Watch Your Wallet – Federal Civil Penalties Are Going Up!

Thanks to the U.S. Congress, civil penalties assessed by federal agencies are increasing as of August 1, 2016. The U.S. Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Pipeline and Hazardous Materials Safety Administration (PHMSA), the Bureau of Safety and Environmental Enforcement (BSEE), and the Bureau of Land Management (BLM) have all announced penalty increases that could impact the upstream, midstream and downstream oil and gas sectors.

Section 701 of the “Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015” (the Act) amended the “Federal Civil Penalties Inflation Adjustment Act of 1990” to require that federal agencies adjust their civil penalties with an initial “catch up” adjustment through an interim final rulemaking by July 1, 2016, with the penalty levels to take effect no later than August 1, 2016.

The Act also requires federal agencies to make subsequent annual adjustments for inflation. Starting in January 2017, federal agencies are required to publish in the Federal Register annual inflation adjustments for civil penalties and must do so no later than January 15 of each year.

For some agencies, such as OSHA and BLM, that have not adjusted penalties for inflation in many years, the “catch up” adjustment can be significant. For example, BLM has doubled the size of civil penalties for violations of its onshore oil and gas regulations. OSHA’s maximum penalties, which were last adjusted in 1990, will increase by 78%. Other agencies, such as BSEE and EPA, have smaller increases since their penalties were adjusted for inflation more recently.

The effective date of the penalty increases varies based on when the interim final rule was published in the Federal Register. For BLM and BSEE, the interim final rule will take effect on July 28, 2016. The interim final rule for EPA, OSHA and PHMSA becomes effective on August 1, 2016.

Moreover, not all agencies agree on the applicability of the adjustment to violations that occurred prior to the effective date of the interim final rule. For example, BSEE stated in the preamble to its interim final rule that the new maximum civil penalty amount will apply to civil penalties assessed after the date the increase takes effect, even when the associated violations predate such increase.

EPA will apply the new maximum civil penalties to all statutory civil penalties assessed on or after August 1, 2016, for violations that occurred after November 2, 2015 (when the Act was enacted). EPA’s existing civil penalty levels will continue to apply to: (i) violations that occurred on or before November 2, 2015, and (ii) violations that occurred after November 2, 2015, where the penalty assessment was made prior to August 1, 2016.

Similar to EPA, any citations issued by OSHA after August 1, 2016 will be subject to the new maximum civil penalties if the related violations occurred after November 2, 2015. In contrast, PHMSA has stated that its adjusted civil penalties will only apply to violations occurring on or after August 1, 2016, the effective date of the interim final rule. BLM’s interim final rule is silent on this point.