50326 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

A. What Action Is EPA Taking? 

We are notifying the public of a final 

decision by the EAB on the Permit 

Amendment issued by EPA Region 10 

and EFSEC (‘‘Permitting Authorities’’) 

pursuant to 40 CFR 52.21. 

B. What Is the Background 

Information? 

The Facility will be a 660-megawatt 

natural gas-fired combined cycle electric 

generation facility located in Sumas, 

Washington, about one-half mile south 

of the Canadian border. The Facility 

will combust only natural gas and will 

employ selective catalytic reduction 

(‘‘SCR’’) and catalytic oxidation 

technology. 

Both the Province of British Columbia 

(‘‘Province’’) and Environment Canada, 

Canada’s national environmental 

protection agency, filed petitions for 

review challenging the issuance of the 

Original Permit. On September 6, 2002, 

the Permitting Authorities jointly issued 

the Original Permit to SE2 pursuant to 

section 165 of the CAA, 42 U.S.C. 7475, 

40 CFR 52.21, and the terms and 

conditions of EFSEC’s delegation of 

authority from EPA Region 10 under 40 

CFR 52.21(u). 

On March 25, 2003, the EAB issued 

an order that denied the petitions for 

review in part and remanded in part to 

correct a typographical error that was 

inadvertently retained from the draft 

permit. The Original Permit 

subsequently became effective on April 

17, 2003 and remained in effect until 

October 17, 2004.

On June 1, 2004, SE2 applied to the 

EFSEC for an extension of the Original 

Permit. On January 11, 2005, after 

providing an opportunity for public 

comments and holding a public hearing, 

EFSEC approved the Permit 

Amendment. On January 21, 2005, EPA 

approved the Permit Amendment. The 

Permit Amendment authorizes an 18-

month extension of the Original Permit. 

Subsequent to issuance of the Permit 

Amendment, the Province petitioned 

the EAB for review of the Permit 

Amendment. 

C. What Did the EAB Decide? 

The Province raised five main issues 

in its petition for review: (1) SE2’s 

application for permit extension was 

untimely; (2) SE2’s application lacked 

the required construction schedule; (3) 

the best available control technology 

(‘‘BACT’’) re-analysis for startup and 

shutdown emissions was incomplete; 

(4) the BACT analysis for nitrogen oxide 

(‘‘NOX’’) emissions was inadequate; and 

(5) the Permit Amendment should not 

have been granted for an 18-month 

period. 

The EAB denied review of the 

Province’s petition for review in its 

entirety. First, the EAB concluded that 

the Permitting Authorities did not err in 

concluding that SE2’s permit extension 

application was filed in a timely 

manner. Specifically, the EAB found 

that SE2 was not required to submit the 

permit extension application six months 

before expiration of the Original Permit. 

Second, the EAB found that the 

Province failed to demonstrate that the 

Permitting Authorities clearly erred in 

determining that SE2 provided a 

construction schedule in its application. 

Third, the EAB determined that the 

Permitting Authorities conducted a 

complete BACT re-analysis for startup 

and shutdown emissions by reviewing 

the Original Permit BACT analysis for 

these emissions and concluding that 

there was no new information that 

would warrant any changes to the 

analysis. Moreover, the EAB concluded 

that the Province failed to demonstrate 

why the Permitting Authorities’ BACT 

analysis for NOX emissions was in error. 

Finally, the EAB found that the 

Permitting Authorities had discretion to 

grant an 18-month extension of the 

Original Permit and the Provice failed to 

show why the Permitting Authorities’

decision to grant an 18-month extension 

was in clear error. For these reasons, the 

EAB denied the Province’s petition for 

review of the Permit Amendment in its 

entirety. 

Pursuant to 40 CFR 124.19(f)(1), for 

purposes of judicial review, final agency 

action occurs when a final PSD permit 

decision is issued and agency review 

procedures are exhausted. This notice is 

being published pursuant to 40 CFR 

124.19(f)(2), which requires notice of 

any final agency action regarding a PSD 

permit to be published in the Federal 

Register. This notice constitutes notice 

of the final agency action denying 

review of the Permit Amendment and 

consequently, notice of the Permitting 

Authorities’ issuance of PSD Permit No. 

EFSEC/2001–02 Amendment 1 to SE2. If 

available, judicial review of these 

determinations under section 307(b)(1) 

of the CAA may be sought by filing of 

a petition for review in the United 

States Court of Appeals for the Ninth 

Circuit, within 60 days from the date on 

which this notice is published in the 

Federal Register. Under section 

307(b)(2) of the Clean Air Act, this 

determination shall not be subject to 

later judicial review in any civil or 

criminal proceedings for enforcement.

Dated: August 1, 2005. 

Ronald A. Kreizenbeck, 

Acting Regional Administrator, Region 10.

[FR Doc. 05–17029 Filed 8–25–05; 8:45 am] 

BILLING CODE 6560–50–M

ENVIRONMENTAL PROTECTION 

AGENCY 

[FRL–7960–3] 

Calculation of the Economic Benefit of 

Noncompliance in EPA’s Civil Penalty 

Enforcement Cases

AGENCY: Environmental Protection 

Agency (EPA).

ACTION: Notice of final action and 

response to comment. 

SUMMARY: In a Federal Register notice 

issued on October 9, 1996, the 

Environmental Protection Agency 

(‘‘EPA’’) requested comment on how it 

calculates the economic benefit that 

regulated entities obtain as a result of 

violating environmental requirements. 

EPA makes this calculation as a part of 

establishing an appropriate penalty for 

settlement purposes. The Agency’s 

policy is that any civil penalty should 

at least recapture the economic benefit 

the violator has obtained through its 

unlawful actions. Because enforcement 

staff typically use the BEN (short for 

benefit) computer model to perform the 

economic benefit calculations, the 

Agency requested comments on the BEN 

model as well as the larger benefit 

recapture issues. In a subsequent 

Federal Register notice issued on June 

18, 1999, EPA responded to the 

comments on the October 1996 Federal 

Register notice; provided advance 

notice of the changes EPA proposed to 

make to its benefit recapture approach 

and the BEN computer model; and 

requested a second round of comment of 

those proposed changes. This notice 

responds to the comments on the June 

1999 notice and contains the changes 

EPA will implement in its benefit 

recapture program.

ADDRESSES: The Agency has dedicated a 

page of its website to the computers 

models the enforcement program uses to 

addresses benefit recapture as well as 

ability to pay claims and the evaluation 

of the costs of supplemental 

environmental projects (SEP’s). The web 

address for those models is: 

www.epa.gov/compliance/civil/

econmodels/index.html.

FOR FURTHER INFORMATION CONTACT: For 

further information, contact Jonathan 

Libber, Office of Civil Enforcement, 

Special Litigation and Projects Division, 

at (202) 564–6102, or through electronic 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50327

mail at libber.jonathan@epa.gov.

Government users (Federal, State, or 

local) can also obtain assistance with 

the model through the Agency’s toll-free 

enforcement economics helpline at 

(888) ECONSPT or through electronic 

mail at benabel@indecon.com.

SUPPLEMENTARY INFORMATION: In EPA’s 

October 1996 Federal Register notice, 

the Agency was considering changes in 

three areas: (1) Broad economic benefit 

recapture issues; (2) the BEN computer 

model’s calculation methodology; and 

(3) improving the BEN model’s userfriendliness. In regard to the broad 

economic benefit recapture issues, the 

Agency sought out any legitimate 

alternatives to BEN, but found none. In 

addition, EPA solicited comments on 

the best way to determine the economic 

benefit from the violator’s illegal 

competitive advantage. The comments 

confirmed our initial thoughts that a 

model to handle such calculations was 

infeasible. The Agency has instead 

developed a draft conceptual framework 

document for such cases, and has 

initiated a peer review process by its 

Science Advisory Board to examine this 

type of benefit. 

With regard to the BEN model’s 

calculation methodology, the Agency is 

making eight sets of changes that should 

improve the model’s precision and 

function. Although the combined effect 

of these changes will affect individual 

cases differently, the overall impact 

across all EPA’s enforcement cases 

should be insignificant. The two most 

significant changes involve tailoring the 

discount/compound rate to the case and 

using a more precise inflation 

adjustment. The new BEN model tailors 

the discount rate to the period of 

violation through the present, which the 

prior version of the model was 

incapable of doing. The new BEN model 

also adjusts for inflation based on actual 

historical month-by-month inflation 

data, whereas the prior version simply 

applied one single average rate for both 

past inflation and projected inflation. 

All of these changes reflect the Agency’s 

consideration of both rounds of public 

comments, as well as an academic peer 

review that the Agency completed in 

January of 2004. These reviews should 

be available by within the next few 

months on the Agency’s computer 

models web page (see ADDRESSES

section above). Electronic copies of the 

BEN computer model (which includes a 

comprehensive help system) can be 

downloaded from that same site. 

The major change in improving the 

BEN model’s user-friendliness is that 

EPA has moved the model from the old 

DOS operating system to the Windows 

environment. This should address those 

concerns that the model was 

cumbersome. We have also established 

a helpline to assist enforcement 

personnel from Federal, State and local 

governments in their use of the model. 

This notice is organized as follows:

I. Background 

A. Overview 

B. EPA Policy and Guidance on 

Recapturing the Economic Benefit of 

Noncompliance 

1. Policy Background 

2. BEN Calculates the Economic Benefit 

From Delayed and Avoided Pollution 

Control Expenditures 

3. Current Model Usage and Applicability 

C. How a Firm Obtains an Economic 

Benefit From Delaying and/or Avoiding 

Compliance Costs

1. The Economic Benefit Components that 

the BEN Model Measures 

2. BEN and Cash Flow Analysis 

II.Final Changes 

A. Broad Economic Benefit Recapture 

Issues 

1. Alternatives to BEN 

2. Illegal Competitive Advantage 

B. The BEN Model’s Calculation 

Methodology 

1. Depreciation Method 

2. Tax Rates 

3. Differences in On-Time and Delay 

Scenarios 

4. Capital Equipment Replacement 

5. Inflation Treatment 

6. Discount/Compound Rate 

7. Discounting/Compounding Methodology 

8. Investment Tax Credit and Low-Interest 

Financing 

C. Improving the BEN Model’s Userfriendliness 

1. Is BEN Too Complex to Operate? 

2. Is the Information BEN Needs Difficult 

or Expensive to Obtain? 

D. Procedural Issues Regarding the Public 

Comment Process 

III. Response to Comments 

A. Broad Economic Benefit Recapture 

Issues 

1. Alternatives to BEN 

2. Illegal Competitive Advantage 

3. Other Broad Economic Benefit Recapture 

Issues 

B. The BEN Model’s Calculation 

Methodology 

1. Discounting/Compounding 

2. Inflation Adjustments 

3. Other Technical Aspects 

C. Improving the BEN Model’s UserFriendliness 

1. Is BEN Too Complex to Operate? 

2. Is the Information BEN Needs Difficult 

or Expensive to Obtain? 

3. Other Issues Affecting Use of BEN 

D. Procedural Issues Regarding the Public 

Comment Process

I. Background 

A. Overview 

One of EPA’s most important 

responsibilities is to ensure that 

regulated entities comply with Federal 

environmental laws. These laws—and 

their implementing regulations—set 

minimum standards for protecting 

human health and achieving 

environmental protection and for 

achieving environmental protection 

goals, such as clean air and clean water. 

EPA upholds these laws through 

vigorous enforcement actions that seek 

to correct the violations and 

appropriately penalize violators. 

A cornerstone of the EPA’s civil 

penalty program is at least recapturing 

the economic benefit that a violator may 

have gained from illegal activity. 

Economic benefit recapture helps level 

the economic playing field by 

preventing violators from obtaining an 

unfair financial advantage over their 

competitors who make the necessary 

expenditures for environmental 

compliance. Penalties also serve as 

incentives to protect the environment 

and public health by encouraging 

prompt compliance with environmental 

requirements and the adoption of 

pollution prevention and recycling 

practices. Finally, appropriate penalties 

help deter future violations by both the 

penalized entity and by similarly 

situated regulatees. 

EPA has promulgated a generic civil 

penalty policy, as well as specific 

penalty policies tailored to suit the 

needs of particular regulatory programs. 

For example, one civil penalty policy 

specifically addresses violations of the 

Clean Water Act. The civil penalties that 

EPA seeks usually embody two 

components: gravity and economic 

benefit. The gravity component reflects 

the seriousness of the violation and is 

generally determined through the 

application of the appropriate EPA civil 

penalty policy. 

The economic benefit component, on 

the other hand, focuses on the violator’s 

economic gain from noncompliance, 

i.e., the extent to which the violator is 

financially better off because of its 

noncompliance. This economic benefit 

can accrue to the violator in three basic 

ways: (1) Delaying necessary pollution 

control expenditures; (2) avoiding 

necessary pollution control 

expenditures; and/or (3) obtaining an 

illegal competitive advantage. The term 

‘‘illegal competitive advantage’’ is a 

broad catch-all category for economic 

benefit that goes beyond that derived 

from the mere delay and/or avoidance of 

pollution control expenditures. For 

example, the violator might have sold a 

product that is entirely illegal (and 

could not have been produced legally by 

incurring any pollution control 

expenditures). 

The Agency designed the BEN 

computer model in 1984 to calculate the 

economic benefit from these first two 

50328 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

1EPA designed the BEN model as a flexible tool 

primarily for use in settlement negotiations; it is not 

used, nor was it ever intended to function, as a rule. 

An expert witness testifying for the government 

may use the new Windows version of BEN as 

appropriate, but the responsibility to determine the 

economic benefit—as well as explain and defend 

the results—still resides with the expert. That 

expert may choose to use whatever analytical tool 

(e.g., customized computer spreadsheets, the BEN 

model, or even a calculator) deemed appropriate for 

the particular calculations necessary in the case.

types of economic gain for settlement 

purposes. BEN may not be appropriate 

for all cases, and EPA’s regional offices 

may use alternative approaches that 

produce reasonably accurate benefit 

calculations. For example, the pattern of 

necessary pollution control 

expenditures might be so complicated 

that a customized spreadsheet 

computation would be more appropriate 

than BEN. Alternatively, the pattern of 

expenditures might be so simple that a 

mere table in a word processing 

document would suffice. Nevertheless, 

the Agency believes that in the vast 

majority of cases BEN is by far the best 

approach available for calculating 

economic benefit derived from delayed 

and/or avoided costs. 

The Agency does not have a computer 

model for calculating the benefit gained 

from an illegal competitive advantage. 

EPA considers such gains on a case-bycase basis. 

B. EPA Policy and Guidance on 

Recapturing the Economic Benefit of 

Noncompliance 

Since the BEN computer model’s 

development in 1984, EPA staff have 

used BEN extensively in generating 

penalty figures for settlement purposes. 

These figures reflect the economic 

benefit a violator derived from delaying 

and/or avoiding compliance with 

environmental statutes. 

1. Policy Background 

Calculating a violator’s economic 

benefit using the BEN computer model 

is usually the first step in developing a 

civil settlement penalty figure under the 

Agency’s Policy on Civil Penalties 

(PT.1–1) February 16, 1984, and A 

Framework for Statute-Specific 

Approaches to Penalty Assessments 

(PT.1–2) February 16, 1984. The Agency 

developed the BEN computer model to 

assist in fulfilling one of the main goals 

of the Policy on Civil Penalties: to 

recover, at a minimum, the economic 

benefit derived from noncompliance. 

