[Federal Register Volume 63, Number 86 (Tuesday, May 5, 1998)]
[Notices]
[Pages 24796-24804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11881]


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ENVIRONMENTAL PROTECTION AGENCY

[Docket No. 98F-FRL-6008-8]


Final EPA Supplemental Environmental Projects Policy Issued

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: The Environmental Protection Agency (EPA) is issuing a 
revised, final EPA Supplemental Environmental Projects Policy. This 
Policy supersedes the May 1995 Interim Revised Supplemental 
Environmental Projects Policy. Based on experience gained implementing 
the Interim Revised SEP Policy, EPA has refined and clarified this 
Policy to better assist it in exercising its enforcement discretion to 
establish appropriate settlement penalties and supplemental 
environmental projects (SEPs) that secure significant environmental and 
public health improvements.

DATES: EPA will implement this Policy effective May 1, 1998.

FOR FURTHER INFORMATION CONTACT: Ann Kline, 202-564-0119, Office of 
Regulatory Enforcement, Mail Code 2248-A, United States Environmental 
Protection Agency, 401 M Street, SW., Washington, DC 20460.

SUPPLEMENTARY INFORMATION: These final revisions to the EPA 
Supplemental Environmental Projects (SEP) Policy refine and clarify the 
1995 Interim Revised Supplemental Environmental Projects Policy for 
easier implementation. The basic structure and operation of the Policy 
remains unchanged. The primary purpose of this Policy is to obtain 
environmental and public health protection and improvements that may 
not otherwise have occurred without the settlement incentives provided 
by this Policy. The final Policy retains the 1995 Policy framework for 
determining whether a proposed project can be considered in 
establishing an appropriate settlement penalty. In addition, this 
Policy also sets out clear legal guidelines, well-defined categories of 
acceptable projects and simple easy-to-apply rules for calculating and 
applying the cost of a SEP in determining an appropriate settlement 
penalty.
    The most significant changes made to the 1995 Interim Revised 
Policy include: (1) Explicit encouragement of community input into the 
development of SEPs in appropriate cases; (2) a prohibition on using 
SEPs to mitigate claims for stipulated penalties except in 
extraordinary circumstances; and (3) the creation of an ``other'' 
category, under which projects that do not fit within a defined 
category of this Policy but otherwise meet all other criteria of the 
Policy may be approved under certain procedural requirements. A full 
copy of this Policy is set forth below and also may be found at U.S. 
EPA's Web site at http://www.epa.gov/oeca/sep.

    Dated: April 10, 1998.
Steven A. Herman,
Assistant Administrator, Office of Enforcement and Compliance 
Assurance, United States Environmental Protection Agency.

A. Introduction

1. Background

    In settlements of environmental enforcement cases, the U.S. 
Environmental Protection Agency (EPA) requires the alleged violators to 
achieve and maintain compliance with Federal environmental laws and 
regulations and to pay a civil penalty. To further EPA's goals to 
protect and enhance public health and the environment, in certain 
instances environmentally beneficial projects, or Supplemental 
Environmental Projects (SEPs), may be part of the settlement. This 
Policy sets forth the types of projects that are permissible as SEPs, 
the penalty mitigation appropriate for a particular SEP, and the terms 
and conditions under which they may become part of a settlement. The 
primary purpose of this Policy is to encourage and obtain environmental 
and public health protection and improvements that may not otherwise 
have occurred without the settlement incentives provided by this 
Policy.
    In settling enforcement actions, EPA requires alleged violators to 
promptly cease the violations and, to the extent feasible, remediate 
any harm caused by the violations. EPA also seeks substantial monetary 
penalties in order to deter noncompliance. Without penalties, regulated 
entities would have an incentive to delay compliance until they are 
caught and ordered to comply. Penalties promote environmental 
compliance and help protect public health by deterring future 
violations by the same violator and deterring violations by other 
members of the regulated community. Penalties help ensure a national 
level playing field by

[[Page 24797]]

ensuring that violators do not obtain an unfair economic advantage over 
their competitors who made the necessary expenditures to comply on 
time. Penalties also encourage regulated entities to adopt pollution 
prevention and recycling techniques in order to minimize their 
pollutant discharges and reduce their potential liabilities.
    Statutes administered by EPA generally contain penalty assessment 
criteria that a court or administrative law judge must consider in 
determining an appropriate penalty at trial or a hearing. In the 
settlement context, EPA generally follows these criteria in exercising 
its discretion to establish an appropriate settlement penalty. In 
establishing an appropriate penalty, EPA considers such factors as the 
economic benefit associated with the violations, the gravity or 
seriousness of the violations, and prior history of violations. 
Evidence of a violator's commitment and ability to perform a SEP is 
also a relevant factor for EPA to consider in establishing an 
appropriate settlement penalty. All else being equal, the final 
settlement penalty will be lower for a violator who agrees to perform 
an acceptable SEP compared to the violator who does not agree to 
perform a SEP.
    The Agency encourages the use of SEPs that are consistent with this 
Policy. SEPs may not be appropriate in settlement of all cases, but 
they are an important part of EPA's enforcement program. While 
penalties play an important role in environmental protection by 
deterring violations and creating a level playing field, SEPs can play 
an additional role in securing significant environmental or public 
health protection and improvements. SEPs may be particularly 
appropriate to further the objectives in the statutes EPA administers 
and to achieve other policy goals, including promoting pollution 
prevention and environmental justice.

2. Pollution Prevention and Environmental Justice

    The Pollution Prevention Act of 1990 (42 U.S.C. 13101 et seq., 
November 5, 1990) identifies an environmental management hierarchy in 
which pollution ``should be prevented or reduced whenever feasible; 
pollution that cannot be prevented should be recycled in an 
environmentally safe manner whenever feasible; pollution that cannot be 
prevented or recycled should be treated in an environmentally safe 
manner whenever feasible; and disposal or other release into the 
environment should be employed only as a last resort * * *'' (42 U.S.C. 
13103). Selection and evaluation of proposed SEPs should be conducted 
generally in accordance with this hierarchy of environmental 
management, i.e., SEPs involving pollution prevention techniques are 
preferred over other types of reduction or control strategies, and this 
can be reflected in the degree of consideration accorded to a 
defendant/respondent before calculation of the final monetary penalty.
    Further, there is an acknowledged concern, expressed in Executive 
Order 12898 on environmental justice, that certain segments of the 
nation's population, i.e., low-income and/or minority populations, are 
disproportionately burdened by pollutant exposure. Emphasizing SEPs in 
communities where environmental justice concerns are present helps 
ensure that persons who spend significant portions of their time in 
areas, or depend on food and water sources located near, where the 
violations occur would be protected. Because environmental justice is 
not a specific technique or process but an overarching goal, it is not 
listed as a particular SEP category; but EPA encourages SEPs in 
communities where environmental justice may be an issue.

