On September 27, 2018, the U.S. Environmental Protection Agency (EPA) issued a final fees rule under the Toxic Substances Control Act (TSCA). The final rule largely tracks the proposed rule. In its press release, EPA states that the fees collected from chemical manufacturers “will go toward developing risk evaluations for existing chemicals; collecting and reviewing toxicity and exposure data and other information; reviewing Confidential Business Information (CBI); and making determinations in a timely and transparent manner with respect to the safety of new chemicals before they enter the marketplace.” The final rule is effective the day after publication in the Federal Register and the fees will apply to all submissions received starting on October 1, 2018. Small businesses will be eligible to receive a substantial discount of approximately 80 percent on their fees. EPA will host a series of webinars focusing on making TSCA submissions and paying fees under the final rule. The webinars will be held on October 10, October 24, and November 7, 2018. EPA has posted a pre-publication version of the final rule, as well its response to public comments on the proposed rule.

Overview

As amended by the Frank Lautenberg Chemical Safety for the 21st Century Act, TSCA provides EPA the authority to require payment from manufacturers and processors who:

• Are required to submit information by test rule, test order, or enforceable consent agreement (ECA) (TSCA Section 4);

• Submit notification of or information related to intent to manufacture a new chemical or significant new use of a chemical (TSCA Section 5); or

• Manufacture or process a chemical substance that is subject to a risk evaluation, including a risk evaluation conducted at the request of a manufacturer (TSCA Section 6(b)).

Beginning in fiscal year (FY) 2019 (October 1, 2018, through September 30, 2019), EPA is required to adjust fees, as necessary, every three years thereafter to reflect inflation and ensure that fees are sufficient to collect 25 percent of the costs to EPA in administering TSCA Sections 4, 5, 6, and 14. Before establishing new fees or revising any existing fees, EPA is required to consult with manufacturers and processors, or their representatives. A detailed discussion of EPA’s proposed rule is available in our February 9, 2018, memorandum, “Administrator Pruitt Signs TSCA User Fee Proposal.”

Final Rule

EPA states that the final rule establishes fees for certain activities under TSCA Sections 4, 5, and 6 to defray approximately 25 percent of the costs to carry out a broader set of activities under these sections of TSCA and of collecting, processing, reviewing, and providing access to and protecting from disclosure, as appropriate under TSCA Section 14, information on chemical substances under TSCA. In addition, the final rule establishes fees for risk evaluations requested by manufacturers to defray 50 percent or 100 percent of the costs, depending on whether the chemical is listed on the TSCA Work Plan.

After consideration of public comments, EPA states that it is promulgating a number of provisions from the proposed rule without modification, including the general methodology for calculating fees (except in the case of manufacturer-requested risk evaluations), the program cost estimates, the eight proposed fee categories, the fee amounts, the allowance of payment of fees through consortia, the discounted fees for small business concerns, and the provision of refunds under certain circumstances.

Based on consideration of public comments, the final rule also includes certain modifications and clarifications related to the proposal. For example, EPA notes that in response to comments, the final rule includes a new process for identifying manufacturers subject to fee obligations for TSCA Section 4 test rules and TSCA Section 6 EPA-initiated risk evaluations, including publication of a preliminary list, opportunity for public comment, self-identification, and/or certification of no manufacture, and publication of a final list defining the universe of manufacturers obligated to pay. The final rule also reflects modifications to the proposed methodology for calculating fees for manufacturer-requested risk evaluations, the timing for consortia formation, payment due dates, and the standard for small business concerns. Finally, the final rule provides the additional clarity requested by commenters in areas including the allocation of fees in complex multi-payer scenarios, the estimation of program costs and activity level assumptions, and the circumstances for providing refunds.

EPA determined there is “good cause” for making the final rule effective one day after publication. As discussed in the proposed rule, the final rule will apply to all submissions that are received starting October 1, 2018. EPA stated that it will invoice affected companies within 30 days of the effective date.

Who Will Be Charged Fees

EPA notes that although it has the authority to collect fees from both manufacturers and processors of chemical substances, the final rule focuses fee collection primarily on manufacturers. EPA will collect fees from processors only when processors submit a significant new use notice (SNUN) or test-marketing exemptions (TME) under Section 5, when a Section 4 activity is tied to a SNUN submission by a processor, or when a processor voluntarily joins a consortium and therefore agrees to provide payment as part of the consortium. EPA states: “[g]enerally limiting fee obligations to manufacturers is the simplest and most straightforward way to assess fees for conducting risk evaluations under TSCA section 6 and most TSCA section 4 testing activities. Furthermore, EPA expects that manufacturers required to pay fees will have a better sense of the universe of processors and will pass some of the costs on to them.”

