Due Diligence & Environmental Compliance Issues for Tribal Energy Projects: Law Seminars International Seattle, WA October 23, 2007 Connie Sue Manos Martin Hazardous Waste
Overview Environmental Due Diligence: What it is and why it s used Due Diligence for Hazardous Waste How environmental due diligence is different for projects in Indian country Regulatory Framework Environmental Due Diligence in Developing Tribal Power Projects
Due Diligence The systematic identification of the environmental risks and liabilities associated with an organization's or entity s sites and operations. This investigation is usually undertaken before a merger, acquisition, management buy-out, corporate restructure or similar transaction. Pre-acquisition/development Pre-divestment/closure Financing, re-financing
Due Diligence An integral part of the transaction process undertaken predominantly by purchasers or developers, but increasingly by sellers In the early days, was predominantly land focused, used to evaluate actual and potential soil and groundwater liabilities pertaining to a business or a property Process can now include evaluation of health & safety, employees exposure to toxic materials, product liability, etc.
Pre-Acquisition/Development/Financing Provides the acquiring or developing entity with a detailed assessment of the historic, current and potential future environmental risks associated with the target entity s sites and operations arising from: existing contamination caused by past operations at a site ongoing or planned operations third party claims for environmental damage
Pre-Acquisition/Development/Financing Once identified, the risks are prioritized and efforts are made to eliminate, reduce, manage, transfer, or contractually allocate them Process intended to ensure that the valuation and contractual terms properly reflect the environmental risks of the site, company, or project
Pre-Divestment/Closure Risk identification and assessment: assess the site conditions, operations and management confirm compliance and regulatory history review contractual and other associated risks Risk treatment: identify ways to eliminate, reduce and manage risks review availability and cost of insurance to deal with risks review warranties, indemnities, and reserves
Hazardous Waste Due Diligence In the context of hazardous waste, a due diligence assessment typically examines: whether a former owner or operator complied with hazardous waste regulations whether hazardous materials or waste were generated or stored on site during the course of operations whether releases of hazardous substances occurred the risk of agency enforcement or third-party action as a result of releases of hazardous substances the cost of potential cleanup
Due Diligence Tools Phase I Environmental Assessment Phase II Environmental Assessment Environmental Audit/Compliance Assessment
Phase I Environmental Assessment Investigation of the historical uses and activities of a site Usually performed by an environmental consultant Typically does not involve sampling
Phase I Environmental Assessment Historical research usually includes the following: Inspect the property Review governmental records to determine past use and use or disposal of hazardous substances Review aerial photographs of the site Review historic city directories Review Sanborn Fire Insurance maps Review tribal, state and federal databases that list contaminated sites
Phase I Environmental Assessment Historical research usually includes the following: Evaluate adjacent properties pertaining to potential sources of off-site contamination Review historical topographic maps Interview local environmental oversight agencies Analyze local hydrogeologic conditions Interview past property owners, tenants, and/or employees Interview neighbors, neighboring tenants
All Appropriate Inquiries Rule A prospective purchaser can qualify for protection from CERCLA liability by establishing that it is an innocent landowner within the meaning of CERCLA 101(35); a contiguous owner of contaminated land within the meaning of CERCLA 107(q); or a bona fide prospective purchaser within the meaning of CERCLA 107(r)(1) and 101(40).
All Appropriate Inquiries Rule The criteria to qualify for the liability protections under each of these provisions includes a requirement that the property owner engage in all appropriate inquiry of environmental conditions on the land prior to purchasing the property.
All Appropriate Inquiries Rule Codified into federal law (40 CFR Part 312) on November 1, 2005, effective November 1, 2006. New American Society of Testing Materials ( ASTM ) Standard for the rule is ASTM E- 1527-05.
All Appropriate Inquires Rule Rule made changes to Phase I ESAs: Defines the term Environmental Professional (EP), establishes qualifications for EPs performing Phase 1 ESAs hold a current Professional Engineer or Professional Geologist license or registration from a state, tribe, or U.S. territory, and have the equivalent of three years of full-time relevant experience OR 4 year Baccalaureate degree in any engineering or science field with five years of full-time relevant experience OR ten years of full-time relevant experience).