3. Using this Policy

    In evaluating a proposed project to determine if it qualifies as a 
SEP and then determining how much penalty mitigation is appropriate, 
Agency enforcement and compliance personnel should use the following 
five-step process:
    (1) Ensure that the project meets the basic definition of a SEP. 
(Section B)
    (2) Ensure that all legal guidelines, including nexus, are 
satisfied. (Section C)
    (3) Ensure that the project fits within one (or more) of the 
designated categories of SEPs. (Section D)
    (4) Determine the appropriate amount of penalty mitigation. 
(Section E)
    (5) Ensure that the project satisfies all of the implementation and 
other criteria. (Sections F, G, H, I and J)

4. Applicability

    This Policy revises and hereby supersedes the February 12, 1991 
Policy on the Use of Supplemental Environmental Projects in EPA 
Settlements and the May 1995 Interim Revised Supplemental Environmental 
Projects Policy. This Policy applies to settlements of all civil 
judicial and administrative actions filed after the effective date of 
this Policy, and to all pending cases in which the government has not 
reached agreement in principle with the alleged violator on the 
specific terms of a SEP.
    This Policy applies to all civil judicial and administrative 
enforcement actions taken under the authority of the environmental 
statutes and regulations that EPA administers. It also may be used by 
EPA and the Department of Justice in reviewing proposed SEPs in 
settlement of citizen suits. This Policy also applies to federal 
agencies that are liable for the payment of civil penalties. Claims for 
stipulated penalties for violations of consent decrees or other 
settlement agreements may not be mitigated by the use of 
SEPs.<SUP>1</SUP>
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    \1\ In extraordinary circumstances, the Assistant Administrator 
may consider mitigating potential stipulated penalty liability using 
SEPs where: (1) Despite the circumstances giving rise to the claim 
for stipulated penalties, the violator has the ability and intention 
to comply with a new settlement agreement obligation to implement 
the SEP; (2) there is no negative impact on the deterrent purposes 
of stipulated penalties; and (3) the settlement agreement 
establishes a range for stipulated penalty liability for the 
violations at issue. For example, if a respondent/defendant has 
violated a settlement agreement which provides that a violation of X 
requirement subjects it to a stipulated penalty between $1,000 and 
$5,000, then the Agency may consider SEPs in determining the 
specific penalty amount that should be demanded.
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    This is a settlement Policy and thus is not intended for use by 
EPA, defendants, respondents, courts or administrative law judges at a 
hearing or in a trial. Further, whether the Agency decides to accept a 
proposed SEP as part of a settlement, and the amount of any penalty 
mitigation that may be given for a particular SEP, is purely within 
EPA's discretion. Even though a project appears to satisfy all of the 
provisions of this Policy, EPA may decide, for one or more reasons, 
that a SEP is not appropriate (e.g., the cost of reviewing a SEP 
proposal is excessive, the oversight costs of the SEP may be too high, 
the defendant/respondent may not have the ability or reliability to 
complete the proposed SEP, or the deterrent value of the higher penalty 
amount outweighs the benefits of the proposed SEP).
    This Policy establishes a framework for EPA to use in exercising 
its enforcement discretion in determining appropriate settlements. In 
some cases, application of this Policy may not be appropriate, in whole 
or part. In such cases, the litigation team may, with the advance 
approval of Headquarters, use an alternative or modified approach.

B. Definition and Key Characterisitics of a SEP

    Supplemental environmental projects are defined as environmentally 
beneficial projects which a defendant/respondent agrees to undertake in

[[Page 24798]]

settlement of an enforcement action, but which the defendant/respondent 
is not otherwise legally required to perform. The three bolded key 
parts of this definition are elaborated below.
    Environmentally beneficial means a SEP must improve, protect, or 
reduce risks to public health, or the environment at large. While in 
some cases a SEP may provide the alleged violator with certain 
benefits, there must be no doubt that the project primarily benefits 
the public health or the environment.
    In settlement of an enforcement action means: (1) EPA has the 
opportunity to help shape the scope of the project before it is 
implemented; and (2) the project is not commenced until after the 
Agency has identified a violation (e.g., issued a notice of violation, 
administrative order, or complaint).<SUP>2</SUP>
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    \2\ Since the primary purpose of this Policy is to obtain 
environmental or public health benefits that may not have occurred 
``but for'' the settlement, projects which the defendant has 
previously committed to perform or have been started before the 
Agency has identified a violation are not eligible as SEPs. Projects 
which have been committed to or started before the identification of 
a violation may mitigate the penalty in other ways. Depending on the 
specifics, if a regulated entity had initiated environmentally 
beneficial projects before the enforcement process commenced, the 
initial penalty calculation could be lower due to the absence of 
recalcitrance, no history of other violations, good faith efforts, 
less severity of the violations, or a shorter duration of the 
violations.
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    Not otherwise legally required to perform means the project or 
activity is not required by any federal, state or local law or 
regulation. Further, SEPs cannot include actions which the defendant/
respondent is likely to be required to perform:
    (a) As injunctive relief <SUP>3</SUP> in the instant case;
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    \3\ The statutes EPA administers generally provide a court with 
broad authority to order a defendant to cease its violations, take 
necessary steps to prevent future violations, and to remediate any 
harm caused by the violations. If a court is likely to order a 
defendant to perform a specific activity in a particular case, such 
an activity does not qualify as a SEP.
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    (b) As injunctive relief in another legal action EPA, or another 
regulatory agency could bring;
    (c) As part of an existing settlement or order in another legal 
action; or, d) By a state or local requirement.
    SEPs may include activities which the defendant/respondent will 
become legally obligated to undertake two or more years in the future, 
if the project will result in the facility coming into compliance 
earlier than the deadline. Such ``accelerated compliance'' projects are 
not allowable, however, if the regulation or statute provides a benefit 
(e.g., a higher emission limit) to the defendant/respondent for early 
compliance.
    Also, the performance of a SEP reduces neither the stringency nor 
timeliness requirements of Federal environmental statutes and 
regulations. Of course, performance of a SEP does not alter the 
defendant/respondent's obligation to remedy a violation expeditiously 
and return to compliance.

