1. Delivering sustainable solutions in a more competitive world 1 © COPYRIGHT 2010 ERM

2. Delivering sustainable solutions in a more competitive world 2 © COPYRIGHT 2010 ERM Objectives  Understand what an NEI is, and how it differs from day-to-day agency enforcement  Evaluate what specific issues might pose a risk to your business  Consider whether a strategic plan would help mitigate risks

3. Delivering sustainable solutions in a more competitive world 3 © COPYRIGHT 2010 ERM The Enforcement Landscape  FY2010’s $600 million enforcement budget was the highest in the EPA’s 39-year history  EPA’s enforcement budget will increase by $18 million in FY2011  EPA will raise its special agent workforce to 200 criminal investigators  The FY2011 budget justification lists six high priority areas for criminal enforcement. NEIs are first on the list

4. Delivering sustainable solutions in a more competitive world 4 © COPYRIGHT 2010 ERM National Enforcement Initiative for Energy Extraction (2011-2013)  What is an NEI?  A multi-media EPA initiative to address pollution problems confined to a particular sector or source type  Addressed through a concentrated enforcement initiative led by national enforcement teams

5. Delivering sustainable solutions in a more competitive world 5 © COPYRIGHT 2010 ERM EPA’s Enforcement Goals  NEIs are multi-media. Stated goals are:  Clean water  Clean air  Climate and clean energy » Assure compliance with greenhouse gas reporting rule » Encourage greenhouse gas emission reductions through settlements » Target energy sector compliance with air, water and waste rules  Protect people from exposure to hazardous chemicals

6. Delivering sustainable solutions in a more competitive world 6 © COPYRIGHT 2010 ERM EPA’s Real Agenda  Carbon reductions given the Administration’s inability to enact a comprehensive climate change bill  Injunctive relief for emissions  Enhanced environmental control programs  Global settlement as opposed to point by point negotiation

7. Delivering sustainable solutions in a more competitive world 7 © COPYRIGHT 2010 ERM Assuring Sector Compliance with Environmental Laws  EPA has identified some specific regions and issues:  New techniques for oil and gas extraction / air pollution in regions like the intermountain West  Impacts of drilling on ground water and drinking water  Compliance with federal requirements to prevent pollution  Subpart W compliance  EPA states that the initiative will:  Be undertaken in areas of the country with concentrated energy extraction activities  Vary the focus and nature of enforcement with the type of activity and pollution problem presented

8. Delivering sustainable solutions in a more competitive world 8 © COPYRIGHT 2010 ERM “We already have agency enforcement. How is this different?”  Typical inspections and audits assure compliance with existing permits and other requirements  NEI inspections focus more on permit applicability issues – do you have the correct permits?  Did you improperly avoid New Source Review?  Are MACT applicability decisions properly documented?

9. Delivering sustainable solutions in a more competitive world 9 © COPYRIGHT 2010 ERM “We already have agency enforcement. How is this different?”, continued  Dedicated team of national experts  Pre-inspection information gathering  Investigation will include detailed Section 114 information requests  Process-oriented inspections  Interviews with operations, not just environmental staff  Focus on areas not typically examined by state agencies For example:  Basis for permits  “grandfather”/exemption status  Modification and construction status

10. Delivering sustainable solutions in a more competitive world 10 © COPYRIGHT 2010 ERM An NEI Case Study: The Petroleum Refining Sector  Twenty-six refiners - nearly 90% of the U.S. refining capacity – have entered into Consent Decrees  Refiners will spend:  $75 million on civil penalties  $67 million on supplemental environmental projects  $5 billion on new control technologies  The EPA claims annual emission reductions of 87,000 tpy NO X and 252,000 tpy SO 2

11. Delivering sustainable solutions in a more competitive world 11 © COPYRIGHT 2010 ERM What to Expect: The NEI Process  Section 114 Information Requests  Requests to first targets are broad in scope  Investigators will hone in on key issues in subsequent requests  Historical information on capital expenditures and other data may be requested for 10 or more years – regardless of how long your company has owned the asset  Typically have 30 days to respond but extensions are usual  Global settlement offer

12. Delivering sustainable solutions in a more competitive world 12 © COPYRIGHT 2010 ERM Potential High-Priority Issues  We don’t know what issues EPA will ultimately target  Criteria to identify potential high-priority issues:  Issues identified in EPA’s NEI documentation  Issues EPA has targeted in other sectors and methods used to identify them  Common areas of non-compliance across a sector  Potential to reduce emissions  Potential for penalties  Recent enforcement in the sector

13. Delivering sustainable solutions in a more competitive world 13 © COPYRIGHT 2010 ERM Recent Enforcement Example: Oil and Gas Settlement  Entered into a consent decree in 2007 for violations at compressor stations in Utah and Colorado.  Violations included:  PSD  NESHAP Subparts A, HH, and ZZZZ  State Rules and Permit Violations  Penalties:  $200,000 in civil penalties  $250,000 in supplemental environmental projects  $18 million in air pollution control equipment

14. Delivering sustainable solutions in a more competitive world 14 © COPYRIGHT 2010 ERM Potential High-Priority Issues  Clean Air Act  New Source Review Permitting » Permitting Basis » Aggregation » Ship Emissions  Subpart W  Flaring and Flare Practices  MACT Standards  NSPS  LDAR  Waste Management  Waste Categorization  Exemption Status  Transportation  SPCC and Stormwater Permitting

15. Delivering sustainable solutions in a more competitive world 15 © COPYRIGHT 2010 ERM What Should We do to Prepare?  Identify company-specific risk areas  Enhance current audit protocols catch NEI investigation issues  Re-visit and ensure permitting decisions and compliance interpretations/non- applicability determinations well documented and accessible  Prepare to respond to a Section 114 Information request  Do we have adequate resources to respond?  Do we have the data the EPA will request?  Train staff, including operations and maintenance on inspection procedures

16. Delivering sustainable solutions in a more competitive world 16 © COPYRIGHT 2010 ERM Contact Information Kathryn Burch Kathryn.Burch@erm.com 281-600-1038 Deever Bradley Deever.Bradley@erm.com 281-600-1223