All Appropriate Inquiries Rule Rule made changes to Phase I ESAs: Must interview past owners and occupants in addition to current owners and occupants of the subject property If subject property is abandoned, must interview neighboring or nearby property owners or occupants. Previous use of the property must be described from the present back to when the property first contained structures or was developed for residential, commercial, agricultural, industrial or governmental purposes.
All Appropriate Inquiries Rule Rule made changes to Phase I ESAs: More information requested from the user of the report (person for whom the report is being prepared) Requires identification of records of Activity and Use Limitations and Environmental Cleanup Liens Must include a review of all local and tribal records within the required search distance of the subject property, in addition to the review of federal and state records
All Appropriate Inquiries Rule Rule made changes to Phase I ESAs: Visual inspection of the subject property AND adjoining properties is required (limited exemption with specific requirements if the subject property cannot be inspected) Rule looks at the relationship of the purchase price compared with the fair market value of the property, which may indicate contamination at the property
All Appropriate Inquiries Rule Rule made changes to Phase I ESAs: Data gaps must be identified with the significance of the data gap with regard to the ability of the EP to identify conditions indicative of releases and threatened releases Shelf life of Phase 1 Environmental report is specified as one year with some updates required after 180 days
Phase II Environmental Assessment The purpose of a Phase II is to develop and understand what contaminants are on the site, where they are located, and at what levels the contaminants are found Sampling and analysis for potential contaminants of concern identified during Phase I (based on recognized environmental conditions)
Phase II Environmental Assessment The type of sampling during a Phase II environmental assessment is dependent on the following: Suspected type of contamination Suspected source of contamination Expected depth of contamination Soil/geological conditions Groundwater depth Nature of the proposed project
Environmental Audit/Compliance Assessment An independent assessment of a facility s compliance policies, practices, and controls Typically includes an assessment of whether or not a facility: has the required permits in place and is presently in compliance with such permits; has satisfied its record-keeping and reporting obligations; has any issues related to worker health and safety.
Environmental Audit/Compliance Assessment Regulatory History: Present activities of owner/operator Permits NPDES - wastewater discharge air hazardous waste treatment, storage, disposal, generator tank registration with DILHR (underground and above ground) waste water other permits or registrations
Environmental Audit/Compliance Assessment Inspections State environmental agency files OSHA files EPA files State Labor and Industry Files files other governmental bodies - local health, fire, and etc. Hazardous substance/hazardous chemical inventory SARA subtitle 3 - ss. 166.20 Stats. Hazardous Substances information and emergency planning
Environmental Audit/Compliance Assessment Regulatory compliance history violations Notice of noncompliance Notice of violation administrative orders penalties consent orders
Key Hazardous Waste Statutes Key Federal Hazardous Waste Regulations Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601-9675. Federal Water Pollution Control Act, 33 U.S.C. 1251-1387. Resource Conservation and Recovery Act of 1976; Solid Waste Disposal Act, 42 U.S.C. 6901-6992K. Surface Mining and Reclamation Act of 1977, 30 U.S.C. 1201-1328.
Key Hazardous Waste Statutes Key Federal Hazardous Waste Regulations (cont.) Toxic Substances Control Act, 15 U.S.C. 2601-2629 (regulations at 40 C.F.R. 766,790-792, 795-799). Underground Storage Tanks, 42 U.S.C. 6991. Emergency Planning Community Right to Know Act, 42 U.S.C. 11001 et seq. Clean Air Act, 42 U.S.C. 7401-7642. Clean Water Act, 33 U.S.C. 1251-1387. Safe Drinking Water Act, 42 U.S.C. 300f et seq.