C. Legal Guidelines

    EPA has broad discretion to settle cases, including the discretion 
to include SEPs as an appropriate part of the settlement. The legal 
evaluation of whether a proposed SEP is within EPA's authority and 
consistent with all statutory and Constitutional requirements may be a 
complex task. Accordingly, this Policy uses five legal guidelines to 
ensure that our SEPs are within the Agency's and a federal court's 
authority, and do not run afoul of any Constitutional or statutory 
requirements.<SUP>4</SUP>
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    \4\ These legal guidelines are based on federal law as it 
applies to EPA; States may have more or less flexibility in the use 
of SEPs depending on their laws.
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    1. A project cannot be inconsistent with any provision of the 
underlying statutes.
    2. All projects must advance at least one of the objectives of the 
environmental statutes that are the basis of the enforcement action and 
must have adequate nexus. Nexus is the relationship between the 
violation and the proposed project. This relationship exists only if:
    a. The project is designed to reduce the likelihood that similar 
violations will occur in the future; or
    b. The project reduces the adverse impact to public health or the 
environment to which the violation at issue contributes; or
    c. The project reduces the overall risk to public health or the 
environment potentially affected by the violation at issue.
    Nexus is easier to establish if the primary impact of the project 
is at the site where the alleged violation occurred or at a different 
site in the same ecosystem or within the immediate geographic 
<SUP>5</SUP> area. Such SEPs may have sufficient nexus even if the SEP 
addresses a different pollutant in a different medium. In limited 
cases, nexus may exist even though a project will involve activities 
outside of the United States.<SUP>6</SUP> The cost of a project is not 
relevant to whether there is adequate nexus.
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    \5\ The immediate geographic area will generally be the area 
within a 50 mile radius of the site on which the violations 
occurred. Ecosystem or geographic proximity is not by itself a 
sufficient basis for nexus; a project must always satisfy 
subparagraph a, b, or c in the definition of nexus. In some cases, a 
project may be performed at a facility or site not owned by the 
defendant/respondent.
    \6\ All projects which would include activities outside the U.S. 
must be approved in advance by Headquarters and/or the Department of 
Justice. See section J.
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    3. EPA may not play any role in managing or controlling funds that 
may be set aside or escrowed for performance of a SEP. Nor may EPA 
retain authority to manage or administer the SEP. EPA may, of course, 
perform oversight to ensure that a project is implemented pursuant to 
the provisions of the settlement and have legal recourse if the SEP is 
not adequately performed.
    4. The type and scope of each project are defined in the signed 
settlement agreement. This means the ``what, where and when'' of a 
project are defined by the settlement agreement. Settlements in which 
the defendant/respondent agrees to spend a certain sum of money on a 
project(s) to be defined later (after EPA or the Department of Justice 
signs the settlement agreement) are not allowed.
    5. a. A project cannot be used to satisfy EPA's statutory 
obligation or another federal agency's obligation to perform a 
particular activity. Conversely, if a federal statute prohibits the 
expenditure of federal resources on a particular activity, EPA cannot 
consider projects that would appear to circumvent that prohibition
    b. A project may not provide EPA or any federal agency with 
additional resources to perform a particular activity for which 
Congress has specifically appropriated funds. A project may not provide 
EPA with additional resources to perform a particular activity for 
which Congress has earmarked funds in an appropriations committee 
report.<SUP>7</SUP> Further, a project cannot be used to satisfy EPA's 
statutory or earmark obligation, or another federal agency's statutory 
obligation, to spend funds on a particular activity. A project, 
however, may be related to a particular activity for which Congress has 
specifically appropriated or earmarked funds.
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    \7\ Earmarks are instructions for changes to EPA's discretionary 
budget authority made by appropriations committee in committee 
reports that the Agency generally honors as a matter of policy.
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    c. A project may not provide additional resources to support 
specific activities performed by EPA employees or EPA contractors. For 
example, if EPA has developed a brochure to help a segment of the 
regulated community comply with environmental requirements, a project 
may not directly,

[[Page 24799]]

or indirectly, provide additional resources to revise, copy or 
distribute the brochure.
    d. A project may not provide a federal grantee with additional 
funds to perform a specific task identified within an assistance 
agreement.

D. Categories of Supplemental Environmental Projects

    EPA has identified seven specific categories of projects which may 
qualify as SEPs. In order for a proposed project to be accepted as a 
SEP, it must satisfy the requirements of at least one category plus all 
the other requirements established in this Policy.

1. Public Health

    A public health project provides diagnostic, preventative and/or 
remedial components of human health care which is related to the actual 
or potential damage to human health caused by the violation. This may 
include epidemiological data collection and analysis, medical 
examinations of potentially affected persons, collection and analysis 
of blood/fluid/ tissue samples, medical treatment and rehabilitation 
therapy.
    Public health SEPs are acceptable only where the primary benefit of 
the project is the population that was harmed or put at risk by the 
violations.

2. Pollution Prevention

    A pollution prevention project is one which reduces the generation 
of pollution through ``source reduction,'' i.e., any practice which 
reduces the amount of any hazardous substance, pollutant or contaminant 
entering any waste stream or otherwise being released into the 
environment, prior to recycling, treatment or disposal. (After the 
pollutant or waste stream has been generated, pollution prevention is 
no longer possible and the waste must be handled by appropriate 
recycling, treatment, containment, or disposal methods.)
    Source reduction may include equipment or technology modifications, 
process or procedure modifications, reformulation or redesign of 
products, substitution of raw materials, and improvements in 
housekeeping, maintenance, training, inventory control, or other 
operation and maintenance procedures. Pollution prevention also 
includes any project which protects natural resources through 
conservation or increased efficiency in the use of energy, water or 
other materials. ``In-process recycling,'' wherein waste materials 
produced during a manufacturing process are returned directly to 
production as raw materials on site, is considered a pollution 
prevention project.
    In all cases, for a project to meet the definition of pollution 
prevention, there must be an overall decrease in the amount and/or 
toxicity of pollution released to the environment, not merely a 
transfer of pollution among media. This decrease may be achieved 
directly or through increased efficiency (conservation) in the use of 
energy, water or other materials. This is consistent with the Pollution 
Prevention Act of 1990 and the Administrator's ``Pollution Prevention 
Policy Statement: New Directions for Environmental Protection,'' dated 
June 15, 1993.

3. Pollution Reduction

    If the pollutant or waste stream already has been generated or 
released, a pollution reduction approach--which employs recycling, 
treatment, containment or disposal techniques--may be appropriate. A 
pollution reduction project is one which results 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.'' This may include the 
installation of more effective end-of-process control or treatment 
technology, or improved containment, or safer disposal of an existing 
pollutant source. Pollution reduction also includes ``out-of-process 
recycling,'' wherein industrial waste collected after the manufacturing 
process and/or consumer waste materials are used as raw materials for 
production off-site.

