February 10, 2006
The Honorable James M. Inhofe, Chairman
Committee on Environment and Public Works
United States Senate
Washington, DC 20510
The Honorable James M. Jeffords, Ranking Member
Committee on Environment and Public Works
United States Senate
Washington, DC 20510
Chairman Inhofe and Senator Jeffords,
Thank you for allowing the U.S. Small Business Administrations Office of Advocacy to present the views of small entities during your December 14, 2005 hearing on the Environmental Protection Agencys Spill Prevention, Control and Countermeasure program. I appreciate the opportunity to supplement my testimony by responding, through this letter, to questions that were submitted to my office after the hearing.
As you know, the Office of Advocacy is an independent entity within the U.S. Small Business Administration (SBA). Therefore, the views expressed in this letter do not necessarily reflect the position of the Administration or the SBA. This response was not cleared through the Office of Management and Budget (OMB) prior to its transmittal.
If you have questions that will assist in your understanding of this letter, please do not hesitate to contact me or Kevin Bromberg of my office at (202) 205-6533.
Sincerely,
Thomas M. Sullivan
Chief Counsel for Advocacy
Enclosures
February 2006
Pechan Technical Memorandum
March 2005 USDA
Survey
Spill Prevention, Control, and Countermeasure (SPCC)
Regulations
Answers to Questions from the U.S. Senate
Committee on Environment & Public Works (EPW)
February 10, 2006
Question 1: Concerns have been raised about allowing facilities to self-certify their SPCC plans. Several associations representing engineers oppose the provisions arguing that those operating these facilities do not have the technical expertise to determine how to prevent spills at their facilities. Can you describe for the Committee the types of facilities you encountered while developing your proposal on which EPA based its December 2005 proposed rule? Would you also please explain for the committee why SBA recommended this approach and if there are other similar federal programs that also contain planning requirements without a PE certification. Finally, please also discuss for the Committee why your office believes self-certification will result in more compliance with the SPCC rule and therefore fewer oil spills?
There are several hundred thousand farms, car dealers, construction sites and other small facilities with small amounts of oil storage. Such facilities are unlikely to need the services of a professional engineer, at a cost of up to $7,000 to prepare a SPCC plan for a small facility. During 2003 and early 2004, Advocacy met with a wide variety of small business groups, including car dealerships, construction, chemical, paint and other manufacturing, agricultural groups, and utilities. Advocacy believed that small facilities with simple layouts and tanks that are not interconnected (e.g., farms, car dealerships or construction sites) did not require site visits, nor the help of a professional engineer (PE). The types of facilities subject to SPCC requirements are described in detail in the November 2005 EPA Economic Analysis of the small facility proposal.
In September 2003, the Office of Advocacy (Advocacy) provided EPA with a report, developed for Advocacy by Jack Faucett Associates (JFA), outlining potential regulatory revisions to small facilities with storage of less than 10,000 gallons. Advocacy supported several revisions discussed in the JFA report that replaced blanket PE-certification requirements with set requirements based on volume thresholds. Advocacy recommended that EPA establish a 10,000 gallon threshold for small facilities in place of the PE certification requirement. In January 2004, a coalition of 10 small business groups wrote EPA endorsing this three-tier self-certification scheme. The industries represented in that letter are: Agricultural Retailers Association, American Bakers Association, American Forest and Paper Association, American Trucking Association, Automotive Oil Change Association, Independent Lubricant Manufacturers Association, National Automobile Dealers Association, National Association of Fleet Administrators, National Cotton Council of America, and the Synthetic Organic Chemical Manufacturers Association.
We followed this with a June 2004 letter, accompanied by the June 2004 JFA report, that described the small facility concept in more detail.
EPA has rules in place for underground storage tanks, hazardous waste generators, and storm water pollution prevention that affect hundreds of thousands of facilities, mostly small firms. These programs, that have been in effect since the 1980’s and 1990’s appear to be working well, and do not require the services of a professional engineer. EPA has issued guidance materials for the regulated entities, such as “Understanding the Small Quantity Generator Hazardous Waste Rules: A Handbook for Small Business”, a 32-page booklet issued in September 1986. This booklet was effective in communicating the applicable requirements. This program was supplemented by outreach through trade associations.
