Houston Area Industries Escape Fines When Texas Fails to Follow Its Policies

When refineries and chemical plants break air pollution laws, they can rely on getting a light penalty from the Texas Commission on Environmental Quality (TCEQ). We analyzed 26 enforcement cases handled by the TCEQ during the past five years, and found that the TCEQ assessed just 14% of the fines it could have imposed in these cases.

The TCEQ was consistently lenient in the cases with the largest potential fines. In cases where the TCEQ could have assessed fines exceeding $40,000, the TCEQ never collected more than 45% of the potential fine.

The vast majority of the TCEQ’s lenient penalties can be attributed to three causes:

• Lax prosecution of leak monitoring violations.
  Although leaking equipment is among the biggest causes of air pollution in our region, state enforcement officials were particularly easy on companies that failed to properly monitor equipment for leaks. When state investigators found that companies didn’t have a functioning program to watch for leaks, state enforcement officials reclassified the violations as “recordkeeping” violations. As a result, the state collected only $106,500 in fines for these types of violations when it could have collected about $1.7 million.
• Breaches of penalty calculation policy.
  When determining penalties, the state routinely took liberties with its own written policies for counting the number of events in a violation. A typical abuse of the state’s policy involved counting an ongoing violation as one event, regardless of whether it had been occurring for one month or for five years. By using this technique, state enforcement officials let more than $800,000 in penalties slip through their fingers and created the impression that there is no greater penalty to be incurred for long-term violations of air pollution laws.
• Dropped enforcement cases.
  The TCEQ dropped some cases without adequate documentation, or based on policies that are neither written down nor uniformly applied. If the TCEQ had not dropped these cases, the state could have collected more than $160,000. When this happens, the offending companies don’t just escape current fines. If they commit similar violations in the future, they also avoid the higher penalties that usually apply to repeat offenders.

We also found that the TCEQ is taking an inordinately long time to settle some cases. Most of the 26 cases we reviewed took more than a year and a half from the date of the initial investigation to the final agreed order, and seven took more than two years. When this type of delay occurs, the offending company often ends up with a very large break on its fine.

We are calling for Texas environmental officials to follow their own published procedures for seeing penalties. We are also asking the U.S. Environmental Protection Agency (EPA) to review recently-settled cases and take independent enforcement action in situations where it agrees the state was too lenient. In addition, we are asking the Inspector General of the EPA to investigate our allegation that Texas is failing to carry out enforcement in a timely and adequate manner.

How We Conducted This Study

The state’s process for investigating and enforcing air pollution regulations is driven by three institutional policy decisions:

1. The state decides to initiate an investigation. Such a decision could be made based on a citizen complaint, an internal strategic plan, or in response to a mandate from the EPA.
2. The state decides to initiate enforcement. When an investigator identifies a violation, the state uses Enforcement Initiation Criteria to determine if the violation should result in a penalty.
3. The state determines the appropriate fine (and other remedies).

Our study is exclusively limited to the final step; we have not determined whether the state is investigating companies adequately or initiating enforcement adequately.

We reviewed 26 enforcement cases against chemical plants, refineries and other petrochemical industry facilities in the Houston region, as listed in the table below. These cases involved 13 companies and encompassed 147 violations. The earliest investigation occurred in October 1998, and the most recent investigation was in October 2004. Most of the cases in our study were resolved between mid-2003 and mid-2005.

We selected our cases by examining both electronic and paper files maintained by the TCEQ. First, we reviewed TCEQ enforcement referral documents that we had previously obtained for other research projects. Then we obtained a database of enforcement referrals from the TCEQ and selected cases from that list to review. We tried to select cases representing a variety of types and sizes of companies, and a wide range of actual fines. Because of the labor intensive nature of the file search, we attempted to include every recent case for any company that we included in the study. While most of the raw data for the study came from the TCEQ’s paper files, some data were obtained from the TCEQ database or from notices in the Texas Register.

However, we did observe that the TCEQ database of enforcement referrals appears to be incomplete. For example, in one case the enforcement referral from our files did not appear in the official TCEQ database, indicating that it had never been entered or had been erased.