4. Environmental Restoration and Protection

    An environmental restoration and protection project is one which 
enhances the condition of the ecosystem or immediate geographic area 
adversely affected.<SUP>8</SUP> These projects may be used to restore 
or protect natural environments (such as ecosystems) and man-made 
environments, such as facilities and buildings. This category also 
includes any project which protects the ecosystem from actual or 
potential damage resulting from the violation or improves the overall 
condition of the ecosystem.<SUP>9</SUP> Examples of such projects 
include: Restoration of a wetland in the same ecosystem along the same 
avian flyway in which the facility is located; or purchase and 
management of a watershed area by the defendant/respondent to protect a 
drinking water supply where the violation (e.g., a reporting violation) 
did not directly damage the watershed but potentially could lead to 
damage due to unreported discharges. This category also includes 
projects which provide for the protection of endangered species (e.g., 
developing conservation programs or protecting habitat critical to the 
well-being of a species endangered by the violation).
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    \8\ If EPA lacks authority to require repair of the damage 
caused by the violation, then repair itself may constitute a SEP.
    \9\ Simply preventing new discharges into the ecosystem, as 
opposed to taking affirmative action directly related to preserving 
existing conditions at a property, would not constitute a 
restoration and protection project, but may fit into another 
category such as pollution prevention or pollution reduction.
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    In some projects where a defendant/respondent has agreed to restore 
and then protect certain lands, the question arises as to whether the 
project may include the creation or maintenance of certain recreational 
improvements, such as hiking and bicycle trails. The costs associated 
with such recreational improvements may be included in the total SEP 
cost provided they do not impair the environmentally beneficial 
purposes of the project and they constitute only an incidental portion 
of the total resources spent on the project.
    In some projects where the parties intend that the property be 
protected so that the ecological and pollution reduction purposes of 
the land are maintained in perpetuity, the defendant/respondent may 
sell or transfer the land to another party with the established 
resources and expertise to perform this function, such as a state park 
authority. In some cases, the U.S. Fish and Wildlife Service or the 
National Park Service may be able to perform this 
function.<SUP>10</SUP>
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    \10\ These federal agencies have explicit statutory authority to 
accept gifts of land and money in certain circumstances. All 
projects with these federal agencies must be reviewed and approved 
in advance by legal counsel in the agency, usually the Solicitor's 
Office in the Department of the Interior.
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    With regard to man-made environments, such projects may involve the 
remediation of facilities and buildings, provided such activities are 
not otherwise legally required. This includes the removal/mitigation of 
contaminated materials, such as soils, asbestos and lead paint, which 
are a continuing source of releases and/or threat to individuals.

5. Assessments and Audits

    Assessments and audits, if they are not otherwise available as 
injunctive relief, are potential SEPs under this category. There are 
three types of projects in this category: a. Pollution prevention 
assessments; b. environmental quality assessments; and

[[Page 24800]]

c. compliance audits. These assessments and audits are only acceptable 
as SEPs when the defendant/respondent agrees to provide EPA with a copy 
of the report. The results may be made available to the public, except 
to the extent they constitute confidential business information 
pursuant to 40 CFR part 2, subpart B.
    a. Pollution prevention assessments are systematic, internal 
reviews of specific processes and operations designed to identify and 
provide information about opportunities to reduce the use, production, 
and generation of toxic and hazardous materials and other wastes. To be 
eligible for SEPs, such assessments must be conducted using a 
recognized pollution prevention assessment or waste minimization 
procedure to reduce the likelihood of future violations. Pollution 
prevention assessments are acceptable as SEPs without an implementation 
commitment by the defendant/respondent. Implementation is not required 
because drafting implementation requirements before the results of an 
assessment are known is difficult. Further, many of the implementation 
recommendations may constitute activities that are in the defendant/
respondent's own economic interest.
    b. Environmental quality assessments are investigations of: The 
condition of the environment at a site not owned or operated by the 
defendant/respondent; the environment impacted by a site or a facility 
regardless of whether the site or facility is owned or operated by the 
defendant/respondent; or threats to human health or the environment 
relating to a site or a facility regardless of whether the site or 
facility is owned or operated by the defendant/respondent. These 
include, but are not limited to: investigations of levels or sources of 
contamination in any environmental media at a site; or monitoring of 
the air, soil, or water quality surrounding a site or facility. To be 
eligible as SEPs, such assessments must be conducted in accordance with 
recognized protocols, if available, applicable to the type of 
assessment to be undertaken. Expanded sampling or monitoring by a 
defendant/respondent of its own emissions or operations does not 
qualify as a SEP to the extent it is ordinarily available as injunctive 
relief.
    Environmental quality assessment SEPs may not be performed on the 
following types of sites: sites that are on the National Priority List 
under CERCLA section 105, 40 CFR part 300, appendix B; sites that would 
qualify for an EPA removal action pursuant to CERCLA section 104(a) and 
the National Oil and Hazardous Substances Pollution Contingency Plan, 
40 CFR 300.415; and sites for which the defendant/respondent or another 
party would likely be ordered to perform a remediation activity 
pursuant to CERCLA section 106, RCRA section 7003, RCRA 3008(h), CWA 
section 311, or another federal law.
    c. Environmental compliance audits are independent evaluations of a 
defendant/respondent's compliance status with environmental 
requirements. Credit is only given for the costs associated with 
conducting the audit. While the SEP should require all violations 
discovered by the audit to be promptly corrected, no credit is given 
for remedying the violation since persons are required to achieve and 
maintain compliance with environmental requirements. In general, 
compliance audits are acceptable as SEPs only when the defendant/
respondent is a small business or small community.<SUP>11</SUP> 
<SUP>12</SUP>
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    \11\ For purposes of this Policy, a small business is owned by a 
person or another entity that employs 100 or fewer individuals. 
Small businesses could be individuals, privately held corporations, 
farmers, landowners, partnerships and others. A small community is 
one comprised of fewer than 2,500 persons.
    \12\ Since most large companies routinely conduct compliance 
audits, to mitigate penalties for such audits would reward violators 
for performing an activity that most companies already do. In 
contrast, these audits are not commonly done by small businesses, 
perhaps because such audits may be too expensive.
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6. Environmental Compliance Promotion

    An environmental compliance promotion project provides training or 
technical support to other members of the regulated community to: (1) 
Identify, achieve and maintain compliance with applicable statutory and 
regulatory requirements or (2) go beyond compliance by reducing the 
generation, release or disposal of pollutants beyond legal 
requirements. For these types of projects, the defendant/respondent may 
lack the experience, knowledge or ability to implement the project 
itself, and, if so, the defendant/respondent should be required to 
contract with an appropriate expert to develop and implement the 
compliance promotion project. Acceptable projects may include, for 
example, producing a seminar directly related to correcting widespread 
or prevalent violations within the defendant/respondent's economic 
sector.
    Environmental compliance promotion SEPs are acceptable only where 
the primary impact of the project is focused on the same regulatory 
program requirements which were violated and where EPA has reason to 
believe that compliance in the sector would be significantly advanced 
by the proposed project. For example, if the alleged violations 
involved Clean Water Act pretreatment violations, the compliance 
promotion SEP must be directed at ensuring compliance with pretreatment 
requirements. Environmental compliance promotion SEPs are subject to 
special approval requirements per Section J below.

