Industrial Economics, Incorporated

Penalty Assessments

IEc has decades of experience assisting the U.S. Environmental Protection Agency (EPA), the Department of Justice, and state agencies in evaluating proposed penalties. Our consultants provide expert testimony and analysis on the economic benefit of noncompliance and defendants’ ability to afford required compliance expenditures and penalties. We have successfully supported hundreds of civil and criminal penalty cases involving entities ranging in size from multinational corporations to sole proprietorships, and from major metropolitan entities to small not-for-profits. Our analyses have supported some of the most significant penalties assessed against violators in their respective industries.

IEc also helped develop EPA’s Enforcement Economic Models, which are used to evaluate the financial aspects of enforcement actions. IEc continues to maintain these models and assist EPA staff and others in their application.

Specialty Areas

In environmental enforcement cases, economic benefit represents the amount of money a violator saved by not undertaking required compliance actions, and/or money gained by actively taking steps in violation of such requirements. Penalties generally seek to recover at least this amount.

IEc staff calculate economic benefit of noncompliance in a range of settings, including violations of the Clean Air Act, Clean Water Act, and other environmental statutes; violations by entities such as publicly-traded multinational companies, privately-held corporations and partnerships, sole proprietorships, and individuals; and benefits gained from avoided costs, unlawfully gained revenues, and asset appreciation. We are well-versed in discounted cash flow (DCF) modeling and other financial techniques used to estimate economic benefit.

Multiple statutes and agency policies direct government agencies and courts to consider violators’ or responsible parties’ ability to pay when determining penalty amounts or contributions for site remediation. IEc has more than 25 years of experience conducting these assessments. We have analyzed the ability to pay of hundreds of entities varying widely in size and organizational type, giving us expertise in diverse legal and tax attributes that impact ability to pay.

Several strategies allow IEc to deliver high-quality ability to pay analyses:

  • We adhere to relevant enforcement policies and guidance. Generally, this involves a two-phase approach, including a balance sheet analysis to evaluate available cash, other assets, and unused debt capacity, and an income and cash flow analysis projecting future cash flow.
  • Our analyses fully describe underlying uncertainties and assumptions. Where appropriate, we develop multiple scenarios and present a range of results to demonstrate the impact of alternative assumptions.
  • IEc identifies the unique circumstances of each case and conducts a thorough initial review of the available information at the outset of each case. We focus attention on key analytical and data availability issues to avoid unnecessary delays.

The BEN, ABEL,  INDIPAY, MUNIPAY, and PROJECT, financial models are an integral part of EPA’s enforcement activities. These models establish a consistent protocol for developing a penalty position, engaging in settlement negotiation, or preparing for hearing or trial on the penalty.

IEc was instrumental in developing the current versions of these models, and continues to maintain them under contract with the EPA Office of Civic Enforcement. In addition to providing enforcement training courses, IEc also staffs a toll-free helpline to assist government employees in the use of the models and related issues that arise in enforcement actions.

Additional Information

IEc developed and administers in-person and internet training programs to assist EPA regional offices and state and local government agencies in establishing penalties. The trainings focus on application of five EPA financial analysis models. The models examine the economic benefit that a violator may have obtained through noncompliance (BEN); the ability of a violator to pay a penalty or for clean-up expenditures (ABEL, MUNIPAY, and INDIPAY); and the present value of supplemental environmental projects (PROJECT). IEc has developed training materials and sample problems that instruct personnel in the proper application of the models, financial analysis techniques, and negotiating strategies.