Given the fact that SPCC affects hundreds of thousands of facilities, predominantly small business facilities, affecting a large diversity of industries, there is a large opportunity to increase compliance rates. The March 2005 USDA survey found that 61% of farmers were unaware of the applicability of the SPCC requirements to farms. If this survey figure were representative of all farms, the amount of farm noncompliance would exceed 61%. Thus, there is substantial room for improving such a low rate of compliance. We agree with EPA’s Economic Analysis to the December 2005 proposal that streamlining the SPCC requirements would create the opportunity for increasing the compliance rate and improving environmental protection. EPA stated “to the extent that the rule increases the compliance rate by lowering compliance costs, the proposal will have a positive impact on environmental quality”.(1) The self-certification approach is simpler and less costly, and will enable small firms to more readily come into compliance.
Question 2: The Oklahoma Independent Petroleum Association (OIPA), in their letter to EPA regarding the NODA argued that the 10,000 threshold proposed was not sufficient because many of their wells once produced significantly greater amounts of oil than they currently do. Therefore, the wells have on site storage capacity far in excess of what is actually used. Further, they must accumulate greater amounts of oil to make these wells profitable and their smallest facilities are not helped by the 10,000 threshold. Do you have any thoughts on their concerns? Can you please comment on whether the size threshold in the NODA is sufficient for small oil producers?
While the proposed small facility rule provides relief for hundreds of thousands of small facilities, the 10,000 gallon threshold does not provide relief for thousands of independent oil and natural gas producers. More than 90% of these producers are small businesses. A large number of these producers and their associations supplied comments on the September 2004 notice of data availability, expressing support for a separate approach for these facilities that face unique SPCC problems. We agree with these concerns and believe that EPA should examine regulatory revisions for this industrial sector.
These commenters noted that hundreds of thousands of facilities with marginal and non-marginal wells of up to 50,000 gallons could be appropriately exempted from the professional engineering certification requirement. Such production facilities, and particularly the marginal well operations, operate at very small profit margins like other small facilities subject to the 10,000 gallon threshold. The industry commenters also noted that historical evidence shows that the smaller oil and gas production facilities do not pose a significant oil spill risk to navigable water.
Question 3: Dr. Corbett argues that we should provide any flexibility to affected stakeholders and that EPA has not proven such flexibility is needed. Do you agree that compliance rates would likely increase significantly if the rule provided the regulated community with some compliance options as well as being a rule they could afford and understand while believing too that it was necessary?
Given the fact that SPCC affects hundreds of thousands of facilities, predominantly small business facilities, affecting a large diversity of industries, there is a large opportunity to increase compliance rates. The March 2005 USDA survey found that 61% of farmers were unaware of the applicability of the SPCC requirements to farms. If this survey figure were representative of all farms, the amount of farm noncompliance would exceed 61%. Thus, there is substantial room for improving the rate of compliance. We agree with EPA that the self-certification approach is simpler and less costly, and will enable small firms to more readily come into compliance. The availability of an affordable compliance option and a rule that is easily understood should lead to increased compliance rates. Over the past two years, we listened to small business groups express doubt about the necessity of these overly burdensome requirements for small facilities. Thus, we believe that compliance with this program would improve if facilities believed that the requirements reasonably addressed their own situation.
Question 4: During the hearing, I asked you whether or not your office analyzed the impact of the EPA proposal on the nation’s engineering firms, 86 percent of which have less than 20 employees. You did not provide a response. Please describe the results of the analysis that your office performed with regard to the effect of the EPA proposal on small engineering firms. If you did not perform an analysis, please explain why, and whether you plan to perform such an analysis at this point in time. If you do not plan to perform an analysis, please provide a description of the criteria that the SBA Office of Advocacy uses to determine which small businesses will receive your support and which will not.
The Office of Advocacy primarily makes sure that Federal agencies, including EPA, consider appropriate regulatory alternatives to alleviate burdens on small businesses, as required by the Regulatory Flexibility Act. Federal courts have found that agencies must meet their RFA responsibilities by considering the direct impacts of Federal rules on small entities, and not the indirect impacts. In this case, the professional engineers are not directly regulated by the SPCC rule. Since engineering firms do not fall under the category of entities directly impacted by EPA’s proposal, the Office of Advocacy did not perform an analysis of how they would fare under EPA’s proposal.
Question 5:
During the hearing, you stated that, “…..small businesses believe they are in a good position to make that certification themselves….” Did your office collect any actual information from any of the small businesses that visited your office to determine the basis for this “belief” and its validity? For example, did you survey small businesses that met with you to determine what qualifications they would require the people performing these certifications to have? What were the results of this or other similar surveys?The Office of Advocacy meets with the small business trade and membership organizations and representatives on a regular basis to exchange information. In addition, we use contractors to perform detailed analyses. The June 2005 JFA report is an outgrowth of hundreds of hours working with the Office of Advocacy and the industry sectors directly affected by this rule. During 2003 and 2004, we organized several Environmental Roundtables where we hosted discussions between the EPA staff and small business representatives. We also met frequently with EPA staff to discuss SPCC issues.
