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Due Diligence – Part 3 – what does a Phase I do, anyway?

3 Sep 2013

“Trust me, it’s a clean phase I”

When a client tells me “we have a clean Phase I,” that’s often when I start asking questions.  A Phase I  Environmental Site Assessment (ESA) is supposed to give a buyer or lender a reasonable picture of potential “residual” environmental conditions of a property.  First of all, a Phase I ESA isn’t an in-depth scientific study. Instead it calls for broad-based research known as “all appropriate inquiry” into past and current usages of the property.

A “clean” Phase I ESA does not free you from worrying about compliance with a myriad of environmental laws

As noted in Part 2, the investigation is to be conducted by a qualified environmental professional who will:

  • Visually inspect the property and buildings, along with a cursory look at adjacent properties.
  • Interview current and/or former property owners and tenants.
  • Review historical sources such as directories, maps or public documents.
  • Review official records at the local, regional, state, federal or tribal level.
  • Specifically consider any gaps in information available about the property.

The goal of the Phase I ESA is to confirm the existence of a “recognized environmental condition” or REC which means that there may or may not be an environmental problem on, in or under the site.  A “clean” phase I means that no RECs were identified and, often, the environmental due diligence stops there. While these reports may satisfy CERCLA’s requirement that one conduct “all appropriate inquiry,” they don’t necessarily completely shield property owners from liability.

A Phase I ESA does not look at:

  • Lead in drinking water;
  • Lead based paint;
  • Asbestos;
  • Radon;
  • Mold;
  • Wetlands;
  • Archaelogical concerns;
  • General site conditions and the need for repairs;
  • Developability; and
  • Operational compliance for a going concern.

These issues can be included in a Phase I ESA but will not necessarily be unless you specifically ask.

A “clean” Phase I ESA does not mean that you are free not to worry about compliance with a myriad of environmental laws.  For example, there might be obligations to comply with the Resource Conservation Recovery Act (RCRA) which deals with hazardous waste generation, treatment, storage and disposal.

A “not-clean” Phase I ESA does not mean that you have a contaminated site – it is merely the “jumping off” point for a further Phase II ESA (watch for part 4 of this series) that will hopefully determine if there is or is not contamination on, in or under the property and whether it will be a problem for your planned use of it.

Ultimately, when the Phase I ESA comes back, you need to be sure that it is read and understood so that you can take the appropriate action to protect yourself, your business and your tenants and/or employees.

Payback is a b*tch

12 Jun 2013

As regular MichiganGreenLaw readers know, about 18 months ago, we added insulation to our home.  While three years of data (one before, one of and one after) is not a big enough database, I spent time evaluating at the last three years of our DTE and Consumers Power invoices.  What I learned is that our sense that our house was warmer in the winter and stayed cooler in the summer appears to be accurate.  We saw a reduction in our usage and, while rates vary over time, it does appear that we are saving money.  Now we find ourselves asking how long before this improvement pays for itself in savings?

This is the question that many businesses ask before making alternative energy investments – “How long before I recoup my investment?”  Often, in the post-2007 era, businesses will insist on less  than three years.  Savvy investors know that there are many different methods used to analyze capital projects including net present value (NPV), internal rate of return (IRR), cash flow, profitability index (PI), and payback period.

The payback period method does not take into account the time value of money, the likely increase in costs of energy ($4.30 a gallon of gas, anyone?) and this method doesn’t consider cash inflows after the initial investment is recovered (except the recognition that it’s “all gravy” conclusion).  The payback method’s biggest advantage is it is easy to apply and understand.  However, as more and more authors are writing, this method is misleading and often unfair – as this author notes, no one asks for the payback on home amenities. In short, when making these investments, one must treat them as investments and, taking into account incentives, cash flow, cost of money, projected increases in the cost of energy, (not to mention the ability to market the greener approach or the societal value of a smaller carbon footprint)  consider whether investing in greener equipment or processes is the best use for the company’s funds when compared to other investment opportunities. In many cases it may be the best investment, despite a longer than desired payback period.

“Seinfeld bill” held unconstitutional

7 Jan 2013

In the flurry of year end errands, I failed to report on this.  Many of us remember the episode of Seinfeld, where Kramer and Newman schemed to take New York cans and bottles to Michigan to effect “bottle deposit arbitrage” by getting deposit reimbursements for bottles and cans on which no deposit had been paid.  The scheme didn’t work, but a 1998 study which reported up to $30 Million in such fraud annually and an actual fraud ring inspired the Michigan legislators to amend Michigan’s bottle bill to try to prevent such shenanigans.

In 2008, the bottle bill law was amended, among other things,  to require bottlers to put a “unique mark” on beverage containers sold in Michigan to allow reverse vending machines to determine if a container was from Michigan. Also, such mark could be used only in Michigan “and 1 or more other states that have laws substantially similar to this act.”  “Reverse vending machines” are the automated self-service bottle return devices you see at many supermarkets these days.

This law was challenged as a Michigan intrusion into interstate commerce under the so-called “dormant commerce clause” of the US Constitution.  The Constitution grants the US Congress power to regulate commerce among the States.  The “dormant” part of the dialogue  deals with what happens when Congress has been silent on the topic.  There is a whole body of case law that interestingly has dealt with State and local regulation of solid waste and other activities when Congress hasn’t acted.