EPA intends the process to identify manufacturers subject to fee obligations to include publication of a preliminary list that identifies manufacturers (based on information available to EPA through Chemical Data Reporting (CDR) data and other sources), a public comment period (to allow for self-identification, correction of errors, and certification of no-manufacture and no intention to manufacture in the next five years), and publication of a final list defining the universe of manufacturers responsible for payment. Further, according to the final rule, EPA will follow this process for only two fee-triggering events: TSCA Section 4 test rules and TSCA Section 6 EPA-initiated risk evaluations. According to the final rule, EPA believes that for all other fee-triggering events, the relevant manufacturer(s) will already be apparent and a specific identification process will not be necessary. This process is not necessary for TSCA Section 5 activities, TSCA Section 4 ECAs, or TSCA Section 6 manufacturer-requested risk evaluations, as manufacturers are self-identified through those activities. The process is also not necessary for TSCA Section 4 test orders, as EPA will ultimately select the manufacturer(s) subject to the order prior to or during the development of the order.

How EPA Calculated the User Fees

For the proposed rule, EPA calculated fees by estimating the total annual costs of administering TSCA Sections 4, 5, and 6 (excluding the costs of manufacturer-requested risk evaluations) and of collecting, processing, reviewing, and providing access to and protecting information about chemical substances from disclosure as appropriate under TSCA Section 14; identifying the full cost amount to be defrayed by fees under TSCA Section 26(b) (i.e., 25 percent of those annual costs); and allocating that amount across the fee-triggering events in TSCA Sections 4, 5, and 6, weighted more heavily toward TSCA Section 6 based on early industry feedback.

According to EPA, a common theme from commenters was that fees, particularly those for TSCA Section 6 activities, should more closely align with EPA’s actual costs for carrying out the specific activity on the specific chemical. EPA states that it believes it is important to track costs on a chemical and activity basis in light of the increased responsibilities under TSCA and the need to understand better the associated new costs. EPA is working towards building this capability and expects to begin tracking actual costs on a chemical basis “as soon as feasible.” EPA plans to use its time reporting system to track employee hours and contract expenditures for each chemical undergoing risk evaluation and at the fee category level for Sections 4 and 5 activities. EPA also plans to track CBI claim review direct and programmatic support costs, as well as cross cutting costs, direct costs, and indirect costs associated with Sections 4, 5, 6, and collecting, processing, reviewing, and providing access to and protecting from disclosure as appropriate under Section 14 information on chemical substances under TSCA.

EPA states that it believes this initial experience and information gained from tracking actual costs will help it to continue refining methodologies for calculating fees, and “will inform potential revisions to the fee structure in the future.” For the final rule, EPA has determined to calculate the fees using the same approach as used in the proposed rule for most fee categories. EPA notes that it is, however, making final an actual cost approach for calculating fees for manufacturer-requested risk evaluations. Although EPA proposed a static fee for manufacturer-requested risk evaluations based on general cost estimates for risk evaluation activities, upon further consideration and in light of public comments received, EPA determined in the final rule to align this fee with the actual costs of the activity “as a plain reading of TSCA would require.” Specifically, EPA will require an initial payment of $1,250,000 (for a chemical on the TSCA Work Plan) or $2,500,000 (for a chemical not on the TSCA Work Plan), payable within 30 days after granting the request, and a final invoice to total either 50 percent or 100 percent of the actual costs in line with the percentage requirements in TSCA, or a refund to achieve these requirements, if warranted.

EPA clarified in the final rule that it will collect one fee per Section 6 risk evaluation, including one fee for a risk evaluation on a category of substances.

The final fee amounts are included in the following table:

* EPA will waive the TME fee for submissions from companies that have graduated from EPA’s Sustainable Futures Program.

Small Business Concerns

EPA is promulgating reduced fee amounts for small businesses, consistent with the proposed rule and without change. The reduced fee amounts represent an approximate 80 percent reduction compared to the base fee for each category. According to the final rule, in one case, for TSCA Section 5 notices (i.e., PMNs, MCANs and SNUNs), the small business reduction is 82.5 percent. For all fee categories, the reduced fee is only available when the only entity or entities are small businesses, including when a consortium is paying the fee and all members of that consortium are small businesses. Consistent with the proposed rule, reduced fees are not available for small business manufacturers requesting a risk evaluation, as TSCA requires those fees to be set at a specific percentage of the actual costs of the activity.

EPA notes that it is adjusting the small business size standard, and has decided to apply an employee-based definition modeled after the Small Business Administration’s (SBA) approach. While EPA had proposed to base the standard on annual revenue, we appreciate the regulatory and administrative coherence afforded by adopting the SBA’s approach. The SBA is also required by statute to periodically review and adjust its size standard to help keep the standard current with industry and market conditions. This will hopefully set the stage for periodic review by EPA of its definition of “small business concerns” as part of the TSCA requirement to review fees every three years.