The BEN computer model is a tool 

that is primarily intended to be used in 

calculating economic benefit for 

purposes of developing a settlement 

penalty. In presenting economic benefit 

testimony at a judicial trial or in an 

administrative hearing, the Agency 

relies on an expert in financial 

economics to provide an independent 

analysis of the economic benefit the 

violator obtained from its violations, 

reflecting the expert’s own analytical 

approach as applied to the particular 

facts of that case. Use of an expert in a 

trial or hearing allows the parties the 

opportunity to examine more closely the 

analysis applied to the facts at issue, 

since a computer model itself cannot be 

deposed or cross-examined.1

2. BEN Calculates the Economic Benefit 

From Delayed and Avoided Pollution 

Control Expenditures 

The BEN model calculates the 

economic benefit from delaying and/or 

avoiding required environmental 

expenditures. Delayed costs can include 

capital investments in pollution control 

equipment, remediation of 

environmental damages (e.g., removing 

unpermitted fill material and restoring 

wetlands), or one-time expenditures 

required to comply with environmental 

regulations (e.g., establishing a reporting 

system, or purchasing land on which to 

site a wastewater treatment facility). 

Avoided costs typically include 

operation and maintenance costs and/or 

other annually recurring costs (e.g., offsite disposal of fluids from injection 

wells), but can occasionally include 

capital investments or one-time 

expenditures. BEN does not calculate 

the economic benefit that takes the form 

of illegal competitive advantage. For 

example, the BEN model is not the 

appropriate method for calculating the 

economic benefit derived from selling 

DDT on the black market to U.S. 

pesticide applicators. 

3. Current Model Usage and 

Applicability 

The BEN model can be used in all 

cases that have delayed and/or avoided 

compliance costs. (The only exception 

is Clean Air Act Section 120 

enforcement actions, which require the 

application of a specific computer 

model.) EPA designed BEN to be easy to 

use for people with little or no 

background in economics, financial 

analysis, or computers, although it is 

also useful for those with such 

backgrounds. Because the program 

contains standard default values for 

many of the variables needed to 

calculate the economic benefit, BEN can 

be run with only a small number of 

required inputs from the user. The 

program also allows the user to replace 

those standard values with case-specific 

information. The table below lists the 

inputs to the BEN model, both the 

required inputs and also those inputs 

with standard default values that may 

be modified. 

The BEN model can calculate 

economic benefit for many types of 

organizations: corporations, 

partnerships, sole proprietorships, notfor-profit organizations, federal 

facilities, and municipalities. BEN 

customizes its standard values to the 

entity type, as well as other aspects of 

the case. The BEN inputs listed in the 

table are discussed in detail in the 

model’s help system. 

Inputs for BEN 

Required Inputs:

—Descriptive Information (case name, 

office/agency, analyst name) 

—Entity Type and State 

—Competitive Advantage Questionnaire 

—Penalty Payment Date 

—Capital Investment (cost estimate and 

estimate date) 

—One-Time Nondepreciable 

Expenditure (cost estimate and 

estimate date) 

—Annually Recurring Costs (cost 

estimate and estimate date) 

—Date of Initial Noncompliance 

—Date of Compliance

Inputs with Standard Default Values 

that May be Modified:

—Year-Specific Marginal Income Tax 

Rates 

—Discount/Compound Rate 

—Cost Index for Inflation (specified 

separately by compliance cost 

component) 

—Consideration of Future Capital 

Replacement 

—Useful Life of Capital Equipment 

—Delayed v. Avoided (specified 

separately for capital and one-time 

nondepreciable) 

—Tax Deductibility (of one-time 

nondepreciable expenditure) 

—Specific Cost Estimates (for on-time 

and delay scenarios) 

C. How a Firm Obtains an Economic 

Benefit From Delaying and/or Avoiding 

Compliance Costs 

An organization’s compliance with 

environmental regulations usually 

entails a commitment of financial 

resources, both initially (in the form of 

a capital investment or one-time 

expenditure) and over time (in the form 

of continuing, annually recurring costs). 

These expenditures should result in 

better protection of public health or 

environmental quality, but they are 

unlikely to yield any direct economic 

benefit (i.e., net gain) to the 

organization. (Otherwise, and with the 

assumption of some measure of 

foresight, the organization should have 

already committed the financial 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50329

2Even capital investments and one-time 

expenditures may be avoided on occasion. The 

typical situation where this happens is when a 

violator shuts down a particular operation rather 

than install required pollution control equipment.

3Thus, noncash ‘‘paper’’ expenses, such as 

depreciation, are considered only to the extent that 

they affect cash flow.

4The term environmental expenditures refers to 

firms’ compliance costs and does not include the 

payment of civil penalties. Civil penalties are in 

almost all cases not deductible.

resources, even in the absence of such 

environmental regulations.) If these 

financial resources are not used for 

compliance, then they presumably are 

invested in projects with an expected 

financial return to the organization. This 

concept of alternative investment—that 

is, the amount the violator would 

normally expect to make by investing in 

something other than pollution 

control—is the basis for calculating the 

economic benefit of noncompliance. 

In implementing EPA’s penalty 

policies, the Agency invokes its 

authority to assess penalties to remove 

or neutralize the economic incentive to 

violate environmental regulations. In 

the absence of enforcement and 

appropriate penalties, an organization’s 

narrowly construed economic interest 

would usually dictate delaying the 

commitment of funds for compliance 

with environmental regulations and 

avoiding certain associated costs, such 

as operation and maintenance expenses. 

1. The Economic Benefit Components 

That the BEN Model Measures 

A violator may gain an economic 

benefit from either delaying and/or 

avoiding compliance costs. By delaying 

compliance, the violator can earn a 

return on the funds that should have 

been committed to the capital 

investment or one-time expenditure 

required for pollution control 

compliance. In other words, violators 

have the opportunity to invest their 

funds in projects other than those 

required to comply with environmental 

regulations. These other investments are 

expected to generate a financial return, 

as opposed to the required pollution 

control investments that typically 

generate no direct financial return for a 

company. Thus, by delaying 

compliance, the violator’s economic 

benefit is the difference between 

investing in pollution control and 

investing in other projects.

A violator can also gain an economic 

benefit from avoiding pollution control 

costs. Avoided costs typically include 

the continuing, annually recurring costs 

that a violator would have incurred had 

it complied with environmental 

regulations on time (e.g., the costs of 

labor, raw materials, energy, lease 

payments and any other expenditures 

directly associated with the operation 

and maintenance of pollution control 

equipment). Annual costs are thereby 

avoided entirely, as opposed to capital 

investments and one-time expenditures 

that are usually only delayed.2 Thus, the 

violator’s economic benefit from 

avoided costs is the sum of the total 

avoided annual costs plus the return 

that could be expected on the funds that 

were used for projects other than 

pollution control.

2. BEN and Cash Flow Analysis 

The BEN model calculates economic 

benefit by focusing on the effect that 

delayed and/or avoided pollution 

control costs have on an entity’s cash 

flows. Cash flow analysis is a standard 

and widely accepted technique for 

evaluating costs and investments. In 

essence, cash flow calculations focus on 

the real, ‘‘out-of-pocket’’ cash effects 

resulting from an expenditure.3 Three 

important factors that enter into BEN’s 

cash flow analysis are inflation, 

taxation, and the time value of money.

a. Inflation 

BEN first requires users to enter a 

single cost estimate for the capital 

investment and another single cost 

estimate for the one-time 

nondepreciable expenditure. Then, to 

adjust for inflation, BEN extrapolates 

from this single cost estimate to create 

separate estimates for the hypothetical 

cost of complying on-time and the 

actual cost of complying in a delayed 

fashion. Similarly, BEN extrapolates 

from the user’s annually recurring cost 

estimate to a complete set of cost 

estimates for every year during the 

noncompliance period. (The BEN 

model’s help system provides a more 

detailed discussion of these inflation 

adjustments.) These adjusted cost 

estimates form the basis for the on-time 

and delay scenarios: The actions and 

associated costs that would have been 

necessary for hypothetical on-time 

compliance, and the actions and 

associated costs that were necessary for 

the actual delayed compliance. 

b. Taxation 

The BEN model computes economic 

benefit on an after-tax basis, since 

environmental expenditures can reduce 

income tax liability.4 Depreciation (from 

capital investments), one-time 

expenditures, and annual costs all 

effectively reduce taxable income and 

thereby reduce income tax payments. To 

account for these tax effects, BEN 

calculates the economic benefit using 

after-tax cash flows for the on-time 

compliance and delayed compliance 

scenarios.

c. Time Value of Money 

A third factor relates to the timing of 

the cash flows, because cash flows 

occurring in different years are not 

directly comparable. The fundamental 

financial concept of the time value of 

money is based on the principle that a 

dollar today is worth more than a dollar 

a year from now, since today’s dollar 

can be invested immediately to earn a 

return over the coming year. 

(Alternatively, a dollar last year is worth 

more than a dollar today because 

investment opportunities existed for last 

year’s dollar.) Therefore, the earlier a 

cost (or benefit) is incurred, the greater 

its economic impact. 

BEN accounts for the time value of 

money by adjusting all estimated cash 

flows to their present value equivalents. 

BEN first discounts back to the initial 

noncompliance date all cash flows from 

the on-time and delay scenarios. The 

initial economic benefit as of this date 

is simply the difference in the present 

values of these two scenarios. Finally, 

BEN compounds the initial economic 

benefit forward from the noncompliance 

date to the penalty payment date. 

To adjust the cash flows for both 

discounting and compounding, BEN 

uses a discount or compound rate 

(depending on the direction of the 

adjustment) that reflects the time value 

of money. The selection of the 

appropriate rate, and the structure of the 

discounting and compounding 

methodology, is a significant issue in 

the BEN model and will be addressed 

later in this notice. (The model’s help 

system provides a more detailed 

discussion of the discounting and 

compounding that BEN performs for its 

present value adjustments.) 

II. Final Changes 

In its October 9, 1996, Federal 

Register notice, the Agency sought 

comment on three categories of issues: 

(1) Broad economic benefit recapture 

questions, (2) the BEN model’s 

calculation methodology and 

assumptions, and (3) the model’s userfriendliness. The June 18, 1999, notice 

provided responses to these comments, 

as well as advance notice of EPA’s 

proposed changes to the BEN model. 

The June 1999 notice also invited a 

second round of public comments, 

especially on EPA’s proposed changes. 

EPA also conducted a peer review by 

academic experts in financial economics 

during the spring of 2003 on the draft 

proposed changes to the model. This 

peer review of the model changes was 

50330 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

5Senate Report No. 106–410 (2000) at page 81.

specifically requested by the United 

States Senate.5

The first area in which we invited 

comment covered some fundamental 

questions that the benefit recapture 

approach has raised. Is there an 

alternative to the BEN model that would 

be both easier to use and at least as 

accurate in calculating the economic 

benefit of delayed and/or avoided 

pollution control expenditures? How 

should EPA evaluate the economic 

benefit that companies receive as a 

result of any illegal competitive 

advantage stemming from 

noncompliance?

Second, we invited comment on the 

BEN model’s calculation methodology. 

While the Agency is confident that the 

BEN model’s overall approach is 

theoretically sound, we welcomed 

constructive and documented comment 

on alternative methodologies. In 

particular, EPA has been aware of 

substantial differences of opinion with 

respect to inflation adjustments and 

discounting/compounding. EPA 

requested comment on the BEN model’s 

calculation methodology, or any other 

aspect of the model’s assumptions or 

methodology. 

Third, we requested comment on the 

model’s user-friendliness. The Agency 

had heard concerns that the model is 

too difficult to use, particularly 

regarding the necessary data acquisition. 

Because EPA had never been presented 

with any concrete evidence in support 

of these assertions, the Agency wanted 

either to substantiate the problems and 

address them or to put these issues to 

rest. 

In the following sections, we address 

the final changes that EPA is making in 

each of the areas on which we requested 

comment. Note that final changes 

incorporate EPA’s consideration not 

only of the public comments but also of 

the previously mentioned academic 

peer review that EPA completed in 

January of 2004. 

A. Broad Economic Benefit Recapture 

Issues 

1. Alternatives to BEN 

a. Background 

EPA requested comment on whether 

anyone had an approach that would be 

simpler and at least as accurate as BEN 

in calculating the economic benefit from 

delayed and/or avoided pollution 

control expenditures. EPA designed the 

BEN model to calculate the economic 

benefit of noncompliance in settlement 

of the vast majority of its civil penalty 

enforcement cases. Although BEN has 

served this purpose effectively, the 

Agency recognizes that it should be 

improved or even replaced if a better 

alternative exists or could be developed 

easily. This concern is particularly 

relevant because an increasing number 

of State and local government 

enforcement personnel use the BEN 

model regularly. Any alternative 

approach must meet EPA’s policy 

objective of ensuring that violators are 

put on an even financial footing with 

those regulated entities that comply on 

time. Alternatives must also be 

reasonably accurate, simple to use, and 

readily understandable to the vast 

majority of the BEN model’s users—

Federal, State and local government 

enforcement officials who usually have 

limited knowledge of financial 

economics. 

b. Final Changes 

Many commenters expressed various 

criticisms on different aspects of the 

BEN model. But these criticisms focused 

on suggestions for improving BEN. No 

commenter proposed an alternative 

approach to a stand-alone computer 

model that performs net present value 

calculations. Therefore, the Agency will 

continue its use of BEN, although it will 

also implement significant revisions 

(see following sections). 

On a related topic, two commenters 

questioned the entire benefit recapture 

framework. Although one comment 

along these lines was somewhat unclear, 

the other comment presented a 

comprehensive approach for basing 

penalties on the lesser of economic 

benefit or social cost (i.e., 

environmental damages). Under this 

proposal, if a violator gained a 

significant economic benefit from its 

violations but caused only trivial 

environmental damage (as monetized 

through some unspecified economic 

methodology), then the penalty would 

be commensurately trivial. The Agency 

finds this approach entirely 

unacceptable in the context of enforcing 

regulatory requirements for individual 

violators. The appropriate context for 

considering social costs is in the process 

of formulating proposed regulations. 

Penalties based on social costs (when 

less than economic benefit) would 

provide an implicit yet clear incentive 

to violate the law if a company 

anticipated that its economic benefit 

would exceed the consequent 

measurable environmental damage. 

Further, such an approach would be 

fundamentally unfair to those firms that 

resisted the temptation to violate the 

law. In addition, quantifying 

environmental damages in a monetary 

measure is an exceedingly difficult 

analytical problem. Even if this 

fundamentally different approach was 

theoretically sound, it would be 

infeasible for the vast majority of 

enforcement cases.

2. Illegal Competitive Advantage 

a. Background 

Since the issuance of EPA’s Policy on 

Civil Penalties in 1984, the Agency has 

maintained that any given penalty 

should be structured to recover—at a 

minimum—the economic benefit a 

violator has enjoyed as a result of its 

noncompliance. That 1984 policy 

recognized that the benefit would be 

based on delayed costs, avoided costs 

and illegal competitive advantage. In 

addition to this economic benefit 

component, EPA assesses a gravity 

component that reflects the seriousness 

of the violation. This gravity component 

is designed to ensure that the penalty 

puts the violator in a worse position 

than those in the regulated community 

who complied with the law. The 

economic benefit component of EPA’s 

civil penalty policy focuses specifically 

on identifying and recovering the gain 

to a violator in order to remove any 

economic incentive to violate 

environmental regulations. 