The self-certification option was first presented by small businesses to EPA in a January 2004 letter to EPA by a coalition of 10 small business associations. The industries represented in that letter are: Agricultural Retailers Association, American Bakers Association, American Forest and Paper Association, American Trucking Association, Automotive Oil Change Association, Independent Lubricant Manufacturers Association, National Automobile Dealers Association, National Association of Fleet Administrators, National Cotton Council of America, and the Synthetic Organic Chemical Manufacturers Association.
We listened to small business, which lead to our June 2004 letter to EPA accompanied by the June 2004 JFA report.
Question 6:
During the hearing, you stated that, …”there is a widespread acknowledgement that there aren’t enough small facilities in the environmental compliance program right now, and there is some evidence that a self-certification program will the increase the amount of small facilities that start paying attention to these issues.”- On what statement, letters, reports, or other data are you basing your statement that there is “widespread acknowledgement” that small facilities are not in the “environmental compliance program”? Please provide copies of any relevant materials to the Committee.
- Can you define what you mean by ”environmental compliance?” Do you mean compliance with the SPCC rule, with environmental regulations in general, or with any other specific environmental rules - please explain?
- You state that there is “some evidence” that a self-certification program will increase the number of small facilities that start paying attention to these issues. I have two questions. First, please summarize the evidence, other that the single example you referred to in Massachusetts, that you are referring to and provide copies of any relevant data to the Committee. Second, your answer seemed to suggest that small facilities in general are out of compliance and in fact, ignoring environmental regulations.
- Based on your experience in the SBA Office of Advocacy, can you give the Committee an idea of the percentage of small businesses that you have found ignore the environmental regulations?
In my response, I was referring to the compliance rates achieved by small firms with respect to the SPCC program. EPA staff has informed us about their anecdotal compliance experience in the field that there is a high level of noncompliance with SPCC requirements among smaller facilities. A March 2005 USDA survey shows a high noncompliance rate among farms (report attached). In addition, the Pechan 2006 analysis estimates a noncompliance rate of 61% for farms (based on USDA) and a 30% estimate for nonfarms (based on half the observed farm rate of 61%).
With regard to other self-certification programs, we identified the Massachusetts example to benefit your Committee’s evaluation. While I did not research other examples, I expect your staff’s expertise on rules and programs that deal with underground storage tanks, hazardous waste generators, and storm water will provide you with evidence on how self-certification affects industry’s attention to their compliance responsibilities.
Based on my experience as a government official, I have not found that small businesses purposefully ignore environmental regulations.
Question 7:
Mr. Sullivan, the Small Business Administration want EPA to allow greater flexibility for integrity testing by expanding the scope of the consensus industry standard for small-built tanks. Under the National Technology Transfer Advancement Act, EPA would be required to justify any divergence from accepted industry standards. What data has the Small Business Administration provided EPA to support deviation from the consensus industry standards for integrity testing? Please provide a copy to the Committee.The Office of Advocacy recommendation is simply the replacement of a 5,000 gallon threshold for a 10,000 gallon threshold permitting visual inspection in lieu of an integrity test which is found in the Steel Tank Institute standard for aboveground tank inspections, SP001. The explicit purpose of the SPCC regulation, unlike the standard, is to prevent discharges into navigable waters, not discharges that are contained onsite. It was our technical judgment that it is highly unlikely that a tank, with a continuous release detection system and secondary containment can discharge oil, leading to oil escaping the containment area and reaching navigable waters. The oil spill data acquired by a 1995 EPA survey was used by our contractor to demonstrate only 2% of total spill volume is accounted for by small facilities with less than 10,000 gallons aggregate storage (see Pechan, 2006 analysis), which further supports our view that periodic visual inspection of tanks, that are inside secondary containment and have a continuous release detection system, is very likely to prevent a discharge from reaching navigable waters. The Office of Advocacy comments on the SPCC proposal that were sent today are enclosed along with the February 2006 Pechan report that contains supporting data.
ENDNOTE
1. Regulatory Analysis for the Proposed Revisions to the Oil Pollution Prevention Regulation (40 CFR Part 112) at 6 (November 2005)