The final fee amounts for small business are included in the following table:

Timing of Fee Payment

The final rule generally requires upfront payment of fees (i.e., payment due prior to reviewing a TSCA Section 5 notice, within 120 days of publication of the final test rule, within 120 days of issuance of a test order, within 120 days of signing an ECA, within 30 days of granting a manufacturer-requested risk evaluation, and within 120 days of publishing the final scope of a risk evaluation). For manufacturer-requested risk evaluations, payment will now be collected in two installments over the course of the activity, however.

Circumstances under which EPA Will Refund Payments

EPA proposed to issue full and partial refunds in certain circumstances related to TSCA Section 5 activities, consistent with EPA’s authority under TSCA Sections 5(a)(4)(B) and 26(b)(4)(G). EPA is promulgating those provisions, with some additional clarifications and corrections in light of public comments. EPA will issue full refunds for: (1) PMN submissions that are determined not to be a new chemical substance; (2) MCAN submissions when the microorganism is determined not to be a new microorganism or significant new use; (3) SNUN submissions if the use is determined not to be a significant new use; (4) when EPA fails to make a determination on a notice by the end of the applicable notice review period, unless the submitter unduly delayed the process; and (5) when EPA fails to approve or deny an exemption with the applicable review period, unless the submitter unduly delayed the process. EPA states that it will issue partial refunds (i.e., 75 percent of the fee amount) if a TSCA Section 5 submission is withdrawn during the first ten business days after the beginning of the applicable review period. According to EPA, it is not able to issue refunds for the entire fee amount because work begins as soon as EPA receives an application. Due to concerns with administrative burden and potential delays in issuing refunds, EPA states that it will not calculate and refund a unique amount for each withdrawn submission. EPA acknowledges that it originally proposed to issue a full refund for certain incomplete submissions, but notes that its existing regulations “already provide a process and timeline for EPA and the submitter to correct the issue. EPA believes the existing approach is more efficient than immediately issuing a full refund, and requiring the submitter to provide a new, complete submission.”

Consequences of Failing to Pay a Fee

Under the final rule, failure to pay the appropriate fee at the required time would subject each manufacturer and processor who is subject to the fee payment to penalties of as much as the maximum statutory amount per day ($38,114 as of January 2017) until the required fee is paid. Each person subject to fees would be subject to such penalties regardless of whether they intend to pay independently, as a joint submitter, or through a consortium. Each member of a consortium, and each joint submitter, is individually responsible for payment of the fee, and subject to penalties for non-payment, until the fee is actually paid. EPA states that it “may develop enforcement response policy guidance provisions for this rule.”

Compliance Date

EPA states that it will be able to start collecting fees the day after the final rule is published in the Federal Register. For EPA to address sufficiently the increased workload under TSCA, EPA “must start collecting fees as soon as possible for use in defraying implementation costs.” All submissions starting October 1, 2018, are subject to the fees in the final rule, “regardless of when the rule becomes effective.” For submissions received between October 1, 2018, and the effective date of the final rule, EPA will invoice submitters within 30 days. EPA also clarified that it will not collect fees under the final rule for regulatory initiatives that started prior to October 1, 2018, such as the first ten risk evaluations and Section 5 activities.

Commentary

We commend EPA for completing and issuing the fees rule, the last of the four framework rules under new TSCA. The final rule is well developed and articulated and we appreciate EPA’s thoughtful approach in considering and resolving public comments. In particular, we recognize EPA’s decision to implement a new public notice process for identifying manufacturers that will be subject to fee obligations for Section 4 test rules and Section 6 EPA-initiated risk evaluations. This issue was highlighted as a primary concern in comments submitted by the Bergeson & Campbell, P.C. (B&C^®) affiliate organization, B&C Consortia Management, L.L.C. (BCCM). We are pleased that EPA agreed with our position and will include this process to help ensure all subject entities are identified.

We note, however, that EPA’s reliance on CDR for identification of manufacturers and importers could result in situations in which entities with volumes below the reporting thresholds would not be required to contribute to the fees, a result that could invite an element of unfairness to larger volume manufacturers and importers. Assume, for example, that there are ten companies manufacturing a chemical subject to a risk evaluation -- four of which manufacture and/or import at 30,000 pounds per year and six that manufacture and/or import at 10,000 pounds per year. As outlined in the rule, the four companies would each pay $325,000 each, assuming fees would be shared based on production volumes. If the additional six companies were to contribute, those four companies’ shares would drop to $216,666 each, with the six lower-production companies contributing $72,222 each.

We had urged EPA to adopt a tiered fee payment schedule, particularly for the risk evaluations, or at least acknowledge that such a tiered approach might be necessary. EPA opted not to do so. In circumstances in which there is only one manufacturer, it could be challenging to find $1,300,000 in the company budget within the short timeframe between prioritization and issuance of the risk evaluation scope.

Finally, we note and applaud EPA’s commitment, as part of the triennial review requirement in new TSCA, to move toward actual cost accounting in tracking its costs for activities under Sections 4, 5, 6, and 14. We look forward to working with EPA staff as part of the review process, a process that we anticipate may begin in two short years.