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© 2014 Environmental Data Resources, Inc.

Environmental Professionals’ Organization of Connecticut:

Clearing Up the Confusion About the ASTM E 1527-13 Phase I ESA Standard

Tonight’s presenters:

•  Dianne Crocker, Principal Analyst, EDR Insight •  Pat Coyne, Vice President of Marketing, EDR •  Sam Haydock, LEP, Principal-in-Charge, BL Companies •  Pam Elkow, Partner, Robinson & Cole LLP January 7, 2014

© 2014 Environmental Data Resources, Inc.

by

Dianne Crocker,

Principal Analyst

EDR Insight

What Just Happened to Our Standard? An Update on the Market Reaction

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•  End of 2012: •  ASTM Phase I Task Group approved revisions to E1527-05,

submitted to EPA for AAI approval •  August 15, 2013:

•  EPA proposed amendment to AAI rule recognizing E1527-13 •  September 16, 2013:

•  Comment period ended, majority supported EPA’s decision •  November 6, 2013

•  ASTM published E 1527-13 standard, -05 became a “historical standard”

•  December 30, 2013: •  EPA published final rule recognizing -13 as AAI-compliant,

announced intent to propose removing E1527-05 reference

The Road to Final E 1527-13 Standard

•  ASTM standards have a maximum 8-year shelf life •  Prior E1527 publications: 1993, 1994, 1997, 2000, 2005 •  Careful review of the 2005 standard began in 2010 •  ASTM’s Phase I Task Group agreed on two primary objectives:

1.  Clarify existing language 2.  Strengthen the deliverable

Why Did ASTM Revise E 1527?

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•  Adds VAPOR to the more traditional soil and groundwater pathways for evaluating contamination risk

•  A lot of confusion/inconsistency in how to handle vapor risk in Phase I ESAs

1. Vapor migration

•  Revised definitions of REC and HREC •  New definition for “controlled REC” or

CREC •  More clarity on how EPs define

environmental conditions

2. RECs/HRECs (revised) CRECs (new)

•  Always in standard but more clarity on when they need to be done…and what to do if a review is not done

•  More attention on standard environmental sources

3. Agency file reviews

3 Key Changes for Tonight’s Discussion

•  E 1527-13 adds new definition of “migrate/migration” (used in many places in E1527) as the movement of hazardous substances or petroleum products in any form, including solid and liquid at the surface or subsurface, and vapor in the subsurface.

•  References E 2600-10 as a process for vapor encroachment screenings (not required).

•  Specifically excludes contaminated vapor migration/intrusion from IAQ (which is a non-scope consideration).

•  Reflects that CERCLA/AAI do not differentiate by form (e.g., solid, liquid, vapor) of the release to the environment.

1. Vapor Migration Language

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•  Some EPs automatically included consideration of vapor migration.

•  Others did so only at a client’s request. •  Likewise, some financial institutions require vapor screens

on all Phase I ESAs. •  Others do so only on a case-by-case basis.

•  This is changing as awareness of vapor risk grows.

Prior to E 1527-13: Inconsistency in How Vapor is Treated in Today’s Phase Is

•  Don’t want to be the only consultant in town suggesting to their clients that vapor migration needs to be part of an assessment.

•  Concerns that clients will think they’re trying to squeeze more money out of them.

•  Just don’t understand it well enough themselves or the process to use for assessing it properly to explain to clients.

•  Ignored VI because it was always non-scope under IAQ exclusion.

EPs’ Concerns About Vapor

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•  Vapor migration: •  Is there a presence or likely presence of hazardous substances

or petroleum products on the property due to a release, based on consideration of pathways and how contamination is likely to migrate onto a property?

•  Within the scope of a Phase I ESA. •  Vapor intrusion:

•  Is vapor present inside a building as the result of a release? •  Never part of a Phase I, and is not now under -13.

Distinction Between Vapor Intrusion and Vapor Migration

•  EPA’s final rule (Dec. 30, 2013): •  “EPA wishes to be clear that, in its view, vapor migration has

always been a relevant potential source of release or threatened release that, depending on site-specific conditions, may warrant identification when conducting AAI. EPA applauds the revisions made by ASTM International to the updated E1527-13 standard regarding vapor migration.”

•  “…The new standard makes important revisions to the standard practice to clarify that AAI and Phase I ESAs must include, within the scope of the investigation, an assessment of the real or potential occurrence of vapor migration and vapor releases on, at, in or to the subject property.”

Reaction to Vapor Language: U.S. EPA

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•  Large institutions required vapor assessments for several years already, particularly for foreclosures or purchases.

•  Less common at smaller banks, still coming up to speed.

•  “Vapor really signifies a transition in property due diligence—a transition away from the traditional way of thinking about environmental due diligence only in terms of contaminated soil and groundwater.”

