or indicators must be discussed with, and approved by, the Executive
Officer or Deputy Director of the appropriate Regional Water Board or Division in advance of thedeviation and applicable deadline.

B. Funding
To ensure transparency in the use of public funds, the stipulated order must contain a written
acknowledgment and other appropriate verification and enforceable representation to theappropriate Water Board by either the settling party or each third party performing or
administering the SEP that any funds intended for the SEP, including funds received by the third
party from the settling party, shall be spent in accordance with the terms of the order on a
specific, defined project. Where a third party performs or administers the SEP, the order must
provide that the third party is subject to an audit of its SEP expenditures if requested by theWater Board.

2017 Supplemental Environmental Projects Policy, Page 14

C. California Environmental Quality Act
The SEP description in the stipulated order must address how the project will comply with the
California Environmental Quality Act (CEQA) and these requirements shall be incorporated into
the time schedule for the SEP. Prior to commencing the SEP, the settling party or third party
shall provide the appropriate Water Board with one or more of the following documents:Categorical or statutory exemptions relied upon by the settling party;
Negative Declaration, if there are no potentially “significant” impacts;
Mitigated Negative Declaration, if there are potentially “significant” impacts but revisions
to the project have been made or may be made to avoid or mitigate those potentiallysignificant impacts; orEnvironmental Impact Report (EIR).

D. Reporting and Certificate of Completion
The stipulated order must require periodic reporting (quarterly reporting at a minimum) on theperformance of the SEP by the settling party so that the appropriate Water Board is able tomonitor the timely and successful completion of the SEP.
The stipulated order must also require the settling party to provide the appropriate Water Board
and OE with a final completion report, including a certified statement of completion of the SEP(certificate of completion). The certificate of completion shall be submitted under penalty of
perjury, and include the following:(1) Certification of completion in accordance with the terms of the stipulated order andaddressing how the expected outcome(s) or performance standard(s) for the project
were met. Such documentation may include photographs, invoices, receipts,
certifications, and other materials reasonably necessary for the appropriate Water Board
to evaluate the completion of the SEP and the costs incurred by the settling party.
(2) Certification documenting the expenditures by the settling party during the completion
period for the SEP. To do so, the settling party may rely upon tracking systems used in
the ordinary course of business that capture employee time, expenditures, and external
payments to outside vendors, such as environmental and information technology
contractors or consultants. The certification need not address any costs incurred by
Water Board staff for oversight. The settling party shall provide any additional
information requested by the appropriate Water Board, which is reasonably necessary toverify SEP expenditures.
(3) Certification that the settling party or third party followed all applicable environmental
laws and regulations in the implementation of the SEP, including but not limited to:
CEQA, the Federal Clean Water Act, the Federal Safe Drinking Water Act, and thePorter-Cologne Water Quality Control Act.
Where a third party performed the SEP, or a third party administrator oversaw the SEP, that
entity may provide the periodic reports, the completion report, and the certification on behalf ofthe settling party. Periodic and final completion reporting and certification costs may be
included as part of the direct cost of the SEP.

2017 Supplemental Environmental Projects Policy, Page 15

E. SEP AcceptanceUpon receipt of the final completion report and certificate of completion by either the settlingparty, the third party, or the third party administrator, the appropriate Water Board shallconduct a review to determine whether the SEP was completed in accordance with the termsof the stipulated order. The Water Boards may request additional information from thesettling party, the third party or the third party administrator if necessary to complete thereview. The appropriate Water Board shall provide the settling party with a statement
indicating that the SEP has been completed in satisfaction of the terms of the order and thatany remaining suspended liability is permanently suspended.

2017 Supplemental Environmental Projects Policy, Page 16