The BEN model calculates the 

economic benefit from delaying and/or 

avoiding required environmental 

expenditures. The economic benefit that 

arises from situations other than the 

delay and/or avoidance of pollution 

control expenditures is broadly termed 

‘‘illegal competitive advantage,’’ which 

BEN is incapable of measuring. The 

essential distinction between these two 

types of economic benefit is that in the 

illegal competitive advantage situation, 

the violator’s noncompliant actions 

have allowed (or will allow) it to attain 

a level of revenues that would have 

been unattainable had it always been in 

compliance. In delayed and avoided 

costs situations, the implicit assumption 

is that the revenues from a 

noncompliant and compliant state are 

identical. Consequently, BEN focuses 

exclusively on a violator’s pollution 

control costs and does not require any 

data on the violator’s revenues. 

In either type of situation (BEN-type 

economic benefit or illegal competitive 

advantage), the fundamental definition 

of economic benefit is still the same: 

The economic benefit is the difference 

in the net present values of the 

compliant/on-time and noncompliant/

delay scenarios (i.e., the actions and 

cash flows—both historical and possibly 

also future—associated with the 

hypothetical compliance, and the actual 

noncompliance). But in the cases 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50331

6The Agency suspects that this relationship may 

be reversed for cases involving wetlands. Although 

the evidence is largely anecdotal, most wetlands 

cases encompass violations that allowed a violator 

to engage in operations that would not have been 

feasible but for the violation. Therefore, in 

evaluating wetlands cases, the Agency will be 

particularly sensitive to the possible presence of 

illegal competitive advantage.

7The IRS does not allow companies to write off 

completely a capital investment in the year of 

purchase. Companies must spread the expense of 

the investment over several years using the 

appropriate depreciation schedule.

8The IRS requires that many types of pollution 

control equipment be depreciated over a longer 

period than assumed in the BEN model. Were EPA 

to tailor the depreciation to account for that longer 

period, the result would be a higher economic 

benefit calculation.

amenable to BEN, the violator’s 

revenues from the compliant and 

noncompliant states simply cancel each 

other out, allowing BEN to measure 

economic benefit through a calculation 

involving only the costs that would 

have differed had the violator been in 

compliance. Illegal competitive 

advantage encompasses all situations in 

which the revenues do not cancel out 

each other. Since the revenues were 

higher in the noncompliant state than 

they would have been in a compliant 

state, more detailed research and 

analysis is necessary, going beyond the 

scope of the BEN model. 

The BEN model’s widespread 

application is made possible by its 

simplifying assumption regarding 

revenues, obviating the need for a 

detailed examination of a violator’s 

business records or competitive market 

situation. But in some cases, this 

assumption is not valid.6 In such cases, 

the violator would not have been able to 

generate a given level of revenues were 

it not for its noncompliance. In those 

cases, EPA’s policy is to seek to 

recapture the economic benefit based on 

the violator’s illegal competitive 

advantage.

b. Final Changes 

The Agency received many comments 

on illegal competitive advantage. The 

first round of comments focused mainly 

on the feasibility of developing a standalone computer model analogous to 

BEN (or an add-on module to BEN) that 

could easily and reliably determine the 

economic benefit from the widely 

varying examples of illegal competitive 

advantage. The broad consensus was 

that no such model was feasible, and the 

Agency agrees. Without BEN’s 

simplifying assumption that the 

violator’s revenues from the on-time and 

delay scenarios cancel out each other, 

no ‘‘one-size-fits-all’’ computer model 

can analyze the range of likely 

situations. 

The second round of comments the 

Agency received on illegal competitive 

advantage mainly focused on the June 

1999 notice’s proposed questions for 

BEN’s module and the illegal 

competitive advantage examples. But 

since the ICA concept is currently under 

review by EPA’s Science Advisory 

Board (SAB), OECA will not put any 

ICA questions in the revised BEN 

model. 

After careful review of the comments, 

and in light of the fact that the SAB is 

currently reviewing the ICA issues, EPA 

has decided against publishing at this 

time any formal guidance delineating 

detailed analytical steps. While EPA 

remains committed to recapturing 

economic benefit based on illegal 

competitive advantage, if appropriate, 

quantifying illegal competitive 

advantage requires a careful 

examination of the facts of the particular 

case, and EPA believes it is premature 

to try to establish formal guidance in 

light of these case-specific issues. 

Similarly, the Agency does not envision 

providing a specific formula for 

calculating a benefit component in such 

cases. 

In summary, EPA will continue to 

seek the recovery of illegal competitive 

advantage in cases where the BEN 

model is incapable of fully assessing the 

extent to which a violator is financially 

better off as a result of its 

noncompliance. The proper evaluation 

of illegal competitive advantage will 

involve verifying that the use of the BEN 

model alone is inappropriate to the 

case-specific facts, and then formulating 

an analytical approach that captures the 

extent of the violator’s gain. 

B. The BEN Model’s Calculation 

Methodology 

Over the years, BEN has received 

occasional criticism for alleged flaws in 

its calculation methodology, 

particularly regarding the model’s 

inflation adjustments and discounting/

compounding. The Agency requested 

substantive comments on how the BEN 

model handles these two issues. In 

addition, EPA invited comment on all 

aspects of BEN’s calculation 

methodology. The Agency also asked 

commenters to address whether their 

proposed changes would add any 

complexity to the computer model and, 

if so, why the benefit of the change 

justified the added complexity.

1. Depreciation Method 

a. Background 

The BEN model calculates 

depreciation for capital investments, 

since the tax deduction for accounting 

depreciation charges provides a real 

after-tax positive cash flow to 

businesses.7 BEN used to calculate 

depreciation using a five-year straightline methodology for capital 

investments made before January 1, 

1987, and a seven-year Modified 

Accelerated Cost Recovery System for 

capital investments made after January 

1, 1987. These assumptions represent 

the most rapid depreciation periods 

available for typical pollution control 

investments, thereby producing the 

positive depreciation cash flow effects 

as early as possible. These particular 

depreciation methods generally result in 

a conservative economic benefit 

calculation (i.e., lower than would 

otherwise be calculated) because they 

minimize out-of-pocket costs to the 

violator. Therefore, BEN is often 

producing economic benefit figures that 

are very conservative.8

For capital equipment that has a very 

short useful life, the selection of 

alternative depreciation schedules 

might be available and also more 

beneficial to a business. In unusual 

cases where the violator can 

demonstrate that an alternative 

depreciation schedule would be both 

available and beneficial, more detailed 

calculations by a financial analyst in 

lieu of the BEN model may be 

necessary. 

b. Final Changes 

EPA received no comments on its 

proposal in the June 1999 notice that 

although a revised BEN model could 

conceivably allow alternative 

depreciation schedules, the drawbacks 

of the added complexity and potential 

user confusion might outweigh the gains 

from addressing a rare circumstance. 

Nevertheless, EPA has devised a 

relatively simple means for BEN to 

apply shorter depreciation schedules 

when the user enters a capital 

equipment useful life less than 10 years 

(as opposed to the default 15 years). 

The specification of shorter 

depreciation schedules will ensure that 

BEN does not overestimate economic 

benefit in the relatively rare cases that 

involve such short-lived capital 

equipment. Once the shorter useful life 

has been specified, the alternative 

depreciation schedule will not require 

any additional input from the user. BEN 

will also include a provision to account 

for legislation that allows for 

depreciation bonuses over certain 

periods. This provision will key off the 

previously required noncompliance and 

compliance dates, and it therefore will 

50332 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

9Tax rate modification can also reflect a business 

whose low net income entails a tax bracket other 

than the assumed highest bracket. Note that BEN’s 

assumption of the highest marginal tax rate 

produces a lower economic benefit calculation than 

assuming a lower tax rate because a higher tax rate 

decreases the compliance costs’ after-tax value. 

Since the model employs an after-tax cost in its 

analysis, the lower the tax, the higher the BEN 

result.

10The model will also offer the option of the 

national average of all the State tax rates for cases 

where the State in which the violator pays taxes is 

unclear.

11This option would allow users to account for, 

among other situations, a company whose 

profitability (and hence tax bracket) was highly 

variable over different years. (As noted before, 

BEN’s assumption of the highest marginal tax rate 

throughout the noncompliance period results in a 

lower economic benefit estimate than would be 

produced by a more precise calculation of the 

violator-specific marginal tax rate.)

12The inexperienced user will become aware that 

a more sophisticated analysis is needed because 

there are two sets of cost figures, but only one place 

to put them. The more experienced user will just 

go directly to the ‘‘Specific Cost Estimates’’ option 

during data entry.

13A similar problem arises when no 

technologically feasible method of compliance is 

available. If the only possible compliance method 

that the Agency would have allowed is to cease all 

production, then this falls under the category of 

illegal competitive advantage, which by definition 

is beyond the scope of the BEN model.

14 If the initial capital investment is $1 million 

and the equipment lasts for 15 years, then the first 

replacement cycle is still $1 million (assuming, for 

now, the lack of any intervening inflation). But 

since it is purchased 15 years later, the $1 million 

is discounted to a present value at, for example, 10 

not require any additional input from 

the user. 

2. Tax Rates 

a. Background 

The DOS versions of BEN that were 

issued after 1993 used to apply three 

marginal tax rates: a rate for 1986 and 

before, one for 1987 through 1992, and 

one for 1993 and beyond. Users could 

accept the standard values—which 

incorporate national averages of State 

tax rates—or modify the inputs to reflect 

specific State values.9

b. Final Changes 

EPA did not receive any objections to 

the June 1999 notice’s proposal that the 

revised BEN model will require the user 

to enter the violator’s State of operation, 

then automatically reference an internal 

database of State tax rates and perform 

the necessary calculations for the 

violator’s combined Federal and State 

tax rate.10 BEN will calculate the tax 

rate for each separate year of 

noncompliance, to allow for annual 

changes in the relevant State tax rate 

(even when the Federal rate remains 

constant). Users will have the additional 

option of entering year-by-year 

combined Federal and State rates in a 

spreadsheet-like format.11

Although these options may sound 

complex, the only data required of the 

user will be the violator’s State. The 

other screens for additional data entry 

and modification will appear only to 

those users who selected such advanced 

options. 

3. Differences in On-Time and Delay 

Scenarios 

a. Background 

The BEN model’s baseline assumption 

is that the violator would have used the 

same technology and approach in the 

hypothetical on-time compliance as it 

did in the actual delayed compliance 

scenario. The only allowed differences 

are in the two scenarios’ exact costs of 

compliance, which BEN adjusts for 

automatically in its inflation treatment. 

But technological, legal, or other 

relevant changes between the on-time 

and delay scenarios can conceivably 

alter the components of the compliance 

scenarios, increasing or decreasing the 

compliance costs by a rate other than 

general price inflation. Where the delay 

case costs are substantially less than the 

on-time case costs (e.g., a technological 

breakthrough in control equipment), 

BEN will understate the benefit. Where 

the delay costs are substantially higher 

(e.g., regulations become more stringent, 

but with ‘‘grandfather’’ clauses for 

already-compliant firms) BEN will 

overstate the benefit.

Where, in the unusual case, the ontime and delay compliance scenarios are 

significantly different, BEN’s baseline 

assumption of two identical scenarios is 

inappropriate.12 More sophisticated 

calculations are necessary.13

b. Final Changes 

EPA received only one minor 

objection to the June 1999 notice’s 

proposal that the revised BEN model 

allow users to enter separate on-time 

and delayed compliance costs. Although 

the standard operation of the revised 

model will still entail only a single 

compliance scenario, the new screens 

for additional data entry/modification of 

separate on-time vs. delay scenarios will 

be available to those users who select 

such advanced options. The availability 

of more advanced options will also 

enhance the model’s ability to account 

for atypical situations such as valid precompliance expenditures and credits for 

salvaged capital equipment, thus 

decreasing the need for off-line 

calculations. 

4. Capital Equipment Replacement 

a. Background 

One of the three components of 

compliance costs BEN analyzes is the 

capital investment, which represents 

depreciable pollution control 

equipment. As the name implies, 

depreciable equipment wears out with 

usage and the passage of time. BEN used 

to ask the user if the violator will need 

to replace the equipment at some point 

in the future. If the user specified that 

the investment in capital equipment is 

recurring, then the user could accept the 

standard value of 15 years for the useful 

life of the capital equipment, or enter 

another value. 

If the capital equipment does need to 

be replaced in the future, then the 

violator is financially better off from its 

delayed compliance in two distinct yet 

related ways: the violator has received 

a benefit in the past from delaying the 

initial purchase of the capital 

equipment, and will receive a benefit in 

the future from delaying the 

replacement of the capital equipment 

when that initial purchase wears out. 

For example, if a steel mill delays 

installation of a $1,000,000 baghouse for 

5 years, it first obtains a benefit from 

delaying the purchase of that baghouse 

for 5 years. But when that baghouse 

needs to be replaced 15 years later, the 

violator’s second baghouse is purchased 

5 years later than it should have because 

the initial purchase lasted five years 

later than if it had complied on time. 

b. Final Changes 

Some commenters characterized any 

consideration of future replacement 

cycles as ‘‘speculative,’’ as these cycles 

have yet to occur in the typical case 

(because the noncompliance period is 

almost always shorter than the capital 

equipment’s useful life). EPA agrees 

only to the extent that BEN does make 

an assumption about the future, but this 

assumption is essentially a baseline one: 

BEN assumes that future pollution 

control requirements will be neither 

more stringent nor more lax than 

current requirements, and that the cost 

of the replacement equipment will 

increase by no more and no less than 

the projected rate of inflation. Therefore, 

the Agency will retain the BEN model’s 

default consideration of capital 

equipment replacement. 

Some commenters argued that BEN 

should not offer infinitely recurring 

replacement cycles. The Agency notes 

that although modeling infinite cycles 

might at first seem excessive, all future 

costs are ‘‘discounted’’ back to their 

present values (see following sections 

for an explanation of discounting). 

Thus, the first replacement cycle 

typically has a relatively small impact 

on the benefit calculation.14 The impact 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50333

percent, over 15 years. The first replacement cycle 

would only increase the benefit component by 

about 30%. The second replacement cycle is 

purchased 30 years later. Thus, the $1 million piece 

of equipment is discounted at the same 10 percent 

over 30 years. The economic benefit from the delay 

of that second replacement cycle would only 

increase the benefit component by about 7%.

15The model will not apply an explicit inflation 

rate, although an annualized rate could be imputed 

from the model’s data. For example, suppose a $200 

cost estimate from 1991 must be adjusted for 

inflation to the same day in 1992. The 1991 cost 

index value is 100, whereas the 1992 index value 

is 103. The calculation the model performs is $200 

x 103 / 100 = $206 (i.e., multiplying the original 

cost estimate by the ratio of the cost index values 

from the date on which the cost is actually 

incurred, and the date on which the estimate is 

made). The index change from 1991 to 1992 does 

represent an annual inflation rate of three percent 

(i.e., 103 / 100 = 1.03 ¥1 = 0.03), although the 

model would not directly apply this rate. The 

calculation that uses the ratio of the index values 

is both more precise and more simple than 

calculating multiple annual inflation rates over 

different periods for historical costs.

of later replacement cycles is almost 

negligible.

Some commenters, as well as 

academic peer reviewers, favored the 

approach of a finite number of 

replacement cycles (which the Agency 

initially proposed to adopt). But one 

peer reviewer pointed out that this 

approach runs into problems when the 

noncompliance period is very long, 

especially when it approximates the 

useful life of the capital equipment. For 

example, assume a 10-year compliance 

delay, coupled with a 10-year useful 

life. If BEN were to use one replacement 

cycle, the on-time scenario would 

include two capital equipment 

installations, covering the years 1 

through 20. The delay scenario would 

also include two capital equipment 

installations, but run from years 11 

through 30. BEN would implicitly be 

stating that the violator would need to 

have functional equipment in place for 

years 21 through 30 (i.e., the delay 

scenario’s replacement cycle), but that a 

company complying on-time need not 

do so (i.e., since the cash flow analysis 

for the on-time scenario runs out only 

to the year 20). 