Generally we attempted to obtain three types of documents for each case:

• Investigation reports, including the initial list of violations cited by the regional field staff and the initial enforcement referral to headquarters enforcement staff;
• Enforcement deliberations, including communications with the offender and proposed settlement documentation; and
• Final enforcement documents, including the final agreed order and the penalty calculation worksheet used to determine the administrative penalty or fine.

Typically the documentation was woefully incomplete; we were able to fully document the state’s enforcement process in only six of 26 cases.

Several cases, in fact, were dropped from our study because we could not locate sufficient documentation. In the rest of the cases, we were able to establish with reasonable certainty (a) the initial violations cited by the TCEQ and (b) the final penalty amount and the basis on which that penalty was calculated.

To calculate the potential fine for each case review, we followed the TCEQ penalty policy in a strict manner, assessing the documentary evidence from the case files. We classified each violation into one of several issue areas, and attributed portions of each fine to different steps in the TCEQ penalty calculation process. We then considered the many potential factors that may affect the size of a fine. At the end of this process, we were able to identify the three main areas where the TCEQ has been especially lenient over the past several years.

Although it may be reasonable at times for the TCEQ to compromise with the offending company in order to obtain a settlement, TCEQ fines were frequently lower than policy indicated. We believe the evidence supports the conclusion that the TCEQ routinely sets penalties for refineries and chemical plants at a much lower level than it would if it closely followed its own policy.

TCEQ Fails to Prosecute Flagrant Leak Monitoring Violations

In our study, the TCEQ could have fined chemical plants and refineries in excess of $1.8 million for failing to properly operate programs to detect and repair leaks at their facilities. Instead, the state assessed only $106,500; in some cases, the offenders paid less than 2% of the potential fine.

Leaks are a major source of unreported emissions, and faulty leak detection programs are a key part of that problem. According to self-reported data submitted by industry and analyzed by the state, about 97 tons of organic chemical air pollution are released from leaks each day. Furthermore, the state estimates that an additional 168 tons per day of such air pollution goes unreported by industry. The hundreds of tons of pollution are released from literally thousands and thousands of tiny leaks at the many chemical plants, refineries and other facilities in the region.

Thus, while each leak contributes a relatively small amount of air pollution to the region's skies, finding and repairing the leaks quickly is necessary if our air is to become safe to breathe. The day-to-day effectiveness of leak detection and repair programs depends on the careful attention to detail by plant management; in this regard, the lax attitude of TCEQ enforcement officials can encourage a similarly lax attitude by plant managers.

For example, Texas Petrochemicals routinely reports that less than 1% of its plant components are leaking at any time. Yet in four investigations, city and state investigators auditing the plant's actual performance found much higher leak rates: 10%, 3%, 5% and 2%. This demonstrates that the actual pollution being leaked into the air from Texas Petrochemicals is many times higher than its self-reported data indicates. Unfortunately, this is not a unique situation; the TCEQ has found serious shortcomings in leak detection programs at a number of chemical plants.

Among the cases we reviewed, state investigators caught six plants with inadequate programs for leak monitoring. (Note: The fine amounts below refer only to fines for leak monitoring violations. Cases ofen involve several types of violations.)

• Dow Chemical LaPorte paid a fine of $3,335 for having "failed to maintain fugitive emission records," though the company could have been assessed a fine of $690,000. The investigator concluded, "Dow failed to maintain a fugitive emission monitoring program for the two-year period of 2001 and 2002. . . . there are examples of questionable data, falsified records and/or inconsistent reporting for every quarter of 2001 and 2002." While Dow agreed that its contractor was not performing the required duties, the case file does not give any reason for such a dramatic reduction in the severity of the regulatory violation. (Case Review #25)
• Rohm & Haas Deer Park was fined about $66,000 for failing to monitor a variety of equipment over a four-year period, when it could have been assessed penalties of $611,000. During the enforcement process, for reasons that are not documented, the number of events was adjusted downward to "make the penalty commensurate with the situation." (Case Review #26)
• Dow Hampshire Deer Park was fined about $12,500 when the TCEQ discovered that its leak detection contractor was fabricating data. Although this represents the full fine that could have been collected under state policy, the investigation hinted at a much larger and more systematic violation. However, the investigator was not assigned to pursue the case further. (Case Review #23)
• A field investigator cited Chevron Phillips Pasadena for failing to monitor a number of valves and other components over the course of several years. However, the enforcement office agreed to "assess the monitoring violations as one recordkeeping violation, rather than as emissions events." Had the violations been assessed as emissions events, the penalty could have been $153,900. Although the TCEQ had previously proposed a fine of $75,150, the final fine was just $570. No reason for the penalty reduction is given other than to cite a meeting of TCEQ Enforcement Division staff with Chevron Phillips' representative and attorney. (Case Review #16).
• Solutia Chocolate Bayou admitted operating a unit for six months without a leak detection program. The TCEQ collected about $40,000 from Solutia for this infraction, about one-third of what could have been collected under state policy. Much of this shortfall occurred because the TCEQ, without documentation, dropped one of the monitoring violations. (Case Review #21)
• Texas Petrochemicals Houston could have beenfined over $63,000 for inadequate leak monitoring, but the case was dismissed during its corporate bankruptcy proceedings (discussed below). Due to case dismissals and otherwise inadequate enforcement, the official compliance history for Texas Petrochemicals does not reflect the severity of its actual history of noncompliance. (Case Review #17)