The Sixth Circuit Court of Appeals held that the requirement of the unique mark was not discriminatory because it applied to both Michigan and non-Michigan bottlers. But the Court also held that the requirement that the mark could not be used on bottles in other states except with similar bottle laws regulated commerce outside of Michigan and so violated the doctrine against extraterritorial application of laws, rendering it invalid.

One of the Judges, while agreeing, wondered whether the extraterritoriality doctrine should continue to be followed, noting the indirect (and therefore valid) state specific requirements of California (auto emissions), Ohio (milk labels), Vermont (light bulb labels warning of mercury dangers) and so on.

Disasters sometime lead to good laws

14 Dec 2012

Many lawyers know the expression bad facts make bad law – usually referring to common law pronounced by judges.

I was thinking about how our environmental laws have resulted from some truly bad occurrences.

EPCRA was a reaction to the December, 1984 Bhopal disaster. While people are vaguely aware of Love Canal and certainly, here in Michigan we are aware of the burning of the Cuyahoga River in Cleveland, people are less familiar with Bhopal.

This might be somewhat natural because it happened in India.  Early in the morning of December 3, 1984, methyl isocyanate (MIC) gas leaked from the Union Carbide India Limited plant in Bhopal, India.  Reportedly, more than 3,000 people died and thousands of others were injured. This led to investigations and litigation and here in the United States, Congress passed EPCRA to reduce the likelihood of such a disaster here.

This raises the question of what, if anything, will happen in Congress in light of the Deepwater Horizon oil spill in the Gulf of Mexico.

 

 

I’ve heard of “sun tea” but sun beer?

30 Oct 2012

Corner Brewery in Ypsilanti, Michigan, recently installed a unique solar panel system to provide both electricity and heat energy to be used in the beer making process.  The 140 solar panels installed for the project will reportedly produce a combined 16.1 kW of electricity, and 89.6 kW of equivalent thermal energy.

The panels, which do double duty, are manufactured by Detroit-based Power Panel.  Power Panel systems are designed to circulate water though a non-pressurized, drain-back system which collects thermal energy from the panel while actively cooling the photovoltaic (PV) cells – increasing electrical output.  As a result, Power Panel claims its systems can collect four times the energy compared to traditional PV panels.  Thermal energy is stored in Power Panel’s patented modular thermal storage tank  These systems are designed to be more durable than the typical glass-tube heat collection system.  The concept of capturing both power and heat is certainly a positive concept and one which may put this sort of solar back into competition with wind, which has lately taken the lead in renewable energy as the method of choice.

Detroit – ground zero for discussion of cumulative effects?

24 Sep 2012

Recently, the Detroit chapter of the Sierra Club wrote to ask the EPA to require evaluations under the National Environmental Policy Act (NEPA) address cumulative effects of NEPA decisions for the State of Michigan.  Apparently, the request seeks to have EPA include both environmental and socioeconomic effect in such evaluations.  If EPA were to take up this gauntlet , it could be a paradigm shift that would reverberate across the country.

NEPA was one of the first laws written establishing a national framework for protecting the environment. NEPA’s basic goal is that all branches of the federal government consider the environment before undertaking any major federal action (people remember the spotted owl and snail darter but not why – they were species that were thought to be at risk from NEPA regulated projects).  NEPA requirements are invoked when airports, buildings, military complexes, highways, parkland purchases, and other federal activities are proposed.  Environmental Assessments (EAs) and Environmental Impact Statements (EISs) evaluate the likelihood of impacts from alternative courses of action and are (i) required from all Federal agencies and (ii) often the most visible NEPA requirements.

EPA has, for some time, recommended that agencies conducting a NEPA analysis consider cumulative impacts from a proposed action, take into account likely future actions as well. However, the focus of that evaluation was primarily on environmental impacts. The Sierra Club appears to ask for the quantum leap of requiring consideration of socioeconomic factors such as income, racial composition and health impacts. This would add an “environmental justice” aspect to the NEPA analysis that was not previously present. The request focuses on southwest Detroit, which is home to a number of heavy industrial operations due to its history and close proximity to shipping and rail lines.

Cumulative impact analysis, particularly focusing on future actions, tends to be more subjective and speculative than the rest of the NEPA evaluation and is harder, less accurate and more subject to challenge.  If EPA were to go in this direction, one can only imagine the number of economic developments that would come to a grinding halt while these even more subjective issues are hashed out.

And you thought Detroit was screwy?

21 Sep 2012

Would you add 40 tons of garbage to this?

From the City of Brotherly Love comes this story of a man who cleaned up 40 tons of garbage from the vacant lot next to him and then improving it at his own expense!  You’d think he’d get the key to the City. Instead, the City is threatening prosecution and demanding “restoration.”

The concept of a property owner taking over a neighboring vacant lot (a sort of adverse possession) has its own new name, “blotting” (vs squatting).  Detroit’s Mayor Dave Bing even began his own program of selling vacant lots to neighboring owners for $200 – no questions asked.

However, in Philadelphia, the coffee shop owner, entrepreneur and good Samaritan made the mistake of first asking the City if he could clean the lot – the City had said no – making him an arguable trespasser and proving the old adage that it is easier to ask forgiveness than permission.