Therefore, the revised BEN model will 

adopt this peer reviewer’s solution by 

implementing the concept of economic 

depreciation, which essentially 

calculates the lease value of pollution 

control equipment. In other words, 

instead of modeling the on-time 

replacement capital investment and the 

subsequent depreciation tax shields, 

and comparing that to delayed 

replacement, the calculation models 

leasing the equipment over the period 

when the on-time equipment would 

have required replacement yet the delay 

equipment is still functional. The 

avoided lease cost, therefore, serves as 

a reasonable approximation of the 

economic benefit from the delayed 

replacement equipment installation, and 

also allows the two scenarios to the 

modeled out to the same end point. 

Furthermore, projections far into the 

future are no longer necessary, as the 

imputed lease cost is calculated only for 

the interim period when the on-time 

equipment would have required 

replacement yet the delay equipment is 

still functional. 

This approach will add a few new 

cells on one of the pages in the BEN 

detailed printouts, yet allow the 

elimination of another entire page of 

calculations. It will also simplify the 

previous 0–5 replacement cycles 

optional input to a simple ‘‘yes/no’’

choice for the consideration of future 

capital replacement (with the default set 

to ‘‘yes’’). The previously included 

optional input for the future inflation 

rate (which applied only to replacement 

cycles in addition to the first one) will 

be eliminated.

5. Inflation Treatment 

a. Background 

The first step in the economic benefit 

calculation is to determine the 

compliance costs—for both the on-time 

and delay scenarios—as of the year in 

which they were actually incurred (or 

should have been incurred). Therefore, 

BEN adjusts the compliance costs from 

the date they were estimated to the date 

the costs will be incurred to account for 

the effects of inflation. 

To adjust for inflation, BEN 

previously used a standard-value rate 

calculated from the prior ten years of 

inflation data from the Plant Cost Index 

(PCI) in the magazine Chemical 

Engineering. (The PCI is generally the 

cost index most relevant to the types of 

costs typically associated with pollution 

control technology.) This simple 

inflation rate adjusted the initial 

compliance cost estimates. BEN applied 

this simple inflation rate to the 

compliance cost figures in order to 

determine what compliance would have 

cost at the noncompliance date. Then 

BEN applied the same simple inflation 

rate to determine what the costs actually 

were (or will be) at the compliance date. 

Finally, the model used the same rate to 

go well into the future to determine 

what those costs will be for the capital 

equipment replacement cycles. 

b. Final Changes 

Despite the Agency’s specific request 

for comment on BEN’s inflation 

adjustment, we received almost none. 

The issues that the few commenters did 

raise were: 

(1) The use of a single inflation rate 

for both actual and projected inflation, 

(2) The basis for the actual inflation 

rate, and 

(3) The basis for the projected 

inflation rate. 

For actual historical inflation, the 

revised BEN model will adjust each 

cash flow automatically from the date of 

the cost estimate to the date on which 

it is incurred by referencing a look-up 

table of cost index values.15 The default 

cost index will be the PCI. This 

particular index may not be perfectly 

appropriate for every single case, but we 

have yet to encounter any other cost 

index that would form a better basis for 

a standard value, nor did any 

commenters submit any specific 

nominations for a more suitable index.

The revised BEN model will also 

allow the user to override the PCI and 

instead specify different cost indices for 

different compliance components. The 

table below describes the alternative 

cost indices.

Abbr Full name Description Typical applications 

2.5% 2.5-percent constant inflation rate Sensitivity tests; model testing. 

CCI .. Construction Cost Index ............................... Constructions costs; based on 1.128 tons 

Portland cement, 1,088 bd. ft. 2x4 lumber, 200 hrs. common labor.

General construction costs, especially 

where labor costs are a high proportion 

of total costs; often used for municipal 

wastewater projects. 

ECI ... Employment Cost Index ............................... Employment costs ........................................ One-time nondepreciable expenditures or 

annual costs that are mainly labor 

GDP Gross Domestic Product price deflator ........ Economy-wide measure of price changes ... A very broad, economy-wide measure of inflation is desired. 

PCI ... Plant Cost Index ........................................... Plant equipment and labor costs ................. Standard value. 

50334 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

16The Agency received many comments on the 

use of a single rate as opposed to two different rates. 

The notice addresses this issue in section II. B. 8, 

Discounting/Compounding Methodology.

17The discount rate standard value for not-forprofits is based upon municipal bond yields, 

averaged across the four investment-quality ratings 

of Aaa, Aa, A, and Baa. The only comment EPA 

received on the not-for-profit discount rate was a 

suggestion that municipal economic benefit be 

calculated using a discount rate for private entities 

that perform similar functions (e.g., on a municipal 

Clean Water Act case, the discount rate would be 

the average WACC for privately owned wastewater 

treatment plants). However, because the Agency is 

trying to calculate the economic benefit that the 

municipality and its residents or rate payers have 

actually gained, the Agency prefers to use an 

estimation of the municipal government’s 

opportunity cost of financing projects, which is 

equal to the interest rate on the municipality’s 

bonds. This debt rate—which forms the basis for the 

BEN model’s not-for-profit standard value discount 

rate—will almost always be substantially lower 

than the private-sector-equivalent cost of capital. 

The discount rate for Federal facilities is based 

upon the yields from five-year U.S. Treasury notes.

18Although the following discussion focuses on 

the for-profit discount rate, the tailoring of the 

discount rate to the relevant time period would also 

apply to not-for-profit entities.

19The revised BEN model will implement two 

relatively minor changes to the previous model’s 

annual WACC calculation. First, the previous 

practice of applying the most recent figure for the 

expected equity risk premium to all prior years’

calculations will be replaced with the figure that 

was actually available at the time for that specific 

year’s calculation. 

The second change is altering the horizon for the 

equity risk premium. The standard value previously 

combined the long-term Treasury security rate with 

the long-horizon equity risk premium, the latter 

being equal to the average of each year’s stock 

market return minus the corresponding-maturity 

risk-free rate. Because the WACC calculation 

combines the equity risk premium with the risk-free 

rate of the same maturity that is used initially to 

calculate the premium, the issue of which horizon 

premium to use is largely moot. (The expected 

deviations of the resulting WACC will thereby be 

both small and nonsystematic.) The new calculation 

will switch to the intermediate-horizon risk 

premium (and the corresponding risk-free rate) as 

a simple compromise between the long-horizon and 

short-horizon.

Abbr Full name Description Typical applications 

PPI ... Producer Price Index ................................... Representative producer costs .................... General costs for producers, not tied to industrial process equipment. 

The user may also override BEN’s 

inflation adjustments for the capital 

investment and one-time 

nondepreciable expenditure, and 

instead enter separate estimates for 

these compliance costs as of the 

noncompliance date and compliance 

date. This customized data entry could 

represent another alternative cost index, 

case-specific inflation assumptions, or 

entirely different actions for on-time 

and delayed compliance (as discussed 

in a previous section). For projected 

future inflation, the model will project 

all the cost indices forward in time at 

publically available, consensus-oriented 

forecasted rates.

The standard operation of the model 

will still entail absolutely no input 

whatsoever from the user who is 

satisfied with BEN’s default values. The 

other screens for additional data entry 

and modification will appear only to 

those users who selected more advanced 

options. 

6. Discount/Compound Rate 

a. Background 

Once the compliance cost estimates 

are adjusted for inflation and then for 

taxation, the BEN model must adjust 

these after-tax cash flows to a common 

present value as of the date of 

noncompliance. The difference between 

the two present values (of the on-time 

and delay scenarios) is the initial 

economic benefit as of the 

noncompliance date. BEN then 

compounds this initial economic benefit 

forward from the noncompliance date to 

the penalty payment date to determine 

the final economic benefit. A single rate 

adjusts all present values both backward 

and forward in time.16 This section 

addresses only the calculation of BEN’s 

standard value for this single discount 

rate, which was previously based upon 

a ten-year after-tax weighted average 

cost of capital (WACC), with the inputs 

representing averages across all 

industries.17

The WACC is the average of the cost 

of debt and the cost of equity, weighted 

by the portions of debt and equity out 

of total financing. The WACC is first 

calculated for each year, and then the 

prior version of BEN averaged these 

annual values over the most recent tenyear period. The (after-tax) cost of debt 

is the average return on corporate bonds 

averaged across all industries, and then 

multiplied by one minus the highest 

marginal corporate tax rate (Federal 

combined with an average of all States). 

The cost of equity is based upon the 

widely used Capital Asset Pricing 

Model (CAPM), and is equal to a riskfree rate component plus the expected 

equity risk premium (i.e., the average 

since 1926 of each year’s excess stock 

market return over the risk-free rate). 

b. Final Changes 

Based on the June 1999 notice’s 

proposal and the lack of any objections, 

the revised BEN model will tailor the 

standard value discount rate to the 

period from the noncompliance date to 

the penalty payment date.18 The 

standard value will reference a look-up 

table, averaging the annual values over 

the relevant years. Each individual 

annual calculation will be similar to the 

standard value’s previous 

methodology.19

The model will also perform 

additional customizing in a similar 

automated fashion. Since BEN will have 

an input for the violator’s State—

thereby customizing the tax rate for 

compliance costs—that same 

customized tax rate will determine the 

after-tax debt cost component of the 

WACC. The model will even select the 

individual tax rate if the company is not 

organized as a C-corporation (as profits 

and losses from S-corporations, 

partnerships, and sole proprietorships 

flow through to the owners’ individual 

tax returns). 

The standard operation of the model 

will still entail absolutely no input 

whatsoever from the user who is 

satisfied with BEN’s derived WACC for 

the discount/compound rate. Another 

screen to override BEN’s derived rate 

will appear only to those users who 

selected such advanced options. 

7. Discounting/Compounding 

Methodology 

a. Background 

As stated in the previous section, 

once the compliance cost estimates are 

adjusted for inflation, and then for 

taxation, the BEN model must adjust 

these after-tax cash flows to a common 

present value as of the noncompliance 

date. The difference between the two 

present values (of the on-time and delay 

scenarios) is the initial economic benefit 

as of the noncompliance date. BEN then 

compounds this initial economic benefit 

forward from the noncompliance date to 

the penalty payment date in order to 

determine the final economic benefit. 

BEN uses a single rate to adjust all 

present values both backward and 

forward in time. Because BEN uses the 

same rate for going both backward and 

forward, this calculation is 

computationally equivalent to bringing 

all cash flows—both past and future—

directly to the penalty payment date at 

the WACC rate. 

The comments fell into three 

categories. Some thought the WACC rate 

was too high and especially that the 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50335

20One commenter agreed with compounding the 

initial benefit forward at the WACC rate, but only 

to the compliance date, after which a lower 

compounding rate would be appropriate. His 

rationale was that a company then must set aside 

specific funds to pay a penalty; therefore, the 

economic benefit estimate should be compounded 

either at the actual interest rate on an escrow 

account or at the company’s debt rate (which 

reflects its risk of going out of business, resulting 

in an inability to pay a penalty). Even if EPA took 

this approach, it would make no difference in the 

calculation where compliance had not yet been 

achieved at the time of settlement or trial.

21No consensus exists, however, and many other 

authors have advocated other approaches. Judges in 

tort cases have arrived at rulings that mandate many 

different rates, with many different values and 

rationales.

compounding part of the calculation 

should be based on a risk-free rate. 

Some agreed with EPA’s approach. 

Others commented that EPA’s discount/

compound rate was too low and should 

instead be based on financing pollution 

control investments with 100% equity. 

The first group of commenters 

claimed that BEN’s use of a WACCbased rate in all parts of the benefit 

calculation yielded inappropriately high 

economic benefit calculations. They 

posited that future cash flows represent 

uncertainty and risk, while past cash 

flows are known, certain, and riskless. 

Thus, they generally agreed that 

discounting future cash flows should be 

done with a WACC-based rate or some 

other risk-based rate, but felt that 

compounding past cash flows forward 

should be done with a riskless rate. 

They cited selected academic literature 

from economic and financial analysis of 

commercial damages in torts cases, 

proposing two alternative 

methodologies: 

• (A) Use BEN’s initial figure for the 

economic benefit as of the 

noncompliance date (i.e., bring all cash 

flows, irrespective of when they occur, 

back to the noncompliance date at a rate 

reflecting risk), but then bring this 

intermediate economic benefit figure 

forward to the penalty payment date at 

a risk-free rate. 

• (B) From the perspective of the 

penalty payment date, bring all future 

cash flows back in time at a rate 

reflecting risk (e.g., the WACC) and 

bring all past cash flows forward in time 

at a risk-free rate (e.g., the after-tax 

return on short-term U.S. Treasury 

securities).

Both of these methodologies produce 

significantly lower economic benefit 

estimates than the BEN model. A range 

for the magnitude of the typical 

differences is difficult to provide 

because of the many different types of 

cases. But while alternative A will 

generally produce significantly lower 

benefit analyses than EPA’s BEN 

approach, alternative B is so extreme 

that it will often produce negative 

economic benefit estimates for the 

capital investment portion of the 

compliance scenario. 

The second group of commenters 

agreed that the WACC was appropriate 

for discounting all future costs back to 

the noncompliance date, and then 

compounding the initial economic 

benefit forward to the penalty payment 

date.20 The third group commented that 

BEN’s use of the WACC is incorrect and 

leads to economic benefit estimates that 

are too low. These commenters instead 

favored a company’s higher cost of 

equity capital, rather than the weighted 

average of the relatively higher-cost 

equity capital and the relatively lowercost debt capital. Their rationale was 

that excess returns flow to a company’s 

equity holders, not to a mixture of its 

debt and equity owners.

b. Final Changes 

Regarding the first group of 

commenters, although both the 

conceptual bases and results of their 

two risk-free rate methodologies 

contradict each other, they share one 

similar rationale: Cash flows that have 

yet to occur in the future are uncertain 

and risky, whereas cash flows that have 

occurred in the past are certain and 

riskless. These methodologies, therefore, 

apply to future cash flows a rate that 

includes a risk premium (e.g., a 

company’s WACC or some other riskadjusted rate) and apply to past cash 

flows a risk-free rate (e.g., the return on 

short-term Treasury securities). As 

discussed below, the Agency believes 

that even if this approach were justified 

in the context of calculating damages 

owed to plaintiffs in certain types of tort 

cases, it is entirely inappropriate in 

economic benefit calculations for 

enforcement actions. The goal in the tort 

damages approach is to make the 

plaintiff whole by compensating him for 

his losses. The fundamentally different 

goal in enforcement actions is to deter 

future violations by both this particular 

violator and other potential future 

violators. 

By contrast, the third group of 

commenters advocate the use of an 

equity-based discount rate. This 

approach is more reasonable than the 

risk-free rate alternatives, although the 

Agency still believes that using the 

WACC throughout all aspects of the 

calculation is the most reasonable and 

hence preferable approach.

(i) Risk-Free Rate Forward: Theoretical 

Issues 

The goal in a tort action is to make the 

plaintiff ‘‘whole.’’ The settlement or 

court determination ultimately should 

place the plaintiff in the same financial 

position as if the wrong had not 

occurred. The first step in such a case 

is to calculate the necessary 

compensation at the time of the actual 

wrong. The next step is to adjust the 

compensation calculated at the time of 

the actual wrong to the time at which 

such compensation is to be made. 

Certain authors writing about tort 

damages have advocated bringing such 

compensation forward at a risk-free 

rate.21 Otherwise, the plaintiff would be 

‘‘having-its-cake-and-eating-it-too’’: The 

initial compensation has essentially 

been invested at the time of the actual 

wrong at a rate reflecting risk taking, yet 

the plaintiff is now granted the 

compensation which grew at that rate, 

without ever bearing the accompanying 

risk. (In contrast, the regular investor 

would have made the investment and 

then had to stand by nervously as the 

investment’s value either grew or fell). 

