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Model Report

Evaluating the Out-of-Pocket Costs for a Supplemental Environmental Project (SEP)

Last Revision Date: 11/18/2009 View as PDF
General Information Back to Top
Model Abbreviated Name:

PROJECT
Model Extended Name:

Evaluating the Out-of-Pocket Costs for a Supplemental Environmental Project (SEP)
Model Overview/Abstract:
Since its development in 1993, the PROJECT computer model has been used extensively by EPA staff to determine the net-present value of a supplemental environmental project (SEP). Under EPA’s SEP Policy, EPA may mitigate a portion of the civil penalty in consideration of a violator’s agreement to perform a SEP. EPA enforcement staff use PROJECT in order to determine what a proposed SEP will really cost the violator. For example, a $100,000 SEP to be completed three years after the penalty is paid costs the violator far less than $100,000. In such a case, the $100,000 is reduced because of the discounting from dollars three years from now to current-year dollars. The "real" cost of the SEP might be only $85,000. PROJECT helps EPA staff make that calculation. In addition, if the SEP results in cost savings for the entity (e.g., a pollution prevention SEP that saves $10,000 per year in materials) then that further reduces the SEP’s out-of-pocket costs. PROJECT can address these issues as well.
Keywords:
Model Technical Contact Information:
Agency Contact:
Jonathan D. Libber
U.S. EPA
Office of Enforcement and Compliance Assurance (OECA)
Office of Civil Enforcement
Special Litigation and Projects Division (SLPD)
U.S. EPA/OECA (Mail Code: 2248-A)
(202) 564-6102
libber.jonathan@epa.gov

Jonathan Libber of the U.S. EPA/OECA supervised its development and supervises its revision and upgrades. Industrial Economics, Inc. of Cambridge, MA has been responsible for all model development.

Model Homepage: http://www.epa.gov/Compliance/civil/econmodels/
Substantive Changes from Prior Version: The IRS recently issued a ruling which states that all SEP costs are not deductible. Therefore the new version of the PROJECT model does not adjust the SEP for tax issues. (As a result, the new version will not be able to determine when P2 projects will make economic sense for a company.) We are also about to perform our annual update of the model’s financial values.
Plans for further model development: An annual update of the financial values which should occur in about a year from now.

User Information Back to Top
Technical Requirements
Computer Hardware
Windows 95 or more recent version of Windows
Compatible Operating Systems
Windows 95 or more recent version of Windows
Other Software Required to Run the Model
Model has a GUI.
Download Information
PROJECT is available to be downloaded for the U.S. EPA, Office of Enforcement and Compliance Assurance (OECA), Office of Regulatory Enforcement (ORE), Special Litigation and Projects Division (SLPD).
Using the Model
Basic Model Inputs
The model requires the user to select what type of entity is being evaluated (e.g. C-Corporation, municipality, federal facility, etc.). Then the user must supply some key dates: the expected compliance date and the expected penalty payment date. Then the user must supply the SEP or P2 project’s cost figures. The rates in the model (inflation, the violator’s cost of money) are supplied by the model. Although the user can supply his or her own violator specific information for those rates if he or she so desires.
Basic Model Outputs
The model will calculate the out of pocket costs of SEP.
User Support
User's Guide Available?
Documentation can be downloaded.

The help system provides an overview of the model and provides a comprehensive explanation of the model’s inputs, related model issues, and how to understand the model’s outputs. The help system can be read in advance and/or accessed at any time the model is being used be pressing the F1 key. Once accessed, the help system will open up the topic most relevant to the part of the model the user is currently working on.

Availability of User Support
Federal, State and local enforcement agency personnel can contact the Helpline at 888 326-6778. Private parties can contact Jonathan Libber of the EPA at (202) 564-6102
User Qualifications
User needs only moderate level of technical education and/or modeling experience. While users can self teach themselves using the on-line help system. A 1.5-hour training course is recommended to ensure that inputs are correct and that output is understood, this course is only available for Federal, State or local government personnel.


Model Science Back to Top
Problem Identification
Many of the defendants in our enforcement actions wish to mitigate their penalty liability by performing a supplemental environmental project (SEP). Such SEP’s benefit the environment and usually address the pollution produced by the violation. The question is: what is the real out of pocket cost for such a project. While the nominal cost may be $100,000, the real out of pocket costs could less than half that amount depending upon the time needed to complete the project and whether there are any cost savings associated with the SEP. Since most of our enforcement professionals do not have the capability to make this evaluation, EPA developed a relatively simple tool that can help us evaluate these SEP’s.
Summary of Model Structure and Methods
The model first looks at the costs and savings associate with the SEP, then adjusts them for the time value of money to determine the entity’s real out of pocket cost of the SEP.
Model Evaluation
Contractor verified that calculations were similar to those an independent financial analyst might perform.

Key Limitations to Model Scope
The model does not evaluate the quality of the SEP. It only evaluates the entity’s out of pocket costs for a SEP. The litigation team must make that evaluation. They may only offer 70% of the PROJECT output.


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