7. Emergency Planning and Preparedness

    An emergency planning and preparedness project provides 
assistance--such as computers and software, communication systems, 
chemical emission detection and inactivation equipment, HAZMAT 
equipment, or training--to a responsible state or local emergency 
response or planning entity. This is to enable these organizations to 
fulfill their obligations under the Emergency Planning and Community 
Right-to-Know Act (EPCRA) to collect information to assess the dangers 
of hazardous chemicals present at facilities within their jurisdiction, 
to develop emergency response plans, to train emergency response 
personnel and to better respond to chemical spills.
    EPCRA requires regulated sources to provide information on chemical 
production, storage and use to State Emergency Response Commissions 
(SERCs), Local Emergency Planning Committees (LEPCs) and Local Fire 
Departments (LFDs). This enables states and local communities to plan 
for and respond effectively to chemical accidents and inform 
potentially affected citizens of the risks posed by chemicals present 
in their communities, thereby enabling them to protect the environment 
or ecosystems which could be damaged by an accident. Failure to comply 
with EPCRA impairs the ability of states and local communities to meet 
their obligations and places emergency response personnel, the public 
and the environment at risk from a chemical release.
    Emergency planning and preparedness SEPs are acceptable where the 
primary impact of the project is within the same emergency planning 
district or state affected by the violations and EPA has not previously 
provided the entity with financial assistance for the same purposes as 
the proposed SEP. Further, this type of SEP is allowable only when the 
SEP involves non-cash assistance and there are violations of EPCRA, or 
reporting violations under CERCLA section 103, or CAA section 112(r), 
or violations of

[[Page 24801]]

other emergency planning, spill or release requirements alleged in the 
complaint.

8. Other Types of Projects

    Projects determined by the case team to have environmental merit 
which do not fit within at least one of the seven categories above but 
that are otherwise fully consistent with all other provisions of this 
Policy, may be accepted with the advance approval of the Office of 
Enforcement and Compliance Assurance.

9. Projects Which Are Not Acceptable as SEPs

    The following are examples of the types of projects that are not 
allowable as SEPs:
    a. General public educational or public environmental awareness 
projects, e.g., sponsoring public seminars, conducting tours of 
environmental controls at a facility, promoting recycling in a 
community;
    b. Contributions to environmental research at a college or 
university;
    c. Conducting a project, which, though beneficial to a community, 
is unrelated to environmental protection, e.g., making a contribution 
to a non-profit, public interest, environmental, or other charitable 
organization, or donating playground equipment;
    d. Studies or assessments without a requirement to address the 
problems identified in the study (except as provided for in Sec. D.5 
above);
    e. Projects which the defendant/respondent will undertake, in whole 
or part, with low-interest federal loans, federal contracts, federal 
grants, or other forms of federal financial assistance or non-financial 
assistance (e.g., loan guarantees).

E. Calculation of the Final Penalty

    Substantial penalties are an important part of any settlement for 
legal and policy reasons. Without penalties there would be no 
deterrence, as regulated entities would have little incentive to 
comply. Additionally, penalties are necessary as a matter of fairness 
to those regulated entities that make the necessary expenditures to 
comply on time: Violators should not be allowed to obtain an economic 
advantage over their competitors who complied.
    As a general rule, the net costs to be incurred by a violator in 
performing a SEP may be considered as one factor in determining an 
appropriate settlement amount. In settlements in which defendant/
respondents commit to conduct a SEP, the final settlement penalty must 
equal or exceed either: (a) The economic benefit of noncompliance plus 
10 percent of the gravity component; or (b) 25 percent of the gravity 
component only; whichever is greater.
    Calculating the final penalty in a settlement which includes a SEP 
is a five step process. Each of the five steps is explained below. The 
five steps are also summarized in the penalty calculation worksheet 
attached to this Policy.

Step 1: Settlement Amount Without a SEP

    a. The applicable EPA penalty policy is used to calculate the 
economic benefit of noncompliance.
    b. The applicable EPA penalty policy is used to calculate the 
gravity component of the penalty. The gravity component is all of the 
penalty other than the identifiable economic benefit amount, after 
gravity has been adjusted by all other factors in the penalty policy 
(e.g., audits, good faith, litigation considerations), except for the 
SEP.
    c. The amounts in steps 1.a and b are added. This sum is the 
minimum amount that would be necessary to settle the case without a 
SEP.

Step 2: Minimum Penalty Amount With a SEP

    The minimum penalty amount must equal or exceed the economic 
benefit of noncompliance plus 10 percent of the gravity component, or 
25 percent of the gravity component only, whichever is greater. The 
minimum penalty amount is calculated as follows:
    a. Calculate 10 percent of gravity (multiply amount in step 1.b by 
0.1).
    b. Add economic benefit (amount in step 1.a) to amount in step 2.a.
    c. Calculate 25 percent of gravity (multiply amount in step 1.b by 
0.25).
    d. Identify the minimum penalty amount: the greater of step 2.c or 
step 2.b.<SUP>13</SUP>
---------------------------------------------------------------------------

    \13\ Pursuant to the February 1995 Revised Interim Clean Water 
Act Settlement Penalty Policy, section V, a smaller minimum penalty 
amount may be allowed for a municipality.
---------------------------------------------------------------------------