This was the reasoning behind some of 

the commenters in the first group 

advocating that BEN employ such a riskfree rate approach.

While the appropriate focus in a tort 

damage action is on compensating the 

victim (i.e., plaintiff), this is not 

appropriate in an enforcement action. 

The enforcement agency is not suing for 

damages it has suffered. The goal is not 

to make the plaintiff whole (i.e., to 

restore to it the amount by which it was 

damaged). The goal of the economic 

portion of a civil penalty is to return the 

defendant to the position it would have 

been in had it complied, and thus 

disgorge from it the amount it 

wrongfully gained. If civil penalties, 

comprising the economic benefit and 

gravity components, effectively allow 

the violator to gain an economic 

advantage from its violations, other 

companies will see an advantage in 

similar noncompliance. This is a 

fundamentally different perspective 

from a tort case, and demands a 

fundamentally different view of 

adjusting cash flows to a present value. 

The appropriate discount rate for 

economic benefit calculations is a 

company’s opportunity cost of capital, 

reflecting the financing costs for 

pollution control investments or the 

value of investment opportunities 

foregone because of pollution control 

purchases. The opportunity cost of 

capital is the incremental expected rate 

of return a company must earn to pay 

back its lenders (i.e., bond holders) and 

owners (i.e., stockholders), which is the 

weighted-average cost of capital. 

50336 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

22This is a very favorable rate, because of the U.S. 

Treasury’s over two-century default-free record, its 

ability to create money, and also the State tax-free 

status of its debt instruments. 23Because benefit recapture by itself merely 

makes the violator indifferent between compliance 

and noncompliance, only a total penalty amount 

that exceeds the economic benefit (by incorporating 

a gravity component) can achieve actual deterrence. 

Therefore, a civil penalty should always be at least 

equal to the economic benefit calculation plus some 

non-trivial gravity component.

24The results might be slightly different 

depending on what ‘‘risk-adjusted rate’’ the risk-free 

rate forward methodologies use for the future cash 

flows in their calculations. Different practitioners 

have used different ‘‘risk-adjusted rates’’ in 

different cases, including the same WACC-based 

discount rate that the BEN model uses. Therefore, 

for the purposes of the examples that follow, we 

assume that the alternative methodologies also use 

the WACC for future cash flows. If, instead, they 

were to use a different rate, the exact figures for the 

results would be slightly different, but the overall 

implications would remain the same.

25Other inputs include a 40-percent tax rate, 1.8-

percent inflation rate, and 10-percent WACC.

26Because the time between the noncompliance 

date and the penalty payment is only one year, the 

compounding takes the form of simply multiplying 

the initial economic benefit by the sum of one plus 

the discount/compound rate (i.e., $519,767×(1 + 

0.10)=$571,744).

The risk-free rate methodologies use 

short-term U.S. Treasury bill rates that 

are unrelated to a company’s 

opportunity cost of capital. Only the 

Treasury of the United States of 

America is able to borrow at the U.S. 

Treasury bill rate.22 Companies lack the 

advantage of such low financing rates. 

To finance additional projects, they 

must either issue debt at higher interest 

rates, and/or issue equity, which 

requires returns of even higher rates.

Applying the risk-free rate to a 

company’s cash flows presumes an 

unattainably low borrowing rate and an 

insufficient return on investments. 

(With the exception of mutual funds, a 

company whose main business was 

investing in T-bills would not be in 

business for very long.) The true 

opportunity cost of capital for a 

company far exceeds the T-bill rate. The 

risk-free rate will therefore 

systematically understate the economic 

benefit of pollution control 

noncompliance. Penalties based solely 

on economic benefit calculated with a 

T-bill rate would allow a defendant to 

retain a potentially substantial gain. 

Because of the precedent of this retained 

gain, other regulated companies might 

see an economic advantage in similar 

noncompliance, and the penalties based 

on a risk-free rate approach will fail to 

deter potential violators. 

(ii) Risk-Free Rate Forward: Practical 

Implications 

Not only are the theoretical 

underpinnings of the risk-free rate 

forward methodologies flawed, but their 

practical implications are also troubling. 

Specifically, the use of the risk-free rate 

fails to achieve the overriding goal of 

economic benefit recapture: To make 

the violator financially indifferent 

between compliance and 

noncompliance, which in turn 

constitutes a critically important 

element of deterrence.23 An example 

helps to illustrate this point.

Suppose a company is deciding 

whether to purchase pollution control 

equipment this year (e.g., 2000), or to 

wait until the same month in the next 

year (e.g., 2001). The company is not 

necessarily contemplating a willful 

violation of the law—perhaps the law’s 

interpretation is unclear, and the 

company would like to know the 

financial consequences of not 

purchasing the equipment, and then 

later being found to be in 

noncompliance. The company, 

therefore, wants to know how much 

better or worse off it will be by delaying 

the purchase one year. 

The company performs three sets of 

economic benefit calculations. First, it 

calculates the economic benefit as of the 

present time (e.g., June 2000). This lets 

the company know how much better off 

it will be by delaying the purchase (e.g., 

until June 2001), in the absence of any 

penalty. Second, it calculates the 

economic benefit as of one year later 

(i.e., June 2001, when it would 

otherwise purchase the equipment, and 

also pay any penalty), and then 

discounts the calculated economic 

benefit back to the present (i.e., June 

2000). This lets the company know the 

present value of any economic benefit 

based penalty that is calculated and 

paid the following year in 2001. Third, 

it subtracts the second result from the 

first result to determine the net amount 

by which it is better or worse off (i.e., 

the economic benefit of its 

noncompliance, minus the present 

discounted value of the economicbenefit-based penalty it can expect to 

pay in 2001). 

The first economic benefit calculation 

yields the same result regardless of 

which economic benefit methodology is 

used, because all the cash flows occur 

in the future.24 In this example, the only 

compliance measure is a one-time—i.e., 

no replacement cycles—capital 

investment of $10 million.25 The 

company calculates that it is financially 

better off now in 2000 by $519,767 from 

a projected one-year compliance delay.

The company also needs to know how 

much better off it will be on net should 

the enforcement agency assess a penalty 

in 2001 equal to the calculated 

economic benefit from its delayed 

compliance. Assuming that the agency 

uses BEN, the economic benefit is 

brought forward one year by an estimate 

of the company’s WACC (in this case 10 

percent), so the economic-benefit-based 

portion of the penalty the company will 

pay is $571,744.26 But because the 

company will pay the penalty a year in 

the future, it must discount that amount 

back to the present. If it discounts the 

penalty at the same rate that BEN used 

to compound the penalty forward to the 

penalty payment date, the present 

discounted value of the future penalty 

will always be equal to the economic 

benefit the company calculates for itself 

(in this case, $519,767). The company 

can therefore expect to have any 

economic benefit disgorged from itself, 

which makes the company financially 

indifferent between compliance and 

noncompliance. The column in the 

exhibit below labeled ‘‘BEN’’

summarizes these calculations.

Economic benefit BEN Alternative A Alternative B 

1. Penalty Payment Date of 6/1/2000 ......................................................................................... $519,767 $519,767 $519,767 

2a. Penalty Payment Date of 6/1/2001 ....................................................................................... 571,744 533,281 (147,798) 

2b. Result 2a discounted back to 6/1/2000 ................................................................................. 519,767 484,801 0 

3. Net Result (i.e., 1¥2b) ............................................................................................................ 0 48,480 519,767 

Perhaps, however, the enforcement 

agency uses one of the alternative 

methodologies. Under alternative A, as 

described in Section II B(8)(a), above, 

the initial economic benefit as of the 

noncompliance date is calculated with 

BEN, but is then compounded forward 

at the after-tax risk-free rate. In this case, 

compounding the initial economic 

benefit forward from 2000 to 2001 at an 

illustrative risk-free rate of 2.6 percent 

yields $533,281. The company 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50337

27Even if the company were to discount the 

future penalty back at a rate lower than its WACC, 

this rate would still exceed the risk-free rate that 

alternative A uses to compound the economic 

benefit forward, and therefore the discounted future 

penalty would still exceed the currently calculated 

economic benefit.

28A negative economic benefit result for the 

capital investment portion of compliance is typical 

for alternative B. In many recent cases, the 

violators’ witnesses implementing this approach 

have arrived at negative economic benefit results for 

delayed capital investments, despite the fact that no 

changes occurred in technological or legal 

requirements over time between the dates of 

noncompliance and compliance. (In other words, 

the negative economic benefit result was derived 

from on-time and delay scenarios involving the 

same piece of capital equipment, with the passage 

of time affecting only inflationary adjustments for 

the cost estimate.) Applying the combination of an 

extremely low risk-free rate for past cash flows and 

a higher risk-adjusted rate for future cash flows to 

delayed capital investments (with their past cash 

outflows for the actual investment and their future 

cash inflows for depreciation tax shields) can 

produce aberrant results that defy common sense. 

These perverse negative economic benefit estimates 

do not reflect any real economic losses because of 

the expenditure delay. Furthermore, even if the 

parameters in this example were different, the 

economic benefit—although perhaps positive—

would still be much smaller than even under 

alternative A, and would similarly fail to make the 

company indifferent between compliance and 

noncompliance.

29The WACC will equal the equity cost of capital 

if the company has no long-term debt. Note also 

that an economic benefit calculation using the 

equity rate should first net out any cash flows 

attributable to debt financing, as the focus in such 

a calculation is on the returns to the company’s 

equity holders only.

30Should the escrowed amount exceed the 

benefit component, then the interest on the amount 

that exceeded the economic benefit component 

would accrue to the violator.

31Note that this and other tax-related adjustments 

are irrelevant for municipalities, federal facilities, 

and other not-for-profit entities because their 

marginal tax rate is equal to zero.

32The criteria are: ‘‘1. It is constructed, 

reconstructed, or acquired under a written contract 

binding on December 31, 1985; 2. it is constructed 

or reconstructed by the taxpayer, construction was 

begun by December 31, 1985, and the lesser of $1 

million or five percent of the cost was incurred or 

committed by December 31, 1985; or 3. it is an 

equipped building or plant facility, construction 

was begun by December 31, 1985, under a written 

specific plan, and more than one-half of its cost was 

incurred or committed by December 31, 1985.’’

(Commerce Clearing House, Inc., Explanation of 

Tax Reform Act of 1986, page 328.)

discounts this future penalty back to the 

present (i.e., 2000) at its WACC, and 

arrives at $484,801.27 Because this is 

less than the current economic benefit 

of $519,767, the company realizes a net 

gain of $48,480. This approach fails to 

make the company indifferent between 

compliance and noncompliance and, in 

the absence of any additional gravitybased penalty components, the 

company will have an incentive to delay 

compliance.

If the enforcement agency instead 

uses alternative B, as described in 

Section II B(8)(a), the economic benefit 

as expected to be calculated a year from 

now in 2001 is a negative $147,798.28

The company realizes that an 

enforcement agency using this approach 

will conclude a year from now in 2001 

that no economic benefit has been 

gained, and therefore the economic 

benefit-based portion of the penalty will 

be zero. But the company currently 

calculates its economic benefit in 2000 

to be a positive $519,767. At the time of 

initial noncompliance in 2000, the 

company concludes that delaying the 

equipment purchase will result in an 

economic gain, but that it will never 

have to pay any economic-benefit-based 

portion of the penalty. Once again, a 

risk-free approach fails to make the 

company indifferent between 

compliance and noncompliance and, 

therefore, in the absence of any 

additional gravity-based penalty 

components, the company will have a 

significant incentive to delay 

compliance.

(iii) Equity Rate Approach 

By contrast, an approach that employs 

a company’s equity rate focuses solely 

on the company’s equity owners, as 

opposed to its other stakeholders (who 

hold the company’s debt). Because the 

company’s cost of equity capital will 

always exceed or at least be equal to a 

company’s WACC, the economic benefit 

estimate—with all other assumptions 

held constant—will be higher or at least 

the same.29 While the Agency believes 

that a reasonable argument supports the 

use of equity, we nevertheless prefer the 

WACC, because it better represents 

firms’ total capital structures and their 

own typical business decision-making 

practices.

(iv) Final Change: Use WACC, Except 

for a Possible Early Penalty Payment 

For the above reasons, the Agency 

believes that the current basic 

discounting methodology is appropriate 

and should not be changed, except a 

minor modification in certain contexts. 

The United States may consider 

allowing the violator to escrow funds for 

the economic benefit portion of the 

penalty demand (whether at the 

compliance date or at any other time). 

Then, when EPA runs the BEN model, 

it will use the date the funds were 

escrowed as the penalty payment date. 

The violator would have to furnish 

proof that it established the escrow 

account, as well as placed on the 

account appropriate restrictions (e.g., all 

accrued interest would go to the 

Agency).30 This modification, when 

applied to certain cases, may reduce 

some of the deviation in results between 

the competing discounting 

methodologies. BEN will incorporate 

this guidance into its help system.

8. Investment Tax Credit and LowInterest Financing 

a. Background 

Economic benefit calculations for 

cases with noncompliance dates prior to 

the mid-1980s must account for two 

important tax-code effects: The 

investment tax credit (ITC) and lowinterest financing (LIF).

Prior to 1986, the Federal government 

allowed companies an ITC on capital 

investments.31 The ITC effectively 

reduced the after-tax cost of a capital 

investment. Complicated and changing 

rules governed the depreciation basis for 

a capital investment with an associated 

ITC.

Early versions of BEN used to account 

for the ITC that was available on 

projects completed before January 1, 

1986, but did not do so for the transition 

years of 1986 and 1987. The transitional 

rules allowed companies to obtain an 

ITC for projects completed after 

December 31, 1985, if the project met 

one of three criteria regarding the level 

of planning and construction that had 

occurred by that date.32 Because the 

allowance of the ITC in these years was 

far from automatic (although still 

possible), BEN warned the user about 

this issue for noncompliance dates 

between January 1, 1986, and June 30, 

1987. If further research and analysis 

showed that the granting of an ITC was 

likely in a particular case, then a 

financial analyst could adjust the BEN 

result through an ‘‘off-line’’ calculation.

Prior to 1987, LIF was available for a 

business’s investment in pollution 

control. A much earlier version of the 

BEN model included a variable that 

accounted for LIF. The 1993 version of 

BEN removed this variable because it 

was relevant only for cases with 

noncompliance dates before 1987. Once 

this variable was removed, BEN would 

then issue a warning to the user about 

LIF for noncompliance dates before 

January 1, 1987. If further research and 

analysis showed that LIF was probably 

available in a particular case, then a 

financial analyst could adjust the BEN 

result through an off-line calculation. 

b. Final Changes 

A few commenters suggested that EPA 

could revise the BEN model to allow an 

option for ITCs during the 1986–87 

transition years, as well as to account 

for LIF in years prior to 1987. These 

revisions would, however, add 

considerable complexity to the model. 

50338 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

33ABEL, INDIPAY and MUNIPAY evaluate 

inability to pay claims from for-profit entities, 

individuals and municipalities, respectively.

34As most supplemental environmental projects 

(SEP’s) are completed long after the cases are 

settled, any stated SEP cost is usually far above the 

‘‘real’’ cost to the violator. Therefore, PROJECT 

calculates the SEP’s actual costs to the violator.

35The web address for the Clean Air Act 

Stationary Source information is: http://

www.epa.gov/ttn/catc/products.html.