In these six cases, as well as two other smaller cases involving the same companies, the state's response not only appears inadequate, it also seems to deviate from its official policy.

TCEQ Breaches Its Own Policy and Lets Polluters Escape Major Penalties

In 10 of the 26 enforcement cases we reviewed, the state breached its own policies for calculating its “violation base penalty.” The state calculates this penalty by multiplying the base penalty for an offense by the number of events. The base penalty of an offense may range from $100 to $10,000, but refineries and chemical plants almost always receive a base penalty of either $1,000 or $2,500 per offense. More important, however, is how the number of events is calculated; the state can make large reductions in fines by manipulating this number.

In some instances, the number of events is clear cut, as in the case of “discrete” events, which are distinct occurrences and are not continuous. The state’s policy regarding these events is clear, and we found few instances when it was not followed. In those few instances, failure to follow the policy appeared to be simple error and had a modest impact on the fine.

The state’s policy for continuous violations works differently: in selecting a number to represent the “number of events,” the TCEQ is supposed to consider both the duration of the event and its severity. By design, state enforcement officials are left with some flexibility to interpret the policy more or less strictly depending on the type and severity of the violation. In practice, though, enforcement division staff frequently makes decisions that bear little relation to the actual policy and result in penalties that are heavily discounted.

In ten of the cases we reviewed, the TCEQ chose the number of events without clearly following its policies (see box below). For example, TCEQ staff often assessed continuous violations as beginning with the date of the investigation, even when the investigation documented noncompliance as dating from the issuance of a permit or the effective date of a regulation. Often, TCEQ staff wrote that the number of events was chosen to make the "penalty commensurate with the situation" in the opinion of TCEQ Enforcement Division staff. Since the difference between one event and ten events is typically as much as $22,500, this can result in a large reduction in the violation base penalty.

In every case where the number of events was set in a manner inconsistent with established state policy, the staff recommendation resulted in a substantial reduction of fines (never an increase). Ten of the cases we examined involved incorrect counting of events, and in those cases the state assessed approximately $394,000. If the state had followed its own policies, it could have collected at least $800,000 in additional penalties.

Excerpt from the TCEQ Policy on Continuous Violations

For continuing violations, the number of events will be linked to the level of impact of the violation by considering the violation as if it recurred with the frequency shown in the chart below.*

The duration of events concerning continuous violations, for the purposes of preparing an enforcement action, may begin with the initial date of noncompliance with a requirement, rule, or permit and extend up to the time that the enforcement documents are prepared.

In practice, continuous violations will be assessed beginning with the documented date of noncompliance (i.e., sample results, record review) or the date that the respondent "should have known," whichever is appropriate, as the beginning point. The respondent is always considered knowledgeable of permit conditions.