State or Local Laws Related to Hazardous Waste Most states have their own hazardous waste regulatory framework and cleanup standards; if a tribal power project occupies land off the reservation, or non-tribal fee land on the reservation, due diligence should include a review of compliance with state laws Local ordinances may apply to siting requirements or land use rules off-reservation or on non-trust land
Tribal Environmental and Hazardous Waste Ordinances Sources of Tribal authority: Inherent authority to exercise sovereign powers to protect health and welfare of Tribal members Treaties, federal statutes and executive orders reserving rights of Tribes in lands, waters and natural resources Delegation of federal authority under environmental statutes such as CWA, CAA, CERCLA
Tribal Environmental and Hazardous Waste Ordinances 1984 EPA Indian Policy Recognition of tribal governments as entities with primary authority for setting standards, making environmental policy decisions, and managing programs for reservations
Tribal Environmental and Hazardous Waste Ordinances Tribes afforded Treatment as State authority may implement and enforce federal environmental statutes Tribes may adopt and enforce Tribal environmental statutes Individuals and entities developing and operating projects on the reservation must be aware of and comply with applicable Tribal codes, ordinances and regulations
Tribal Environmental and Hazardous Waste Ordinances Tribal Superfund Ordinances Colville Confederated Tribes Hazardous Substances Control Ordinance Tribal Environmental Protection Ordinances The Confederated Tribes of the Grand Ronde s Environmental Protection Ordinance Nisqually Tribe s Environment and Natural Resources Code
Tribal Environmental and Hazardous Waste Ordinances Tribal Air Quality Standards Many tribes are monitoring their air for a variety of pollutants, from ozone and particulate matter, to mercury and acid rain, as well as developing emission inventories. Some tribes have been approved to implement CAA provisions and are developing TIPs to address violations of air quality standards; may obtain approval to run ongoing programs in the near future. Other tribes are developing operating permit programs for both major and minor sources of air pollution on the reservation.
Tribal Environmental and Hazardous Waste Ordinances Tribal Water Quality Standards (EPA Region X) Confederated Tribes of the Chehalis Reservation Federal Water Quality Standards Regulations for the Confederated Tribes of the Colville Reservation (40 CFR 131.35) Confederated Tribes of the Umatilla Indian Reservation of Oregon Water Quality Standards Confederated Tribes of the Warm Springs Indian Reservation of Oregon Water Quality Standards
Tribal Environmental and Hazardous Waste Ordinances Tribal Water Quality Standards (EPA Region X) Kalispel Indian Community of the Kalispel Reservation Water Quality Standards Makah Tribe Water Quality Standards for Surface Waters Port Gamble S'Klallam Tribe Water Quality Standards Puyallup Tribe of Indians Water Quality Standards Spokane Tribe of Indians Water Quality Standards
Future Compliance with Hazardous Waste Laws In assessing costs associated with hazardous waste regulations during the life of a project or after decommissioning, one issue to consider is the condition the project will be left in at the end of a project s lifespan. How clean is clean? Who decides how clean is clean? As between project partners, who pays for site decommissioning?
Environmental Due Diligence Issues for Power Projects in Indian Country Some Circumstances When Environmental Due Diligence Issues May Arise: Proposed project involving partnership between Tribal Government, Corporation, Utility, or other Tribal entity and third party Financing of proposed project Indemnity agreement required for financing Purchase of or investment in existing project by Tribe Purchase of or investment in existing project by third party
Environmental Due Diligence Issues for Power Projects in Indian Country Complex regulatory and jurisdictional issues Insufficient regulatory history abandoned site or facility may not have been operated legally or with appropriate permits may be little in the way of records of operations. Unauthorized, unknown uses Illegal dump sites
Environmental Due Diligence Issues for Power Projects in Indian Country Potential Phase I Data Gaps Historic city directories Sanborn Fire Insurance maps Tribal, state and federal databases that list contaminated sites Information re: adjacent properties pertaining to potential sources of off-site contamination Historical topographic maps Information held by local environmental oversight agencies Past property owners, tenants, and/or employees Neighbors, neighboring tenants
Environmental Due Diligence Issues for Power Projects in Indian Country Project may bring together parties with varying levels of experience, sophistication Tribal entity with site, natural resources, political will and energy company with experience, financing Energy company may have experience navigating environmental due diligence issues on off-reservation sites, but little to no experience with projects on the reservation Tribal entity may have experience with onreservation development, but not knowledge of regulatory framework for power project
Conclusion Due diligence process educates parties to the project regarding historic, current, and potential future environmental risks For on-reservation projects, may also educate non-tribal partner about regulatory and jurisdictional issues that arise in Indian Country Information gathered during the process may allow parties to eliminate, reduce, manage, transfer, or contractually allocate existing and potential risks, liabilities, and costs of the project