Furthermore, the Agency did not receive 

any comments documenting recent 

instances in which an off-line 

calculation was necessary to account for 

ITCs or LIF. This is not surprising EPA 

Headquarters had received only one call 

in response to the older BEN model’s 

previous warning about LIF. 

Furthermore, the already low likelihood 

of the need to account for ITCs or LIF 

continues to decline with the passage of 

time, as EPA is not likely to see many 

enforcement actions now in the mid2000s for violations that began in the 

early to mid-1980s. 

The June 1999 notice’s proposal on 

this issue ‘‘that the revised BEN model 

not accept noncompliance dates before 

July 1, 1987 ‘‘did not receive any 

objections from commenters. This cutoff date will ensure that BEN’s omission 

of ITCs and LIF is not leading to 

incorrect economic benefit estimates. 

EPA will provide assistance in 

performing the necessary calculations 

for cases that involve noncompliance 

dates before July 1, 1987.

C. Improving the BEN Model’s Userfriendliness 

EPA understands that some users find 

the BEN model difficult to use. While 

that has not been EPA’s experience, the 

Agency expressed interest in learning of 

any difficulties users encountered when 

running the model. The Agency 

particularly requested suggestions for 

realistic alternatives that would 

preserve the model’s degree of 

precision. 

1. Is BEN Too Complex To Operate? 

a. Background 

EPA invited comments on whether 

any aspect of BEN’s operation or user’s 

documentation is too complex. 

Although the Agency designed BEN to 

be straightforward and easy to use, we 

welcomed any suggestions to make the 

model easier to use without 

compromising BEN’s degree of 

precision. 

b. Final Changes 

Many commenters thought that 

although the old BEN model was 

generally easy to use, certain aspects of 

the prior version’s operation were 

cumbersome. The Agency agrees, given 

the model’s origins as a mainframe 

computer application and then its 

prolonged existence in the DOS 

operating environment. Because 

essentially all computer users are now 

long accustomed to the WindowsTM

operating environment, the Agency has 

decided that the revised BEN model will 

continue to run in Windows (version 95 

or higher). This makes basic data entry 

and benefit calculations much easier to 

perform, as well as allowing the 

addition of various advanced features 

without burdening the user with 

additional complexity. 

EPA has also established a toll-free 

helpline for Federal, State, and local 

government enforcement staff who need 

additional assistance in using the BEN 

model. The helpline provides Federal, 

State, and local environmental 

enforcement agencies with advice 

regarding financial issues that impact 

enforcement cases. The main types of 

inquiries EPA is addressing with this 

helpline are: 

• The calculation of a violator’s 

economic benefit from noncompliance; 

• The evaluation of a violator’s claim 

that it cannot afford to comply, clean 

up, or pay a civil penalty, and the 

application of the three computer 

models—ABEL, INDIPAY, and 

MUNIPAY 33—that address these issues; 

and

• The calculation of the actual costs 

of a supplemental environmental 

project, and the application of the 

computer model—PROJECT 34—that 

addresses this issue.

Callers can obtain assistance in 

downloading the BEN model and the 

previously mentioned other models, as 

well as relevant policies and guidance 

documents. In addition, callers can 

obtain advice on how to access training 

courses on the models and related 

subjects. Inquiries regarding the 

interpretation of Federal statutes and 

EPA policies will be referred to the EPA, 

as will inquiries from nongovernment 

employees except for relatively 

straightforward technical inquiries (e.g., 

installation problems). 

The toll-free helpline phone number 

is 888–ECONSPT (326–6778), and is 

staffed by a contractor, Industrial 

Economics, Incorporated, located in 

Cambridge, Massachusetts. The helpline 

is in operation from 8:30 AM to 6:00 PM 

Eastern time and will accept voice mail 

messages when it is not in operation. In 

addition, the contractor has provided a 

companion e-mail address: 

benabel@indecon.com. When requesting 

help, enforcement staff should identify 

their governmental affiliation. As 

mentioned at the beginning of this 

notice, anyone can download the model 

through the EPA’s Web site at: 

www.epa.gov/compliance/civil/

programs/econmodels/index.html.

2. Is the Information BEN Needs 

Difficult or Expensive to Obtain? 

a. Background 

One of the main breakthroughs BEN 

achieved over its predecessor model 

was its streamlining of the data needed 

to operate the model. While the model 

requires a minimum of only seven data 

inputs (mainly just three dates and up 

to three cost estimates), some users 

apparently feel the data is difficult to 

obtain. This has not been EPA’s 

experience, as most (if not all) of the 

required data inputs are based on facts 

that are already or should be known to 

the litigation team as the data are 

important to other parts of the 

settlement. Nevertheless, the Agency 

welcomed any suggestions on how to 

make this data easier to obtain as long 

as the model’s degree of precision is 

preserved. 

b. Final Changes 

The Agency received a wide range of 

responses on this issue. Most users 

thought the necessary data was easy to 

obtain; others thought it was 

prohibitively difficult to obtain. EPA 

did not receive any specific suggestions 

on how to streamline the model’s data 

requirements even further. The Agency 

did receive suggestions that the BEN 

model incorporate some basic, generic 

compliance data. 

The Agency has cost information on 

its Web site for the UST (Underground 

Storage Tanks) and Clean Air Act 

(Stationary Sources) 35 programs. In 

addition, it produced a written manual 

on standardized RCRA (Hazardous 

Waste) costs. These information sources 

should assist users in determining 

compliance costs, and then using them 

in the BEN model to calculate an 

economic benefit figure. Although these 

information sources are not a substitute 

for case-specific data, they will at least 

provide a starting point and a 

reasonably accurate estimate when a 

violator refuses to provide any detailed 

cost information.

Also, as noted at end of Section II C 

(1)(b), above, EPA has established a tollfree helpline to provide assistance to 

government enforcement personnel 

regarding financial economics issues in 

environmental enforcement cases. 

Helpline staff can provide suggestions 

on how to obtain the necessary data to 

run the BEN model. 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50339

D. Procedural Issues Regarding the 

Public Comment Process 

Although the Agency did not request 

any comment on the public comment 

process itself, the Agency did receive 

several comments regarding procedural 

issues. EPA’s responses to the major 

requests are as follows: 

• Extend the initial public comment 

period: In response to such concerns, 

the Agency extended the deadline for 

the initial round of public comments 

from the originally stated January 1, 

1997, to a significantly later March 3, 

1997 (see Federal Register notice on 

December 12, 1996, at 61 FR 65391). 

• Follow up on the public comment 

period by first drafting the findings, then 

requesting and evaluating further public 

comment, and finally publishing a 

formal draft on the final decision: In 

response to such concerns, the Agency 

has done exactly that. The June 1999 

notice responded to the comments, 

came out with a proposal, and then 

requested further comment on that 

proposal. This notice contains the final 

findings.

• Provide a separate public comment 

process for the illegal competitive 

advantage guidance document: Since 

the Agency has already solicited public 

comment on illegal competitive 

advantage issues, a separate public 

comment process would be duplicative. 

But as was mentioned earlier in this 

notice, the EPA’s Science Advisory 

Board has initiated a peer review of the 

draft illegal competitive advantage 

guidance document. 

• Submit the BEN model to a formal 

peer review process: As noted earlier, 

EPA submitted its draft BEN model 

changes to an academic peer review in 

the spring of 2003. The process 

concluded at the beginning of 2004. 

III. Response to Comments 

A. Broad Economic Benefit Recapture 

Issues 

1. Alternatives to BEN 

Comment: One commenter challenged 

the economic rationale of the entire 

benefit recapture ideology, concluding 

that EPA’s current approach encourages 

compliance disproportionate with 

resultant social benefits. The alternative 

recommendation was to base penalties 

on violations’ social costs rather than 

the private gains, thus providing the 

possibility of an ‘‘efficient breach,’’ a 

concept from contract law. The 

illustrative example was an individual 

lost in the woods who steals food from 

a cabin to avoid starvation. Under the 

social cost approach the individual 

would be required to repay the cost of 

the stolen food. The commenter argues 

that EPA’s approach in this context 

would be analogous to attempting to 

recover the private gain, presumably the 

value of the individual’s life. 

Response: As discussed in the main 

text of this notice, the Agency finds this 

approach unacceptable, inconsistent, 

and infeasible with regard to its 

objectives to enforce regulatory 

requirements. More specifically, in the 

example of the starving person, society 

has implicitly agreed that the individual 

may violate the normal respect for 

private property and steal the food, 

being required later to repay only the 

cost of the food. By contrast, society has 

not agreed that companies may violate 

environmental statutes at will whenever 

they expect their private gain to exceed 

the social costs. To use another example 

at the individual level, motorists are 

required to stop at red lights even at 

deserted intersections. If a driver is 

caught running a red light, financial 

compensation to other parties may not 

be necessary if no accident has 

occurred, but a regulatory penalty in the 

form of a moving violation ticket is still 

appropriate. A police officer is generally 

not convinced by a violator’s argument 

that the lack of social damage is 

outweighed by the violator’s gain (in 

terms of time saved in this example), 

and EPA is similarly not convinced by 

such an analogous argument. 

2. Illegal Competitive Advantage 

Comment: Several commenters felt 

that EPA has not demonstrated a clear 

need to broaden the benefit recapture 

framework to consider illegal 

competitive advantage, and questioned 

whether the scenarios described in the 

June 1999 notice were realistic and 

supported by actual data. These 

commenters felt that consideration of 

illegal competitive advantage is 

appropriate only under rare and limited 

circumstances. 

Response: The Agency agrees that 

consideration of illegal competitive 

advantage will occur far less frequently 

than the typical BEN-type of benefit, but 

it does not agree that such occurrences 

will be rare. As the main text of this 

notice explains, specifically those 

situations are where revenues in both 

the actual noncompliant and 

hypothetically compliant states are not 

identical (as BEN implicitly assumes). 

As previously noted, the Agency is not 

planning to issue any guidance on the 

subject of illegal competitive advantage 

at this time. Therefore it is premature to 

address the comments that were 

directed at the scenarios that appeared 

in the June 1999 notice. 

Comment: Two commenters 

recommended that the Agency adopt 

alternative terminology for ‘‘competitive 

advantage,’’ because the scenarios 

described in the June 1999 notice do not 

necessarily involve ‘‘competition,’’ as in 

antitrust cases. 

Response: The Agency agrees that the 

term may not be ideal, and has been 

open to alternative suggestions. 

Unfortunately, no commenter proposed 

any. The underlying concept is 

economic benefit that goes beyond the 

BEN model’s simplifying paradigm of 

delayed and/or avoided pollution 

control costs, but unfortunately this is 

difficult to convey in merely two or 

three words. 

Comment: Many commenters 

expressed concern over the additional 

resources necessary for the data and 

analysis associated with illegal 

competitive advantage. One commenter 

questioned whether such analyses were 

feasible altogether, and another 

questioned whether EPA staff was 

sufficiently qualified to undertake them. 

Finally, one commenter suggested that 

attempts to calculate illegal competitive 

advantage should not be made until 

EPA has issued formal guidance. 

Response: Illegal competitive 

advantage cases may involve more 

detailed financial data and analysis than 

typical BEN cases, although in some 

cases they will involve less. When such 

cases do arise, the Agency will rely 

heavily on expert support, just as it 

currently does for much of its more 

complex economic benefit recapture 

work. Moreover, the absence of formal 

guidance in the interim should not 

preclude staff from identifying and 

analyzing illegal competitive advantage. 

Recapture of economic benefit based on 

illegal competitive advantage has been 

EPA’s position since the inception of 

the policy in 1984 to recapture all the 

economic benefit from noncompliance. 

There are now a series of case decisions 

that have already based 100 percent of 

the violator’s economic benefit on 

illegal competitive advantage. It is 

worth noting that in one of the cases, 

the benefit calculation was so simple 

that the Agency did not even need to 

present expert testimony on illegal 

competitive advantage.

Comment: One commenter disagreed 

with the June 1999 notice’s 

characterization of the role of marginal 

production costs regarding illegal 

competitive advantage from increased 

market share. Figure 1 below reproduces 

the graph that the commenter attached. 

As in the classic textbook example of a 

‘‘price-taking’’ firm facing a competitive 

market, the firm produces up to the 

point where its marginal cost of 

50340 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

production (as depicted by the line MCc

for a compliant firm) is equal to the 

market equilibrium price (as depicted 

by the horizontal line, P). The firm 

produces quantity Qc, with a profit 

equal to the triangle described by the 

points P–A–B (i.e., the area lying below 

the market price but above the marginal 

cost curve). Although noncompliance 

may alter marginal costs such that the 

firm is at the lower MCnc, if it 

anticipates with 100-percent certainty 

the imposition of and magnitude of a 

BEN-based penalty, then it will 

continue to produce at Qc (not the 

higher Qnc,) since the marginal costs 

will eventually be retroactively incurred 

in the form of the penalty. Therefore, 

the BEN model captures the entire 

economic benefit. 

BILLING CODE 6050–50–P

BILLING CODE 6050–50–C 

Response: If the many economic 

assumptions necessary for this 

hypothetical scenario are accepted 

(particularly the certain anticipation of 

the size of the BEN component of a 

penalty), then the conclusion is correct. 

But the complicated analysis necessary 

to arrive at this conclusion is moot: if 

the firm has not altered its behavior and 

not gained any market share, then 

market share from illegal competitive 

advantage is not an issue. 

Comment: The same commenter 

continued with this example, but 

assumed alternatively that the 

noncompliant firm does not anticipate a 

BEN-based penalty, for whatever reason. 

With the lower marginal cost of 

production MCc it produces at the 

higher Qnc. A BEN-type calculation 

would be based on the difference 

between MCc and MCnc (i.e., the per-unit 

compliance cost), multiplied by the 

number of units (i.e., Qnc), and therefore 

equal the area described by the points 

A–C–D–E. But this overestimates the 

economic benefit the company has 

actually received, which is A–C–D–B 

(i.e., the actual profit P–C–D, minus the 

compliant profit P–A–B). Therefore, 

even if the firm does gain market share 

from its noncompliance, BEN would 

overestimate the economic benefit, not 

underestimate it. 

Response: The Agency has never 

encountered such a situation, especially 


EN26AU05.007</GPH>
Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50341

since such textbook graphs—while 

helpful for understanding broad 

economic concepts and aggregate 

market behavior—may not be very 

relevant for many individual firms. For 

example, marginal cost curves for 

individual firms are often not smooth 

curvilinear functions, but rather 

approximate more crude step functions. 

Combined with the relatively small 

magnitude of typical compliance costs 

compared to total variable production 

costs, the Agency is unaware of any 

violator claiming that it would have 

produced less had it incurred the 

compliance costs on-time. Nevertheless, 

this graph does illustrate the theoretical 

possibility that a BEN-type calculation 

could overestimate the economic benefit 

if all these conditions were present. The 

opposite, however, is also possible: if 

the compliance costs calculation is 

based upon a compliant level of 

production (i.e., Qc), then the resulting 

area A–C–F–B will underestimate the 

actual economic benefit (i.e., A–C–D–B). 

This further emphasizes the need for a 

detailed examination of the company’s 

actual noncompliant and hypothetically 

compliant behavior (and cash flows), if 

the noncompliance is reasonably 

believed to have increased a violator’s 

market share. 

Comment: One commenter suggested 

that a warning message be incorporated 

in the BEN module that advises the user 

that an affirmative answer to any of the 

questions regarding illegal competitive 

advantage indicates only the possibility 

that such a situation exists and that any 

presumed illegal competitive advantage 

may reduce the conventional BEN 

result. 

Response: The Agency agrees with the 

goals of this comment. The Agency has 

requested the Science Advisory Board to 

look at this issue as part of its review 

of the ICA type of economic savings. 