_{*This chart can be viewed in the original TCEQ document, "Penalty Policy of the Texas Commission on Environmental Quality," Enforcement Division RG-253, Sept. 2002.}

For example, the penalty for two four-year violations by Rohm and Haas Deer Park was calculated on the basis of "one single event." For another violation, the enforcement division staff noted that the company had been out of compliance for 27 months when estimating economic benefit, but based the penalty on "three monthly events." These adjustments resulted in as much as $190,000 in reduced fines. (Case Review #24)

The state counted three long-term self-reporting violations by Total Petrochemicals LaPorte as single events, and it also lumped together several discrete failures to repair leaks as quarterly violations. On one of the self-reporting violations, the state initially recommended "Thirteen semiannual events . . . for the thirteen semiannual reports that were not submitted." However, the state changed its assessment to "one single event" after the company complained. These adjustments resulted in as much as $120,000 in reduced fines. (Case Review #20)

One of the most dramatic relaxations of the state's policy was for Solutia Chocolate Bayou. The company failed to "have an adequate monitoring plan that will reliably detect a leak from the heat exchangers to the water of [three] cooling towers" and to "have an adequate monitoring plan for [two] absorbers." The state's penalty policy allows up to daily violations for each of the three towers and two absorbers, and the plant was out of compliance for at least three years. Yet the TCEQ assessed just "one single event" for each violation. A conservative interpretation of state policy could have increased Solutia's fine by $145,000. Under the strictest policy interpretation, penalties could have been calculated on a daily basis, and the fine would have been in the millions of dollars. (Case Review #22)

TCEQ Drops Enforcement Cases without Adequate Reasons

Four of the 26 enforcement cases we reviewed were dropped without adequate documentation, or based on policies that are not written down and are not uniformly applied. One enforcement case was misplaced; another was dismissed due to a company's bankruptcy. When cases are dropped without adequate reason, these companies not only avoid the current fines; they also dodge the stiffer fines and penalties often associated with future violations.

Equistar LaPorte could have been fined $25,000 for a major upset on June 27, 2003 when it released over 1,300 pounds of pollution in one minute. According to the investigation, the release was "caused by poor maintenance and operation practices." According to a TCEQ database, the case was referred for enforcement and then the case was closed. The case file contains no documented reason for closing the case. (Case Review #12)

Rohm & Haas Deer Park could have been fined $13,000 for failing to monitor cooling towers for pollution leaks and for failing to repair leaking equipment in a timely manner. Although the company was sent a notice of enforcement, the case does not appear in any TCEQ database, nor is there any documented reason for dropping the enforcement case. (Case Review #7)

Texas Petrochemicals Houston could have been fined more than $125,000 for violations in two separate cases. In the first case, which occurred in 2002, Texas Petrochemicals was sent a notice of enforcement for several upsets that were "part of a recurring pattern indicative of inadequate design, operation or maintenance." This case was referred by the City of Houston, and its staff discussed the status of the case with the TCEQ. However, the case does not appear in any TCEQ database, nor is there any documented reason for dropping the enforcement case. (Case Review #14)

Then in 2004, the TCEQ discharged another case against Texas Petrochemicals without adequate reason. According to the TCEQ memo:

. . . due to Texas Petrochemicals' legal status during its bankruptcy proceedings, we are unable to pursueenforcement action for these violations. The inspections occurred after Texas Petrochemicals had filed for bankruptcy but before its reorganization date, which is May 6, 2004. Texas Petrochemicals is discharged from penalties or obligations for violations documented during this time period. (Case Review #17)

That explanation is inconsistent with its actions in other bankruptcy cases, and the TCEQ should not have discharged these violations.

Although bankruptcy is not addressed in any general policy statement available from the TCEQ, two memos in other enforcement cases make it clear that bankruptcy is not a legal shield from enforcement action. In a letter to Solutia Chocolate Bayou, a TCEQ Enforcement Division coordinator wrote:

Please be aware that the Automatic Stay imposed by the Federal Bankruptcy Code does not apply to the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power, by virtue of the exception set out at 11 U.S.C. § 362(b)(4). Accordingly, TCEQ, as a governmental unit . . . is expressly excepted from the automatic stay in pursing enforcement of the State's Environmental Protection Laws including but not limited to liquidating its damages for such violations. (Source: Letter from Tel Croston to Solutia, April 23, 2004.)