Step 3. Calculate the SEP Cost

    The net present after-tax cost of the SEP, hereinafter called the 
``SEP COST,'' is the maximum amount that EPA may take into 
consideration in determining an appropriate penalty mitigation for 
performance of a SEP. In order to facilitate evaluation of the SEP COST 
of a proposed project, the Agency has developed a computer model called 
PROJECT.<SUP>14</SUP> There are three types of costs that may be 
associated with performance of a SEP (which are entered into the 
PROJECT model): capital costs (e.g., equipment, buildings); one-time 
nondepreciable costs (e.g., removing contaminated materials, purchasing 
land, developing a compliance promotion seminar); and annual operation 
costs and savings (e.g., labor, chemicals, water, power, raw 
materials).<SUP>15</SUP>
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    \14\ A copy of the PROJECT computer program software and PROJECT 
User's Manual may be purchased by calling the National Technology 
Information Service at (800) 553-6847, and asking for Document 
#<greek-P><greek-B> 98-500408GEI, or they may be downloaded from the 
World Wide Web at ``http://www.epa.gov/oeca/models/''.
    \15\ The PROJECT calculated SEP Cost is a reasonable estimate, 
and not an exact after-tax calculation. PROJECT does not evaluate 
the potential for market benefits which may accrue with the 
performance of a SEP (e.g., increased sales of a product, improved 
corporate public image, or improved employee morale). Nor does it 
consider costs imposed on the government, such as the cost to the 
Agency for oversight of the SEP, or the burden of a lengthy 
negotiation with a defendant/ respondent who does not propose a SEP 
until late in the settlement process; such factors may be considered 
in determining a mitigation percentage rather than in calculating 
after-tax cost.
---------------------------------------------------------------------------

    To use PROJECT, the Agency needs reliable estimates of the costs 
associated with a defendant/respondent's performance of a SEP, as well 
as any savings due to such factors as energy efficiency gains, reduced 
materials costs, reduced waste disposal costs, or increases in 
productivity. For example, if the annual expenditures in labor and 
materials of operating a new waste recycling process is $100,000 per 
year, but the new process reduces existing hazardous waste disposal 
expenditures by $30,000 per year, the net cost of $70,000 is entered 
into the PROJECT model (variable 4).
    In order to run the PROJECT model properly (i.e., to produce a 
reasonable estimate of the net present after-tax cost of the project), 
the number of years that annual operation costs or savings will be 
expended in performing the SEP must be specified. At a minimum, the 
defendant/respondent must be required to implement the project for the 
same number of years used in the PROJECT model calculation. (For 
example, if the settlement agreement requires the defendant/respondent 
to operate the SEP equipment for two years, two years should be entered 
as the input for number of years of annual expense in the PROJECT 
model.) If certain costs or savings appear speculative, they should not 
be entered into the PROJECT model. The PROJECT model is the primary 
method to determine the SEP COST for purposes of negotiating 
settlements.<SUP>16</SUP>
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    \16\ See PROJECT User's Manual, January 1995. If the PROJECT 
model appears inappropriate to a particular fact situation, EPA 
Headquarters should be consulted to identify an alternative 
approach. For example, PROJECT does not readily calculate the cost 
of an accelerated compliance SEP. The cost of such a SEP is only the 
additional cost associated with doing the project early (ahead of 
the regulatory requirement) and it needs to be calculated in a 
slightly different manner. Please consult with the Office Of 
Regulatory Enforcement for directions on how to calculate the costs 
of such projects.

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[[Page 24802]]

    EPA does not offer tax advice on whether a regulated entity may 
deduct SEP expenditures from its income taxes. If a defendant/
respondent states that it will not deduct the cost of a SEP from its 
taxes and it is willing to commit to this in the settlement document, 
and provide the Agency with certification upon completion of the SEP 
that it has not deducted the SEP expenditures, the PROJECT model 
calculation should be adjusted to calculate the SEP Cost without 
reductions for taxes. This is a simple adjustment to the PROJECT model: 
just enter a zero for variable 7, the marginal tax rate. If a business 
is not willing to make this commitment, the marginal tax rate in 
variable 7 should not be set to zero; rather the default settings (or a 
more precise estimate of the business' marginal tax rates) should be 
used in variable 7.
    If the PROJECT model reveals that a project has a negative cost 
during the period of performance of the SEP, this means that it 
represents a positive cash flow to the defendant/respondent and is a 
profitable project. Such a project is generally not acceptable as a 
SEP. If a project generates a profit, a defendant/respondent should, 
and probably will, based on its own economic interests, implement the 
project. While EPA encourages regulated entities to undertake 
environmentally beneficial projects that are economically profitable, 
EPA does not believe violators should receive a bonus in the form of 
penalty mitigation to undertake such projects as part of an enforcement 
action. EPA does not offer subsidies to complying companies to 
undertake profitable environmentally beneficial projects and it would 
thus be inequitable and perverse to provide such subsidies only to 
violators. In addition, the primary goal of SEPs is to secure a 
favorable environmental or public health outcome which would not have 
occurred but for the enforcement case settlement. To allow SEP penalty 
mitigation for profitable projects would thwart this goal.\17\
---------------------------------------------------------------------------

    \17\ The penalty mitigation guidelines provide that the amount 
of mitigation should not exceed the net cost of the project. To 
provide penalty mitigation for profitable projects would be 
providing a credit in excess of net costs.
---------------------------------------------------------------------------

Step 4: Determine the SEP Mitigation Percentage and then the Mitigation 
Amount

    Step 4.a: Mitigation Percentage. After the SEP COST has been 
calculated, EPA should determine what percentage of that cost may be 
applied as mitigation against the amount EPA would settle for but for 
the SEP. The quality of the SEP should be examined as to whether and 
how effectively it achieves each of the following six factors listed 
below. (The factors are not listed in priority order.)
    <bullet> Benefits to the Public or Environment at Large. While all 
SEPs benefit public health or the environment, SEPs which perform well 
on this factor will result in significant and quantifiable reduction in 
discharges of pollutants to the environment and the reduction in risk 
to the general public. SEPs also will perform well on this factor to 
the extent they result in significant and, to the extent possible, 
measurable progress in protecting and restoring ecosystems (including 
wetlands and endangered species habitats).
    <bullet> Innovativeness. SEPs which perform well on this factor 
will further the development, implementation, or dissemination of 
innovative processes, technologies, or methods which more effectively: 
reduce the generation, release or disposal of pollutants; conserve 
natural resources; restore and protect ecosystems; protect endangered 
species; or promote compliance. This includes ``technology forcing'' 
techniques which may establish new regulatory ``benchmarks.''
    <bullet> Environmental Justice. SEPs which perform well on this 
factor will mitigate damage or reduce risk to minority or low income 
populations which may have been disproportionately exposed to pollution 
or are at environmental risk.
    <bullet> Community Input. SEPs which perform well on this factor 
will have been developed taking into consideration input received from 
the affected community. No credit should be given for this factor if 
the defendant/respondent did not actively participate in soliciting and 
incorporating public input into the SEP.
    <bullet> Multimedia Impacts. SEPs which perform well on this factor 
will reduce emissions to more than one medium.
    <bullet> Pollution Prevention. SEPs which perform well on this 
factor will develop and implement pollution prevention techniques and 
practices.
    The better the performance of the SEP under each of these factors, 
the higher the appropriate mitigation percentage. The percent of 
penalty mitigation is within EPA's discretion; there is no presumption 
as to the correct percentage of mitigation. The mitigation percentage 
should not exceed 80 percent of the SEP COST, with two exceptions:
    (1) For small businesses, government agencies or entities, and non-
profit organizations, this mitigation percentage of the SEP COST may be 
set as high as 100 percent if the defendant/respondent can demonstrate 
the project is of outstanding quality.
    (2) For any defendant/respondent, if the SEP implements pollution 
prevention, the mitigation percentage of the SEP COST may be set as 
high as 100 percent if the defendant/respondent can demonstrate that 
the project is of outstanding quality.
    If the government must allocate significant resources to monitoring 
and reviewing the implementation of a project, a lower mitigation 
percentage of the SEP COST may be appropriate.
    In administrative enforcement actions in which there is a statutory 
limit (commonly called ``caps'') on the total maximum penalty that may 
be sought in a single action, the cash penalty obtained plus the amount 
of penalty mitigation credit due to the SEPs shall not exceed the 
limit.