Thus for the immediate future, the BEN 

model will not contain any questions, 

references or guidance regarding ICA. 

Comment: Many commenters 

expressed concern over the potential for 

double counting in situations where 

illegal competitive advantage is 

considered. In particular, several 

commenters indicated that conventional 

BEN calculations and those related to 

illegal competitive advantage should be 

mutually exclusive options for penalty 

arbitration. One commenter suggested 

that a penalty that incorporated both 

would constitute double counting 

because the violator would have forgone 

some profits that are captured in the 

BEN calculation. Another commenter 

suggested that an illegal competitive 

advantage component should not be 

considered unless evidence suggests 

that it is likely to outweigh the 

conventional BEN result. 

Response: The Agency agrees that 

simply adding an estimate of illegal 

competitive advantage to the BEN 

model’s result would create the 

potential for double counting. But this 

is only a potential. In some cases it will 

be appropriate to seek benefit recapture 

based upon both types of benefit. In In 

re: Lawrence John Crescio III, No. 5–

CWA–98–004, 2001 WL 537494 (May 

17, 2001), an administrative law judge 

assessed a civil penalty that recaptured 

both types of benefit. Nevertheless, the 

emphasis for illegal competitive 

advantage is on a unified approach, 

laying out all the relevant cash flows 

associated with the on-time and delayed 

compliance scenarios. The economic 

benefit is then equal to the difference 

between the two scenarios’ after-tax net 

present values. This is the same 

approach that the BEN model follows, 

although the scenario construction 

under illegal competitive advantage 

will—almost by definition—be more 

complex than under the BEN model. 

Comment: Several commenters 

referred to the language of the penalty 

provisions of many of the statutes that 

EPA is responsible for along with the 

legislative history of those provisions. 

They claimed that those provisions 

authorize neither the recovery of illegal 

competitive advantage nor the 

mandated recovery of economic benefit 

as a necessary penalty minimum. 

Similarly, another commenter 

questioned EPA’s position that the 

recovery of economic benefit is ‘‘no 

fault’’ in nature and suggested that it 

would be incorrect to assert that it must 

be recovered in every enforcement case. 

Response: The passages these 

commenters cite clearly show that 

various members of Congress were often 

equating economic benefit with 

delayed/avoided compliance cost 

savings. But they made this association 

only because economic benefit typically 

results from delayed and/or avoided 

expenditures. There is nothing in the 

legislative history cited by these 

commenters to suggest that Congress 

intended to exclude the possibility of 

other kinds of economic benefit 

accruing from noncompliant actions 

(i.e., illegal competitive advantage). 

Furthermore, the minimum recovery of 

economic benefit in a penalty—

regardless of the violator’s motives or 

the violation’s impacts—is a commonsense notion that need not rely entirely 

on the legislative record for its support. 

Even if the argument is confined to 

statutory interpretation, the trier of fact, 

in imposing a civil penalty, is not 

limited to consider only those factors 

present in the applicable statute’s 

penalty provisions. For example, judges 

have recaptured economic benefit in 

RCRA cases even though RCRA is silent 

as to the consideration of economic 

savings. 

3. Other Broad Economic Benefit 

Recapture Issues 

Comment: Several commenters 

asserted that in cases of technological 

infeasibility, shutdown as a means of 

compliance is an inappropriate 

suggestion, both because EPA does not 

have the statutory authority to mandate 

shutdowns and because of the 

consequential economic and social 

displacement.

Response: The issue of whether the 

enforcement agency should request a 

judge to order a violating firm to shut 

down is not germane to the discussion 

of how to calculate the economic benefit 

of noncompliance. What is relevant is 

that the economic benefit analysis 

should as a general rule (though with 

reasonable exceptions) be modeled on 

the actual or anticipated means of 

compliance. If the facility has complied 

(or will comply) by shutting down, then 

the baseline assumption for the 

economic benefit analysis is that the 

violator should have complied on-time 

by shutting down at an earlier date. 

Comment: Several commenters stated 

that penalties should not be assessed in 

cases of industry-wide noncompliance. 

In particular, some commenters argued 

that penalties should not be assessed in 

situations where EPA has re-interpreted 

relevant regulations or failed to provide 

‘‘fair notice’’. 

Response: If an entire industry has 

failed to comply, then all of the firms in 

that industry have gained an economic 

benefit that should be disgorged. 

Otherwise, firms in a given industry 

would have an incentive to collude in 

noncompliance. In addition, one 

industry may be competing against 

another (hydroelectric power versus 

fossil fuel based electric power) such 

that the industry that fails to comply 

obtains a significant advantage in that 

competition. Finally, if for some reason 

all the firms in a particular industry are 

out of compliance, each violating firm 

still obtains an economic benefit. By 

delaying and/or avoiding compliance 

expenditures, each of the firms is saving 

money even if the playing field is level. 

The Agency needs to recapture that 

benefit from any violating member of 

that industry if it wants to produce 

deterrence. 

EPA’s perspective is that the 

economic benefit gained is ‘‘no fault’’ in 

nature. By this the Agency means that 

a company need not have intentionally 

50342 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

violated the law, or been aware of the 

violation, to have accrued economic 

benefit. Nevertheless, the concept of 

‘‘fair notice’’ can be relevant to penalty 

assessment and may be an exception to 

this ‘‘no fault’’ approach. Some courts 

have found that fair notice is a defense 

to a penalty action if established by the 

defendant. This is not saying that the 

violator failed to obtain an economic 

benefit from its noncompliance. Fair 

notice is thus a legal defense, not an 

economic one. As a policy matter, the 

Agency generally does not seek any 

penalties where that defense has been 

clearly established. 

Comment: Two commenters stated 

that the BEN model does not accurately 

measure regulated utilities’ economic 

benefit. Specifically, one commenter 

noted that because regulated utilities are 

able to recover their compliance 

expenditures and earn a rate of return 

on those investments, the timing of 

periodic rate adjustments should be 

considered. For example, if compliance 

expenditures associated with a new 

facility are delayed until after a rate 

assessment, the utility forfeits returns 

on that investment until the subsequent 

rate assessment, a tacit loss that is not 

reflected in BEN model calculations 

Response: The Agency generally 

agrees that the BEN model does not 

reflect that potential loss in some 

situations, but it does not agree with the 

implications. Specifically, the violator 

has created an economic benefit, which, 

depending upon the particular 

circumstances, has accrued either to the 

utility or to its customers in the form of 

lower rates. In some cases, both the 

utility and the customers obtain the 

benefit. Either way, this economic 

benefit should be recaptured. 

Otherwise, given the joined-at-the-hips 

relationship between a traditional rateof-return regulated utility and its 

ratepayers, the financial incentive 

would arise to avoid compliance and 

thus create goodwill among ratepayers 

(knowing that the economic benefit 

would not be recaptured) that could 

help the utility in the next rate hearing. 

To ignore this benefit generated by such 

a regulated utility creates a very strong 

incentive to evade compliance 

responsibilities. 

The analogy of a landlord-tenant 

relationship helps to illustrate this 

concept. Suppose that the lease 

conditions allow pollution control costs 

to be passed through to the tenant, and 

suppose that the regulatory agency 

agrees that the economic benefit that the 

landlord created through its violations 

should not be recaptured via a civil 

penalty since the economic benefit was 

passed through to the tenant (in the 

form of lower rent payments). The 

landlord now has an incentive to avoid 

compliance, since and thus create 

goodwill with its tenant (knowing that 

the economic benefit will not be 

recaptured) that could help the landlord 

in the next round of lease 

renegotiations. 

Comment: Two commenters 

questioned whether economic benefit 

was appropriate for Federal agencies 

and facilities. 

Response: Federal agencies and 

facilities are no different from local, 

regional, and State governmental 

jurisdictions in the context of economic 

benefit. Although governmental entities 

do not have the same profit motive as 

for-profit businesses, they may still 

benefit economically from their 

noncompliance, and that benefit must 

be recaptured. 

Comment: One commenter suggested 

that by increasing focus on the recovery 

of economic benefit, EPA will in fact 

create an ‘‘unlevel playing field’’

because it will limit the extent of the 

gravity component it can assess given 

the statutory penalty maximum of 

$25,000 per day. 

Response: The Agency has not seen 

many cases in which the economic 

benefit exceeds (or is very close to) the 

statutory maximum, but concedes that 

in those cases even the statutory penalty 

maximum may not be sufficient for 

optimal deterrence. Ignoring or reducing 

the economic benefit in all our penalty 

actions in order to address this situation 

would make little sense. The solution 

required is probably a legislative issue. 

Comment: One commenter felt that 

EPA’s abilities to recover economic 

benefit should not be permitted to 

supercede the statute of limitations. 

Response: The application of the 

statute of limitations to a benefit 

calculation is a legal issue and is well 

beyond the scope of this notice. The 

purpose of this notice is to determine 

the best economic methodology for the 

Agency employ when calculating the 

economic benefit of noncompliance. 

From a financial economics perspective, 

the statute of limitations issue is 

irrelevant. The benefit accrues to the 

violator regardless of whether the first 

day of noncompliance was two years 

ago or ten years ago.

B. The BEN Model’s Calculation 

Methodology 

1. Discounting/Compounding 

Comment: Many commenters 

indicated that the risk-free rate is the 

appropriate compounding rate for BEN 

calculations. This is because 

investments in pollution control carry 

very little, if any, systematic risk and do 

not add value to a firm. Similarly, the 

probability of the violation attracting an 

enforcement action and the subsequent 

penalty not being paid is not a relevant 

risk for the present value adjustments. 

Because penalty payment cash flows are 

certain, a risk-free rate is the appropriate 

compounding rate. 

Response: The Agency is puzzled by 

the critical assertion in this line of 

reasoning that pollution control 

investments do not add value to a firm: 

would these commenters pay the same 

price to purchase two firms that were 

identical but for their investments in 

required control equipment? As 

discussed in this notice’s main text, a 

risk-free rate does not accurately reflect 

the benefit a company could gain 

through alternative use of compliance 

funds. For these reasons, the Agency 

maintains that an estimate of a violator’s 

cost of capital is appropriate for both 

discounting and compounding purposes 

in the BEN model. 

Comment: Two commenters criticized 

EPA’s distinction between tort damages 

and economic benefit and advocated the 

adoption of a risk-free compounding 

rate. 

Response: The Agency maintains that 

tort damages and economic benefit 

differ fundamentally in that the goal of 

the former is to restore to the plaintiff 

the amount by which it was damaged, 

while that of the latter is to return the 

defendant to the position it would have 

been in had it complied, and thus 

remove from it the amount it wrongfully 

gained. Therefore, the relevant rate to 

apply to the violator’s cash flows is its 

cost of capital, which reflects the 

minimum rate of return it can expect to 

earn on average from funds not invested 

in pollution control. 

Comment: One commenter suggested 

that a risk-free interest-forward rate be 

used in BEN model calculations because 

a violator would have to place funds in 

a risk-free vehicle to pay the required 

penalty. 

Response: Outside of cases in which 

a violator formally agrees during 

settlement negotiations to escrow 

penalty funds, the Agency is unaware of 

any violator that has ever done so, and 

therefore feels that this suggested 

theoretical construct is highly unlikely. 

Comment: One commenter pointed 

out that a risk-based discount rate, 

specific to the project in question, 

should be utilized in BEN model 

calculations. 

Response: Because the project is an 

investment in required pollution control 

equipment, it is essentially an 

investment in the continuing operations 

of the firm as a whole (or the relevant 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50343

operations division). Thus, the WACC 

accurately reflects the risk of the project. 

2. Inflation Adjustments 

Comment: One commenter felt that 

the cost indices relied upon in the BEN 

model should include an installation 

component. 

Response: The BEN model’s default 

cost index, the Plant Cost Index (PCI), 

includes such an installation 

component. 

Comment: One commenter believed 

that future inflation rates should not be 

linked to the Consumer Price Index 

(CPI). 

Response: Publicly available forecasts 

are available only for the CPI and the 

GDP price deflator. Both forecasts are 

fairly close to one another, plus the 

chosen value has a very small impact 

upon the economic benefit result. The 

Agency plans to evaluate all available 

information during each year’s update 

of the projected cost indices. 

Comment: One commenter felt that 

future inflation rates should be 

adjustable or, at a minimum, EPA 

should recognize analyses that 

incorporate a more complex future 

inflation scenario. 

Response: The revised BEN model 

allows the user to specify estimates of 

compliance costs as of the 

noncompliance and compliance dates to 

reflect an alternative cost index, casespecific inflation assumptions, or 

entirely different actions for on-time 

and delayed compliance. 

3. Other Technical Aspects 

Comment: Two commenters 

commended EPA’s proposal to allow for 

differences in delayed and on-time 

compliance scenarios. A third 

commenter suggested that only in cases 

where the technology necessary for 

compliance was unavailable at the time 

of noncompliance should such 

adjustments be allowed. Otherwise, in 

the on-time scenario, violators will be 

encouraged to seek lower penalties by 

searching for and advocating less costly 

compliance measures. 

Response: The Agency recognizes that 

certain technological, legal, or other 

circumstances may occasionally cause 

on-time and delay compliance scenarios 

to differ significantly. The revised BEN 

model still maintains the default 

assumption that the on-time and delay 

scenarios are identical (but for 

inflationary effects), reserving more 

complicated scenarios only as an 

advanced option. The burden is 

implicitly always upon the violator to 

provide convincing evidence that: (1) A 

less-costly compliance method was 

available as of when timely compliance 

was required; and, (2) the only reason 

the violator invested in the more 

expensive equipment was to improve 

the environment. If, as we usually find, 

that the motivation to purchase the 

more expensive equipment was 

business-related (e.g., the more 

expensive equipment was more reliable, 

fit better with on-board equipment, 

allowed for expansion, etc.) the Agency 

assumes that the company would have 

chosen that more expensive system as 

its compliance option had it decided to 

comply on time. Thus the cost entry for 

BEN would be based on the actual 

option selected by the violator for its 

delayed compliance.

Comment: One commenter urged EPA 

to maintain the BEN model’s previous 

assumption of infinite replacement 

cycles, suggesting that it is essential 

when the delay period is longer (or 

shorter) than the useful life of the 

control equipment or when compliance 

involves controls with different life 

expectancies. 

Response: As noted earlier in section 

III.B.5, the revised BEN model will solve 

this problem by implementing the 

concept of economic depreciation, 

which essentially calculates the lease 

value of pollution control equipment. In 

other words, instead of modeling the ontime replacement capital investment 

and the subsequent depreciation tax 

shields, and comparing that to delayed 

replacement, the calculation models 

leasing the equipment over the period 

when the on-time equipment would 

have required replacement yet the delay 

equipment is still functional. The 

avoided lease cost therefore serves as a 

reasonable approximation of the 

economic benefit from the delayed 

replacement equipment installation, and 

also allows the two scenarios to the 

modeled out the same end point. 

Comment: One commenter felt that 

the BEN model default should not 

consider capital replacement because 

(with rare exceptions) process and 

control equipment are typically 

matched in terms of life expectancy. 

Response: The Agency disagrees. The 

control equipment will still have to be 

replaced in the future, and then the 

violator will benefit again as its control 

equipment will still be functional 

whereas the equipment would have 

already required replacement had the 

company complied on time. 

Comment: Two commenters felt that 

the BEN model should provide for a 

broader range of costs, such as those 

additional costs that would not have 

been incurred given timely compliance 

and precompliance expenditures. 

Response: The revised BEN model’s 

ability to accommodate different ontime and delayed compliance cost 

scenarios, when justified, allows for 

incorporation of supplementary costs, as 

this comment suggests. 

