Due Diligence & Environmental Compliance Issues for Tribal Energy

Due Diligence & Environmental Compliance Issues for Tribal Energy Projects:

Hazardous WasteLaw Seminars InternationalSeattle, WAOctober 23, 2007

Connie Sue Manos Martin

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

• 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-Acquisition/Development/Financing

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.


– 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


– 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


– 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)

• 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

Phase II Environmental Assessment

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.


• 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

• 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


• 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

• 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


• 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 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 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 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 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

• 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


• 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


• 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 on-reservation 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

Due Diligence & Environmental Compliance Issues for Tribal Energy

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