Texas Environmental, Health, and Safety Audit Privilege Act

1. Texas Environmental,Health, and Safety Audit Privilege Act Michael De La Cruz Enforcement Division Office of Compliance and Enforcement Texas Commission on Environmental Quality Environmental Trade Fair 2014

2. Outline • Guide to the Texas Environmental, Health, and Safety Audit Privilege Act (Audit Act) • Notice of Audit (NOA) • Statistics • Common NOA Deficiencies • Disclosure of Violations (DOV) • Statistics • Common DOV Deficiencies • Immunity is Granted on Case-by-Case • Summary

3. Guide to the Audit Act • Regulatory Guidance – 173 • Historical Background • Guidance for Submissions Required under the Audit Act • Notice of Audit • Disclosure of Violations • Request for Extension • Guidance for Privilege and the Audit Act • Guidance for Immunity and the Audit Act • Questions and Answers • Appendix A - Audit Act • Examples of Model Letters

4. Notice of Audit (NOA) • Proper NOA • Submitted to OCE Deputy Director • Legal name of the entity conducting the audit • Name and physical/geographical location of the entity being audited • Description of the entity or portion of the entity being audited • Time and date of the initiation of the audit • Six months to complete self-audit investigation • Unless extension is granted based on reasonable grounds • General scope of the audit

5. Notice of Audit (NOA) • Proper NOA must be provided prior to the commencement of the environmental in order to be granted immunity • If proper NOA not provided, immunity will not be granted for violations discovered during the environmental audit • Prospective buyers of a regulated entity are not required to submit a NOA prior to the initiation of a pre-acquisition environmental audit

6. Notice of Pre-Acquisition Audit • New owner must provide notice within 45 days after the acquisition closing date of the intent to continue the audit • Notice shall specify • Facility or portion of the regulated entity being audited • Date the audit began • General scope of the audit

7. Notice of Pre-Acquisition Audit • New owner must certify that before the acquisition closing date • New owner was not responsible for the scope of the environmental, health, or safety compliance being audited at the regulated entity or operation; • New owner did not have the largest ownership share of the previous owner; • Previous owner did not have the largest ownership share of the new owner; and • New owner and the previous owner did not have a common corporate parent or a common majority interest owner

8. Number of NOAs Received • As you can see from the trend, the number of NOAs has increased throughout the years • There has been increase in environmental audits being conducted at aggregate production operations and oil gas production facilities throughout the state • We expect the numbers to increase as regulated entity numbers are issued and we are able enter the audit information into our database systems

9. Common NOA Deficiencies • Postmark • NOA postmarked after environmental audit commenced • Scope of audit outside TCEQ’s delegated enforcement authority • Claim of Privilege or Confidentiality • NOAs are not privilege or confidential because it required to be submitted under the Under Act • NOAs are filed as public documents • Specific site names/locations not provided

10. Disclosure of Violations (DOV) • Prompt, voluntary DOV must include: • Submitted via certified mail to OCE Deputy Director • Legal name of the entity that was audited • Reference the date of the relevant NOA • Date of initiation and completion of the audit • Affirmative assertion that a violation was discovered • Brief description of the violation • Date the violation was discovered • Duration of the violation • The status and schedule of proposed corrective measures

11. Disclosure of Pre-Acquisition Violations • New owner must submit a proper, voluntary DOV for all violations discovered during the pre-acquisition audit within 45 days of the acquisition closing date • If the audit is continued, the violations must be disclosed promptly upon discovery

12. Disclosure of Pre-Acquisition Violations • New owner must certify in the disclosure that before the acquisition closing date: • New owner was not responsible for the environmental, health, or safety compliance at the regulated entity or operation that is subject to the disclosure; • New owner did not have the largest ownership share of the previous owner; • Previous owner did not have the largest ownership share of the new owner; and • New owner and the previous owner did not have a common corporate parent or a common majority interest owner

13. Number of DOVs Received • As you can see from the trend, the number of DOVs has increased throughout the years • As oil and gas production sites are obtaining authorizations, we expect the number of DOVs to increase since a customer number and regulated entity number are needed to enter the DOVs into our database system

14. Common DOV Deficiencies • No affirmative assertion that violations were discovered • Issues, Potential Violations, Findings, etc. • Violation not clearly described • No specific/accurate regulatory citation (cannot cite 40 CFR § 60, Subpart B, or MACT HH, or JJJJ) • No violation start dates or corrective action completion dates • Sites were not included in the NOA

15. Common DOV Deficiencies • Violation not independently detected • Claim of privilege or confidentiality • No explanation how the audit investigation exceeded a reasonable inquiry, for Title V permit holders • When permit violations disclosed, no permit included • Disclosed a violation of a rule where TCEQ does not have delegated enforcement authority

16. TCEQ Does Not Have Delegated Enforcement Authority • Department of Public Safety Jurisdiction (lab glass, etc.) • Stratospheric Ozone • City permits • Railroad Commission jurisdiction (Certain oil and gas) • General Land Office jurisdiction (Certain costal/offshore) • Polychlorinated Biphenyl (PCBs) • Asbestos • Surface Impoundment Variance

17. TCEQ Does Not Have Delegated Enforcement Authority • EPA Programs: • Spill Prevention Control and Countermeasure (SPCC) • Reformulated Gas (RFG) • Risk Management Plan (RMP) • Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) • Emergency Planning and Community Right-to-Know Act (EPCRA) • Tier II Reporting • Toxic Substance Control Act (TSCA) • Toxic Release Inventory (TRI) • Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) • Clean Water Act 404

18. Immunity is Granted on Case-by-Case • Immunity granted: • Proper NOA must be submitted • Proper, voluntary DOV was provided • Violation(s) corrected in a reasonable amount of time • Audit Act Benefits • Improved compliance history score • NOV or NOE not issued • Immunity from administrative or civil penalties

19. Immunity is Granted on Case-by-Case • Immunity is not granted: • Proper NOA was not submitted • Proper, voluntary DOV was not provided • Violation not independently detected/discovered • Substantial economic benefit (competitive advantage) • Audit conducted due to order or decree • Compliance not achieved in a reasonable amount of time

20. Immunity is Granted on Case-by-Case • Immunity may be rescinded • After further review of additional information • If immunity is not granted • Violation(s) referred to TCEQ Regional Office for further evaluation • Notice of Violation (NOV) • Notice of Enforcement (NOE)/Commission Order with Administrative Penalties

21. Summary • Audit Act encourages voluntary compliance • Audit Reports are privileged documents • NOAs, DOVs, and any other Audit Act correspondence are not privileged or confidential • Immunity from administrative or civil penalties is granted under the Audit Act, if • Proper NOA is submitted; • Prompt, voluntary DOV is provided; and • Violation is corrected within a reasonable amount of time

22. Points of Contact • Litigation Division • Elizabeth Lieberknecht • (512) 239-0620 • Audit Act Program Staff • Suzanne Walrath • (512) 239-2134 • Lisa Lopez • (512) 239-1946 • Trina Grieco • (210) 403-4006 • Rebecca Johnson • (361) 825-3423

23. Questions • Michael De La Cruz • Michael.DeLaCruz@tceq.texas.gov • (512) 239 – 0259