Comment: One commenter proposed 

that when a defendant can justify doing 

so, EPA should allow for alternative 

depreciation strategies. 

Response: The BEN model’s current 

depreciation schedule reflects the most 

rapid recovery available for typical 

pollution control investments, resulting 

in a conservative estimate of economic 

benefit. The revised BEN model will 

default to shorter schedules when the 

useful life is less than 10 years. BEN 

will also include a provision for the Job 

Creation and Worker Assistance Act of 

2002 depreciation bonus, which will be 

keyed off the previously required 

noncompliance and compliance dates, 

and therefore will not require any 

additional input from the user. 

Comment: Many commenters 

endorsed EPA’s proposed changes with 

respect to investment tax credits and 

low interest financing, specific tax rates, 

and increased flexibility with respect to 

depreciation assumptions and inflation 

indices. 

Response: The Agency appreciates 

these comments, and hopes both 

regulators and the regulated community 

will find the revised BEN model a more 

useful and accurate tool. 

Comment: One commenter felt that 

many of the changes described in the 

June 1999 notice reflected ex post

factors and recommended that EPA 

maintain its ex ante perspective in 

calculating economic benefit. 

Response: The Agency feels that the 

distinction between an ex post (i.e., 

known only today, looking back in time) 

and ex ante (i.e., restricted to what was 

known at the time) perspective is not an 

important one, and that almost all 

models necessarily use a mixture of ex 

ante and ex post data. The BEN model 

has always used a mixture of ex ante

and ex post data, the latter of which can 

be viewed as reasonable approximations 

for the ex ante data that was actually 

available at the time. The changes 

described in the June 1999 notice 

merely make the ex post data more 

precise (e.g., month-by-month inflation 

data, rather than a simple 10-year 

average). 

C. Improving the BEN Model’s UserFriendliness 

1. Is BEN Too Complex To Operate? 

Comment: One commenter noted that 

BEN is easy to use, requires minimal 

data and expertise and is well 

supported.

Response: The Agency similarly feels 

that BEN’s ease of use and technical 

50344 Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 

support are attractive features of the 

model. 

2. Is the Information BEN Needs 

Difficult or Expensive to Obtain? 

Comment: One commenter doubted 

that reliable information will be readily 

available regarding on-time compliance 

costs that differ from delayed costs. 

Response: The use of different ontime and delayed compliance scenarios 

is valid only in exceptional cases. In 

these situations, the violator’s best 

interest will be to provide complete 

information. Otherwise, the default 

assumption is that the scenarios are 

identical, except for inflationary effects 

over time. 

3. Other Issues Affecting Use of BEN 

Comment: One commenter 

encouraged EPA to abandon its position 

that the intended use of the BEN model 

is primarily for settlement purposes. 

Response: An expert witness in 

litigation may use any analytical tool 

the expert deems appropriate, which 

may include the BEN model. But the 

reality is that the Agency designed BEN 

with the goal of assisting its staff for 

settlement purposes. This is not a policy 

position, but rather a statement of fact, 

although BEN users are free to use BEN 

for whatever purposes they deem 

appropriate. Should a witness in a case 

wish to use the BEN model in court, that 

witness is free to do so, but the Agency’s 

position is that the model is primarily 

intended for calculating the economic 

benefit for settlement purposes. 

Comment: One commenter asserted 

that information regarding the BEN 

methodology, assumptions and 

applications should be shared with the 

regulated community. In addition, all 

parties should have access to EPA’s 

helpline. Finally, EPA should provide 

all of BEN’s equations and assumptions. 

Response: The Agency has made 

precisely this information regarding 

how the model functions available to 

the public for almost twenty years. EPA 

does not necessarily share all of its casespecific calculations with a violator as 

that information is enforcement 

sensitive, but all of the BEN model’s 

formulas and databases are completely 

transparent to the user. In regard to the 

helpline, the regulated community’s 

access to this service is restricted to 

straightforward issues regarding 

software installation and execution. For 

resource and policy issues, EPA feels 

that it would be inappropriate to 

provide free consulting advice to 

regulatees who are usually the subject of 

enforcement actions. 

Comment: One commenter felt that to 

ensure consistency in penalty 

calculations, EPA should provide 

detailed guidance on economic benefit 

calculations to its enforcement staff. 

Response: In addition to the BEN 

model’s user documentation and 

assistance through the helpline, the 

Agency has provided extensive on-site 

in-person training to Federal, State and 

local enforcement personnel. Since, 

1988 EPA has presented over 80 BEN 

courses. The Agency has conducted 

over 42 ‘‘live’’ BEN training courses at 

EPA facilities and invited State 

enforcement staff to attend nearly all of 

them. In addition, EPA has conducted 

45 BEN training courses primarily for 

State and local government personnel 

in: Hartford, Connecticut (three times); 

Indianapolis, Indiana (three times); 

Little Rock, Arkansas; Baton Rouge, 

Louisiana (twice); Trenton, New Jersey; 

Boise, Idaho (three times); Ft. 

Lauderdale, Florida; El Monte, 

California; Baltimore, Maryland; 

Richmond, Virginia (twice); Phoenix, 

Arizona (twice); Lacey, Yakima and 

Seattle, Washington (for State of 

Washington personnel); Anchorage, 

Alaska (twice); Atlanta, Georgia (for 

State of Georgia personnel); Miles City, 

Montana (for the State enforcement 

staffs of Montana, North Dakota, and 

South Dakota); Frankfort, Kentucky; 

Montpelier Vermont; Raleigh, North 

Carolina; Charleston, West Virginia; 

Columbus, Ohio; St. Paul Minnesota; 

Nashville, Tennessee; Denver, Colorado 

(for the State enforcement staffs of Utah, 

Colorado and Wyoming); Santa Fe, New 

Mexico; Yakima and Seattle, 

Washington (for State of Washington 

personnel) Boston, Massachusetts (for 

State of Massachusetts personnel) 

(twice); Lansing, Michigan; Concord, 

New Hampshire; Providence, Rhode 

Island; Austin, Texas; and Honolulu, 

Hawaii (twice). EPA also presented a 

BEN course via satellite in 1994, and 

made videotapes of that broadcast 

available to government enforcement 

staff on request. In addition, EPA will 

soon be delivering this training to 

enforcement personnel at their desks 

through WebEx presentations.

Comment: One commenter 

recommended that EPA assemble an 

‘‘internal appeal board’’ of experts to 

resolve disputes over economic benefit 

issues in settlement negotiations. 

Response: Creation of such a board is 

not feasible. The Agency’s view is that 

the decision on the appropriate civil 

penalty is best worked out between the 

Agency and the violator. Where 

appropriate, the negotiations may 

involve experts. If an agreement on the 

appropriate penalty cannot be worked 

out, then the matter must be resolved by 

a trier of fact. 

Comment: One commenter felt that 

EPA should disclose its methods for 

calculation of economic benefit in 

litigation settings (as opposed to 

settlement negotiations) and that the 

regulated community should be allowed 

to comment on these methods. 

Response: The methods employed in 

litigation follow the same general 

principles of the BEN model, but the 

Agency is unable to predict what each 

independent expert may do in each 

case. Experts must testify as to their 

own expertise regarding the economic 

benefit of noncompliance, not as to an 

Agency methodology designed to 

produce settlements. In addition, parties 

in litigation have very limited amounts 

of time in which to produce expert 

reports, depose experts, etc. It would 

therefore be impossible to put these 

independent experts’ testimony through 

some sort of public review in the middle 

of litigation. In addition, it would also 

be superfluous, since such testimony is 

already subject to legal discovery, and 

also the focus of considerable scrutiny 

in each case by the violator’s counsel 

and experts. 

D. Procedural Issues Regarding the 

Public Comment Process 

Comment: Many commenters 

expressed concern over the form and 

substance of the proposed guidance 

document on illegal competitive 

advantage and felt that the document 

should be made available for public 

comment. 

Response: As stated previously, the 

Agency feels that a separate public 

comment process would be redundant. 

Instead, it has initiated a peer review 

process by the Agency’s Science 

Advisory Board. 

Comment: Two commenters advised 

EPA to subject the BEN model to expert 

review. In addition, one commenter 

suggested that EPA should open its 

broader civil penalty policy to public 

comment. 

Response: As noted earlier, the 

Agency submitted the draft BEN model 

changes to an academic peer review in 

spring of 2003. With respect to broader 

policy issues, the Agency has attempted 

to solicit relevant comments through 

this current informal notice and 

comment effort. This has given the 

public and interested experts extensive 

opportunities to comment on these 

issues. We would note that this eightyear effort was not required by law. 

Comment: One commenter alleged 

that the BEN model has no history of 

peer review. 

Response: The BEN model is exempt 

from peer review because the Agency’s 

peer review policy, issued in 1994, 

Federal Register / Vol. 70, No. 165 / Friday, August 26, 2005 / Notices 50345

applies only prospectively, not 

retroactively. Nevertheless, the Agency 

put the BEN model through two peer 

reviews in 1988 and 1991. As 

mentioned in the June 1999 Federal 

Register notice, copies of those peer 

reviews are available to the public. In 

addition, since that comment was made, 

the Agency has put the model through 

a third peer review. That review focused 

on the changes to the model that we 

were proposing as part of this Federal 

Register process. 

Comment: One commenter felt that 

EPA should publish any final decisions 

on economic benefit issues arising from 

the current public comment process. 

Response: All the final decisions are 

detailed in the main text of this notice. 

Of course, as stated previously, the 

illegal competitive advantage guidance 

document is not final and has instead 

been submitted to a peer review by the 

Agency’s Science Advisory Board.

Dated: August 18, 2005. 

Granta Y. Nakayama, 

Assistant Administrator, Office of 

Enforcement and Compliance Assurance.

[FR Doc. 05–17033 Filed 8–25–05; 8:45 am] 

BILLING CODE 6050–50–C

ENVIRONMENTAL PROTECTION 

AGENCY 

[ER-FRL–6666–8] 

Environmental Impact Statements and 

Regulations; Availability of EPA 

Comments 

Availability of EPA comments 

prepared pursuant to the Environmental 

Review Process (ERP), under section 

309 of the Clean Air Act and Section 

102(2)(c) of the National Environmental 

Policy Act as amended. Requests for 

copies of EPA comments can be directed 

to the Office of Federal Activities at 

202–564–7167. An explanation of the 

ratings assigned to draft environmental 

impact statements (EISs) was published 

in FR dated April 1, 2005 (70 FR 16815). 

Draft EISs 

EIS No. 20050165, ERP No. D–NPS–

L61228–AK, Denali National Park and 

Preserve Revised Draft Backcountry 

Management Plan, General 

Management Plan Amendment, 

Implementation, AK

Summary: EPA expressed 

environmental concerns due to potential 

adverse impacts to water quality, 

wetlands, permafrost soils and wildlife 

from increased snowmobile use. EPA 

requested that the final EIS include 

additional monitoring plans and 

contingent mitigation measures that can 

be used with adaptive management 

plans to minimize adverse impacts or 

unexpected outcomes. Rating EC2.

EIS No. 20050186, ERP No. D–AFS–

C65005–NY, Finger Lakes National 

Forest Project, Proposed Land and 

Resource Management Plan, Forest 

Plan Revision, Implementation, 

Seneca and Schuyler Counties, NY.

Summary: EPA expressed 

environmental concerns due to potential 

adverse impacts to water quality, 

riparian areas, wetlands, vernal pools 

and perched oak swamps. EPA suggests 

the final EIS include specific forest wide 

standards and guidelines or special 

resource area designations to protect 

these resources. In addition, the final 

EIS should consider impacts to these 

areas from hydrological changes caused 

by management actions on adjacent or 

near by parcels. Rating EC2.

EIS No. 20050234, ERP No. D–FHW–

G40185–LA, Interstate 69, Section of 

Independent Utility (SIU) 15 Project, 

Construct between U.S. Highway 171 

near the Town of Stonewall in DeSoto 

Parish, and Interstate Highway 20 (I–

20) near the Town of Haughton in 

Bossier Parish, LA.

Summary: EPA has environmental 

concerns due to the proposed project 

regarding air quality impacts and 

transportation conformity. Rating EC2.

EIS No. 20050236, ERP No. D–AFS–

J65445–MT, Rocky Mountain Ranger 

District Travel Management Plan, 

Proposes to Change the Management 

of Motorized and Non-Motorized 

Travel, Lewis and Clark National 

Forest, Glacier, Pondera, Teton and 

Lewis and Clark Counties, MT.

Summary: EPA expressed 

environmental concerns due to adverse 

impacts from motorized uses on 

watersheds and water quality, wildlife 

habitat and cultural resources. EPA 

believes alternative 3 best balances 

conserving and protecting water quality, 

fisheries and reducing impacts from 

road sedimentation. 

Rating EC2.

EIS No. 20050239, ERP No. D–CGD–

G39043–00, Main Pass Energy Hub 

Deepwater Port License Application, 

Proposes to Construct a Deepwater 

Port and Associated Anchorages, U.S. 

Army COE Section 10 and 404 

Permits, Gulf of Mexico (GOM), 

southeast of the coast of Louisiana in 

Main Pass Lease Block (MP) 299 and 

from the Mississippi coast in MP 164.

Summary: EPA expressed objections 

to the open rack re-gasification system 

due to adverse environmental impacts 

to Gulf waters and habitat. EPA believes 

that these impacts can be corrected by 

the project modifications or other 

feasible technology, and requested 

additional information to evaluate and 

resolve the outstanding issues. 

Rating EO2.

EIS No. 20050248, ERP No. D–COE–

G39044–TX, Upper Trinity River 

Basin Project, To Provide Flood 

Damage Reduction, Ecosystem 

Improvement, Recreation and Urban 

Revitalization, Trinity River, Central 

City, Forth Worth, Tarrant County, 

TX.

Summary: EPA expressed concerns 

regarding the proposed project, with a 

focus on potential air quality impacts. 

EPA requested additional information 

regarding emissions from construction 

activities and how the proposed project 

relates to the State Implementation Plan. 

Rating EC2.

EIS No. 20050251, ERP No. D–AFS–

K65286–CA, Watdog Project, Proposes 

to Reduce Fire Hazards, Harvest 

Trees, Using Group Selection 

Methods, Feather River Ranger 

District, Plumas National Forest, Butte 

and Plumas Counties, CA.

Summary: EPA expressed 

environmental concerns due to the 

potential for adverse impacts from 

timber harvest and increased road 

density to watersheds. The final EIS 

should address impacts to soils, aquatic 

and riparian resources, wildlife habitat 

and the increased potential for noxious 

weed proliferation. 

Rating EC2.

EIS No. 20050264, ERP No. D–NPS–

L65491–ID, Minidoka Internment 

National Monument (Former 

Minidoka Relocation Center), General 

Management Plan, Implementation, 

Jerome County, ID.

Summary: EPA has no objections to 

the proposed action. 

Rating LO.

EIS No. 20050268, ERP No. D–NOA–

A91072–00, Programmatic—Codified 

Regulations at 50 CFR 300 subparts A 

and G Implementing Conservation 

and Management Measures Adopted 

by the Commission for the 

Conservation of Antarctic Marine 

Living Resources.

Summary: EPA expressed a lack of 

objections to the proposed project. 

Rating LO.

EIS No. 20050253, ERP No. DS–COE–

D35057–MD, Poplar Island 

Restoration Project (PIERP) To 

Evaluate the Vertical and/or Lateral 

Expansion, Dredging Construction 

and Placement of Dredged Materials, 

Chesapeake Bay, Talbot County, MD.

Summary: EPA had no objections to 

the proposed project.