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GEC Newsletter—Spring 2006


In this Issue...

 

Brownfields Expo 2006 Coming to Boston

The Brownfields 2006 Expo comes to Boston in November. This exposition is a great way to learn about projects, development trends and regulatory trends, as well as the latest in financial incentives. It is a great chance to network with local, national and international lenders, insurers, developers, regulators and otherwise knowledgeable and influential people in the Brownfields industry.

GEC is involved in some of the outreach and marketing of this event and will have a better sense of how the Expo is shaping up prior to the event. If you are interested in learning more about the event check out www.brownfields2006.org or call Goldman Environmental Consultants and we can give you our spin on this.

We look forward to seeing you at the Expo.


USEPA Amendments to the Reformulated Gasoline Regulations - Another Petroleum Marker?

Years ago, Clean Air Act amendments required that reformulated gasoline (RFG) contain a minimum quantity of oxygen be added to gasoline in an effort to reduce emissions. The oxygenate commonly added to gasoline was methyl tert butyl ether (MTBE). Since that time, MTBE has been found to be a carcinogen and a troublesome and persistent groundwater contaminant when leaked from underground storage tanks.

In February 2006, the US Environmental Protection Agency (USEPA) announced amendments to RFG regulations and removing the oxygen content requirement. The final rule will be effective May 5, 2006 or 60 days following publication in the Federal Register, whichever is later. These amendments also require an increase in the use of renewable fuels. These regulations however do not ban the use of the additive MTBE in gasoline.

In anticipation of these amendments, many states banned the use of MTBE in gasoline through their own legislature, recognizing the harmful effects of MTBE releases. To date, approximately 25 states signed legislation banning MTBE in gasoline, or have scheduled phase out dates for the MTBE. Massachusetts is not one of those states.

In order to provide gasoline to those states with self-imposed bans, refiners and distributors of gasoline began blending gasoline with ethanol rather than MTBE for sale within these states. Ethanol is an additive derived from corn or other grains and reportedly will help to burn gasoline cleaner.

In addition to the benefit alone of removing MTBE from gasoline, environmental consultants may be able to use this change as a “fingerprinting” technique for determining when a release of gasoline occurred depending on how wide-spread the MTBE phase-out becomes.

In 1986, the USEPA cut the amount of lead used in gasoline by 90% (1.10 grams/gallon to 0.10 grams/gallon). MTBE was phased-in as an additive at this time and has been used to determine roughly whether releases occurred pre- or post-1986. Similarly, in states where MTBE has been replaced with ethanol, environmental consultants may be able to determine a more narrow time frame of when a release occurred from a UST by determining the oxygenate within the gasoline. If MTBE is detected at the site, the consultant will be able to state that the release likely occurred between 1990 and the time in which MTBE was banned in the state. If neither lead nor MTBE is detected, the consultant may be able to state with reasonable certainty that the release occurred post-MTBE ban. This will prove useful in situations where liability for the release must be determined and will aid in determining under which party’s ownership the release to the environment occurred.


Lenders Dig Deeper for Compliance

In recent months, GEC noted a trend in which lenders are requiring borrowers to produce more and more environmental assurances, especially in the area of environmental compliance, prior to approving business loan requests. The scope of due diligence has expanded.

In the past, lenders required only ASTM site assessments during the due diligence process to uncover Recognized Environmental Conditions. These practices typically focused on a site’s past history, with significant emphasis on past releases of oil and hazardous materials. But these assessments did little to assure lenders that current business operators were operating in compliance with applicable environmental regulations for their particular industry. Were all the appropriate permits in place?

The absence of required environmental permits and environmental management plans has begun to interrupt the primary lending and refinancing approval process, as lenders have begun to require verification of environmental compliance and are requesting environmental management and contingency plans for their review prior to authorizing business loans.

Companies operating without these required permits (e.g. air quality permit, hazardous waste storage permit), environmental management plans, such as a Spill Prevention Control and Countermeasures Plan, also called an SPCC Plan, or who failed to submit required regulatory reports, may have slipped past previous due diligence scrutiny, leaving lenders with additional risk in their portfolios.

For example, companies with aboveground oil storage capacity greater than 1,320 gallons are typically required to develop and implement an SPCC Plan, under the Clean Water Act. If a company has more than 10,000 pounds of a hazardous material, such as fuel oil, then an annual EPCRA Tier II report is required, under EPA regulations. GEC was recently asked by a facility operator to prepare such plans as a condition of receiving a loan and as required by a lender.

As lenders dig deeper for proof of current environmental compliance, borrowers, in some cases, are scrambling to get their company’s records and plans in order to satisfy lender prerequisites. Companies who have not developed these emergency plans, filed these reports, or obtained required operating permits previously risked the consequences associated with non-compliance, but are now also finding lenders unwilling to approve business loans with this elevated level of risk.

Lenders are simply managing their portfolio’s financial risk by asking more probing questions into a company’s environmental compliance before they lend. If a borrower’s operation is in compliance when the note is signed, lenders will have effectively lowered their ongoing risk and future liability potential, which after all, is one of the basic underlying principles in the lending industry.


Regulatory Reminders:

[March 2006]