Step 4.b: SEP Mitigation Amount.

    The SEP COST (calculated pursuant to step 3) is multiplied by the 
mitigation percentage (step 4.a) to obtain the SEP mitigation amount, 
which is the amount of the SEP cost that may be used in potentially 
mitigating the preliminary settlement penalty.

Step 5: Final Settlement Penalty

    5.a. The SEP mitigation amount (step 4.b) is then subtracted from 
the settlement amount without a SEP (step 1.c).
    5.b The greater of step 2.d or step 5.a is the minimum final 
settlement penalty allowable based on the performance of the SEP.

F. Liability for Performance

    Defendants/respondents (or their successors in interest) are 
responsible and legally liable for ensuring that a SEP is completed 
satisfactorily. A defendant/respondent may not transfer this 
responsibility and liability to someone else, commonly called a third 
party. Of course, a defendant/respondent may use contractors or 
consultants to assist it in implementing a SEP.\18\
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    \18\ Non-profit organizations, such as universities and public 
interest groups, may function as contractors or consultants.

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[[Page 24803]]

G. Oversight and Drafting Enforceable SEPS

    The settlement agreement should accurately and completely describe 
the SEP. (See related legal guideline 4 in Sec. C above.) It should 
describe the specific actions to be performed by the defendant/
respondent and provide for a reliable and objective means to verify 
that the defendant/respondent has timely completed the project. This 
may require the defendant/respondent to submit periodic reports to EPA. 
The defendant/respondent may utilize an outside auditor to verify 
performance, and the defendant/respondent should be made responsible 
for the cost of any such activities. The defendant/respondent remains 
responsible for the quality and timeliness of any actions performed or 
any reports prepared or submitted by the auditor. A final report 
certified by an appropriate corporate official, acceptable to EPA, and 
evidencing completion of the SEP and documenting SEP expenditures, 
should be required.
    To the extent feasible, defendant/respondents should be required to 
quantify the benefits associated with the project and provide EPA with 
a report setting forth how the benefits were measured or estimated. The 
defendant/respondent should agree that whenever it publicizes a SEP or 
the results of a SEP, it will state in a prominent manner that the 
project is being undertaken as part of the settlement of an enforcement 
action.
    The drafting of a SEP will vary depending on whether the SEP is 
being performed as part of an administrative or judicial enforcement 
action. SEPs with long implementation schedules (e.g., 18 months or 
longer), SEPs which require EPA review and comment on interim milestone 
activities, and other complex SEPs may not be appropriate in 
administrative enforcement actions. Specific guidance on the proper 
drafting of settlement documents requiring SEPs is provided in a 
separate document.

H. Failure of a SEP and Stipulated Penalties

    If a SEP is not completed satisfactorily, the defendant/respondent 
should be required, pursuant to the terms of the settlement document, 
to pay stipulated penalties for its failure. Stipulated penalty 
liability should be established for each of the scenarios set forth 
below as appropriate to the individual case.
    1. Except as provided in paragraph 2 immediately below, if the SEP 
is not completed satisfactorily, a substantial stipulated penalty 
should be required. Generally, a substantial stipulated penalty is 
between 75 and 150 percent of the amount by which the settlement 
penalty was mitigated on account of the SEP.
    2. If the SEP is not completed satisfactorily, but the defendant/
respondent: a) made good faith and timely efforts to complete the 
project; and b) certifies, with supporting documentation, that at least 
90 percent of the amount of money which was required to be spent was 
expended on the SEP, no stipulated penalty is necessary.
    3. If the SEP is satisfactorily completed, but the defendant/
respondent spent less than 90 percent of the amount of money required 
to be spent for the project, a small stipulated penalty should be 
required. Generally, a small stipulated penalty is between 10 and 25 
percent of the amount by which the settlement penalty was mitigated on 
account of the SEP.
    4. If the SEP is satisfactorily completed, and the defendant/
respondent spent at least 90 percent of the amount of money required to 
be spent for the project, no stipulated penalty is necessary.
    The determinations of whether the SEP has been satisfactorily 
completed (i.e., pursuant to the terms of the agreement) and whether 
the defendant/respondent has made a good faith, timely effort to 
implement the SEP should be reserved to the sole discretion of EPA, 
especially in administrative actions in which there is often no formal 
dispute resolution process.