Four years prior to the Solutia case, Allwaste / Fitzgerald Railcar Services Angleton was informed that the TCEQ planned to pursue litigation against the company because "we have been unable to reach agreement due to your facility filling (sic) for bankruptcy." These two cases, one of which occurred almost at the same time as the Texas Petrochemicals case, indicate that despite bankruptcy status, the TCEQ has pursued enforcement against companies that violate air pollution regulations. (Case Review #15)

However, not only did the TCEQ discharge the Texas Petrochemicals violations referred to in the memo, at the same time it also discharged violations that occurred prior to the company's bankruptcy filing of July 20, 2003. According to TCEQ staff, violations that were found during investigations on November 19, 2002 and on May 12, 2003, were dismissed along with the later violations. This further demonstrates that the Texas Petrochemicals case was handled in a manner inconsistent with TCEQ policy.

Even if the TCEQ believes it cannot recover monetary damages from a violator, there are other good reasons to follow through with an enforcement case. In addition to a fine, an enforcement order from the TCEQ usually includes provisions requiring corrective action and ordering the company to cease the violations in the future. This means that if the violations occur again, the company is subject to substantially enhanced fines and that additional pollution control requirements may be imposed.

When enforcement cases are dropped, on the other hand, the offending companies escape fines and any enforceable obligations to correct the practices related to these violations. In addition, future violations of the same nature may not be penalized at higher levels if the TCEQ has dropped the previous violations.

GHASP's Recommendations

As a result of this study, we concluded that the TCEQ is inadequately enforcing air pollution regulations by assessing fines that are dramatically lower than warranted and by dismissing enforcement cases without adequate justification. Furthermore, we believe that the TCEQ is failing to carry out enforcement in a timely manner.

• TCEQ should follow its enforcement policies. We recommend that the TCEQ adhere to its current written policies regarding the calculation of fines instead of assessing fines that are clearly lower than intended. Over the past several years, fines assessed for violations of air pollution regulations in the Houston region appear to reflect the personal preferences of TCEQ Enforcement Division management rather than clear implementation of the commission's official policies. Where necessary, the TCEQ should amend its policies to clarify the minimum penalties for certain classes of violations. We believe this stricter application of current policies would result in more appropriate fines.
• TCEQ should fully document case dismissals. We also recommend that the TCEQ adopt a policy regarding the dismissal of cases that have been referred for enforcement. Presently, there does not seem to be a procedure or requirement that the TCEQ document the reason for the dismissal of a case. In addition, if the TCEQ deviates from its usual dismissal policy, as it did in the case of the Texas Petrochemicals bankruptcy, the TCEQ should clearly document the reasons for such actions.
• EPA should investigate TCEQ’s failure to implement timely and adequate enforcement. We are asking the U.S. Environmental Protection Agency (EPA) to address the state’s failure to meet federal expectations for timely and adequate enforcement. Much of the authority for enforcing air pollution regulations is delegated to Texas by the EPA.

We suggest that the Inspector General of the EPA further investigate our allegation that Texas is failing to carry out enforcement in a timely and adequate manner. The EPA expects that enforcement action will be completed for high priority violations within 9 to 11 months of an investigation. Yet most of the cases in our study exceeded that guideline, and seven cases took more than two years.

The EPA also expects state enforcement actions to assess a penalty sufficient to achieve effective deterrence, both for the offending company and for all regulated companies. This penalty should reflect both the economic benefit of noncompliance and an amount reflecting the seriousness of the violation. We do not believe the TCEQ is meeting this standard, because it assesses fines that are dramaticallylower than warranted, and because it dismisses enforcement cases without adequate justification.

We also suggest that the EPA regional enforcement office review recently-settled cases and take independent enforcement action in situations where it agrees that the state was too lenient. If the EPA acts, this could result in additional fines being collected from serious offenders of air pollution regulations.

TCEQ Method for Determining Economic Benefit Needs Further Review

One issue that has been raised with regard to the fines assessed by the TCEQ is economic benefit. In theory, the size of the fine being levied should be greater than the economic benefit that the company gains by not implementing practices that would prevent pollution.

In the 26 cases we reviewed, we found that the fine assessed by the TCEQ was usually larger than the estimated economic benefit gained as a result of the violation.

Because our study is targeted, our conclusion should not be generalized to other media, to small companies, or to other parts of the state where air pollution issues are ofen quite different. Furthermore, we have questions about the method by which the TCEQ calculates the economic benefit. Although we did not systematically review the calculations, it appears that TCEQ economic benefit estimates may be too low - particularly in cases where companies have failed to monitor for leaks or have allowed major upsets to occur.