I. Community Input

    In appropriate cases, EPA should make special efforts to seek input 
on project proposals from the local community that may have been 
adversely impacted by the violations.<SUP>19</SUP> Soliciting community 
input into the SEP development process can: Result in SEPs that better 
address the needs of the impacted community; promote environmental 
justice; produce better community understanding of EPA enforcement; and 
improve relations between the community and the violating facility. 
Community involvement in SEPs may be most appropriate in cases where 
the range of possible SEPs is great and/or multiple SEPs may be 
negotiated.
---------------------------------------------------------------------------

    \19\ In civil judicial cases, the Department of Justice already 
seeks public comment on lodged consent decrees through a Federal 
Register notice. See 28 CFR 50.7. In certain administrative 
enforcement actions, there are also public notice requirements that 
are followed before a settlement is finalized. See 40 CFR part 22.
---------------------------------------------------------------------------

    When soliciting community input, the EPA negotiating team should 
follow the four guidelines set forth below.
    1. Community input should be sought after EPA knows that the 
defendant/respondent is interested in doing a SEP and is willing to 
seek community input, approximately how much money may be available for 
doing a SEP, and that settlement of the enforcement action is likely. 
If these conditions are not satisfied, EPA will have very little 
information to provide communities regarding the scope of possible 
SEPs.
    2. The EPA negotiating team should use both informal and formal 
methods to contact the local community. Informal methods may involve 
telephone calls to local community organizations, local churches, local 
elected leaders, local chambers of commerce, or other groups. Since EPA 
may not be able to identify all interested community groups, a public 
notice in a local newspaper may be appropriate
    3. To ensure that communities have a meaningful opportunity to 
participate, the EPA negotiating team should provide information to 
communities about what SEPs are, the opportunities and limits of such 
projects, the confidential nature of settlement negotiations, and the 
reasonable possibilities and limitations in the current enforcement 
action. This can be done by holding a public meeting, usually in the 
evening, at a local school or facility. The EPA negotiating team may 
wish to use community outreach experts at EPA or the Department of 
Justice in conducting this meeting. Sometimes the defendant/respondent 
may play an active role at this meeting and have its own experts assist 
in the process.
    4. After the initial public meeting, the extent of community input 
and participation in the SEP development process will have to be 
determined. The amount of input and participation is likely to vary 
with each case. Except in extraordinary circumstances and with 
agreement of the parties, representatives of community groups will not 
participate directly in the settlement negotiations. This restriction 
is necessary because of the confidential nature of settlement 
negotiations and because there is often no equitable process to 
determine which community group should directly participate in the 
negotiations.

J. EPA Procedures

1. Approvals

    The authority of a government official to approve a SEP is included 
in the official's authority to settle an

[[Page 24804]]

enforcement case and thus, subject to the exceptions set forth here, no 
special approvals are required. The special approvals apply to both 
administrative and judicial enforcement actions as follows:
    a. Regions in which a SEP is proposed for implementation shall be 
given the opportunity to review and comment on the proposed SEP.
    b. In all cases in which a project may not fully comply with the 
provisions of this Policy (e.g., see footnote 1), the SEP must be 
approved by the EPA Assistant Administrator for Enforcement and 
Compliance Assurance. If a project does not fully comply with all of 
the legal guidelines in this Policy, the request for approval must set 
forth a legal analysis supporting the conclusion that the project is 
within EPA's legal authority and is not otherwise inconsistent with 
law.
    c. In all cases in which a SEP would involve activities outside the 
United States, the SEP must be approved in advance by the Assistant 
Administrator and, for judicial cases only, the Assistant Attorney 
General for the Environment and Natural Resources Division of the 
Department of Justice.
    d. In all cases in which an environmental compliance promotion 
project (section D.6) or a project in the ``other'' category (section 
D.8) is contemplated, the project must be approved in advance by the 
appropriate office in OECA, unless otherwise delegated.

2. Documentation and Confidentiality

    In each case in which a SEP is included as part of a settlement, an 
explanation of the SEP with supporting materials (including the PROJECT 
model printout, where applicable) must be included as part of the case 
file. The explanation of the SEP should explain how the five steps set 
forth in Section A.3 above have been used to evaluate the project and 
include a description of the expected benefits associated with the SEP. 
The explanation must include a description by the enforcement attorney 
of how nexus and the other legal guidelines are satisfied.
    Documentation and explanations of a particular SEP may constitute 
confidential settlement information that is exempt from disclosure 
under the Freedom of Information Act, is outside the scope of 
discovery, and is protected by various privileges, including the 
attorney-client privilege and the attorney work-product privilege. 
While individual Agency evaluations of proposed SEPs are confidential, 
privileged documents, this Policy is a public document and may be 
released to anyone upon request.
    This Policy is primarily for the use of U.S. EPA enforcement 
personnel in settling cases. EPA reserves the right to change this 
Policy at any time, without prior notice, or to act at variance to this 
Policy. This Policy does not create any rights, duties, or obligations, 
implied or otherwise, in any third parties.

             Attachment.--SEP Penalty Calculation Worksheet             
   [This worksheet should be used pursuant to section E of the Policy.  
    Specific Applications of this Worksheet in a Case Are Privileged,   
                         Confidential Documents]                        
------------------------------------------------------------------------
                       Step                                Amount       
------------------------------------------------------------------------
         STEP 1: CALCULATION OF SETTLEMENT AMOUNT WITHOUT A SEP         
1.a. BENEFIT: The applicable penalty policy is     $                    
 used to calculate the economic benefit of                              
 noncompliance.                                                         
1.b. GRAVITY: The applicable penalty policy is     $                    
 used to calculate the gravity component of the                         
 penalty; this is gravity after all adjustments                         
 in the applicable policy.                                              
1.c SETTLEMENT AMOUNT without a SEP: Sum of step   $                    
 1.a plus 1.b.                                                          
      STEP 2: CALCULATION OF THE MINIMUM PENALTY AMOUNT WITH A SEP      
2.a 10% of GRAVITY: Multiply amount in step 1.b    $                    
 by 0.10.                                                               
2.b BENEFIT PLUS 10% of GRAVITY: Sum of step 1.a   $                    
 plus step 2.a.                                                         
2.c. 25% of GRAVITY: Multiply amount in step 1.b   $                    
 by 0.25.                                                               
2.d MINIMUM PENALTY AMOUNT: Select greater of      $                    
 step 2.c or step 2.b.                                                  
STEP 3: CALCULATION OF THE SEP COST USING PROJECT  $                    
 MODEL.                                                                 
   STEP 4: CALCULATION OF MITIGATION PERCENTAGE AND MITIGATION AMOUNT   
4.a. SEP Cost Mitigation Percentage. Evaluate the  Percent              
 project pursuant to the 6 mitigation factors in                        
 the Policy. Mitigation percentage should not                           
 exceed 80% unless one of the exceptions applies.                       
4.b. SEP Mitigation Amount. Multiply step 3 by     $                    
 step 4.a.                                                              
           STEP 5: CALCULATION OF THE FINAL SETTLEMENT PENALTY          
5.a Subtract step 4.b from step 1.c..............  $                    
5.b. Final Settlement Penalty: Select greater of   $                    
 step 2.d or step 5.a.                                                  
------------------------------------------------------------------------

[FR Doc. 98-11881 Filed 5-4-98; 8:45 am]
BILLING CODE 6560-50-P