~Mike Tartanella, Capital One at EDR’s DDD Long Island

“We like the E 2600 process for vapor because it ensures a consistent process for vapor across states we lend in.”

~regional New England lender

Reaction to Vapor Language: LENDERS

•  CERCLA and the AAI rule do not allow EPs to overlook the vapor migration pathway and simply consider contamination in the soil and groundwater in making a determination about the presence of RECs in, on or at a property.“ Attorney Bill Wagner, Taft, Stettinius and Hollister LLP

•  “Consultants should not sign a report, in my humble opinion, that a complete Phase I ESA was done if at least the suggestion was not made that vapor be looked at.” Stuart Lieberman, Lieberman & Blecher LLP

•  “Nothing in the underlying law (i.e., CERCLA or the AAI rule) allows for carving hazardous substances or petroleum products in vapor form out of the REC term in the Phase I standard. If an EP disclaims all consideration of vapors in the Phase I ESA report, then it is not an AAI-compliant report.” Christopher Roe, attorney at Fox Rothschild LLP

Reaction to Vapor Language: ATTORNEYS

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•  REC definition simplified •  HREC definition revised •  New definition for “controlled” RECs (CRECs)

•  Applies where past release has been addressed, but residual contamination remains subject to control

•  Allows for the EP to classify a condition on the site using a less threatening term

•  Avoids stigma associated with RECs

2. Family of REC Definitions

•  Signals to potential purchasers of properties that not all RECs are necessarily bad or warrant abandoning the deal.

•  New emphasis on continuing obligations under CERCLA. •  Failure to satisfy these continuing obligations could result in

forfeiture of otherwise available future CERCLA liability defenses.

Impact of New CREC Term

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•  Some confusion on how to make REC vs. HREC vs. CREC determinations.

•  Generally positive response from users, especially lenders, who are responding favorably to the added clarity.

Industry Response to New REC Terms

•  E 1527-13 contains new section that indicates the EP should do an agency file review if a subject property or adjoining property is identified in any of the standard environmental records sources.

•  If the EP decides not to undertake such a file review, the justification must be included in the Phase I ESA report.

•  As an alternative, E 1527-13 also has language (8.2.2.2) that allows the EP to rely on alternative sources (e.g., onsite records, local government agencies, etc.) and document the findings in the report.

3. Regulatory Agency File Review

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•  Impact varies based on what each firm is currently doing. •  Huge variability in level of effort. •  Major challenge in factoring cost/time of research into original

proposal.

“File reviews with the long turnaround times will be an issue.”

“File reviews are a BIG unknown for each project until you get into the work. Makes competitive bidding a losing

game.”’

Reactions from EPs

Overall Expectations on Pricing/

Turnaround Time

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EPs Score Key Revisions (Time/Cost Impact)

•  “Most of this will be client education. Many of the changes are relatively minor.”

•  “The lenders don’t understand what they want at this point. It makes it difficult for us to format for them.”

•  “Our company has a formal training program.” •  “We will be expected to learn about the new changes

independently, outside of the office.” •  “[We] already consider all of these issues; for us, it’s just a change

in definitions.” •  “We have been doing file reviews for 20 years and anticipate no

cost impact. Vapor will require some tweaking. REC-HREC-CREC should actually help simplify some reports.”

Overall EP Reactions

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•  “All of the revisions in -13 are already standard in our scope and expectations. The section I like the most is the one on AFRs. There is no complete Phase I ESA without a file review, in my opinion. And vapor was never not a risk. For us, these changes are not monumental.”

~regional lender

One Lender’s Reaction

Summary of Impact of E 1527-13 on Pricing

Area of Change Expected Impact

REC-HREC-CREC evaluation No impact on price

Vapor migration screening Additional time (up to 6 hours), added cost (up to $400-500)

Regulatory file review Additional time/; highly variable

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•  Many larger institutions switched when E 1527-13 became new industry standard in November.

•  Others assume the new standard will necessitate an update to their policies, were waiting on EPA or are relying on their environmental consultants to tell them what they need to do.

•  Federal agencies: •  Freddie Mac is requiring E1527-13 since their Guide requires use

of the most current standard. •  U.S. SBA is allowing a grace period where reports meeting either

E 1527-05 or E 1527-13 will be accepted. •  Fannie Mae will require the use of E 1527-13 on any reports

ordered on or after February 1, 2014.

Who Has Adopted E 1527-13 At This Point?

Education and Awareness Are Key

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•  Attend events dedicated to the E 1527 revisions. •  Ensure that internal staff are aware of the key areas of

change, and ready to implement them consistently across office.

•  Plan for any necessary changes to the internal Phase I ESA process, scope of work and report format, addressing any expected changes in pricing.

•  Take online courses to get trained. •  Educate clients on areas of revision, working with them to

update policies to reference current industry standard…

What You Should Be Doing

Page 26

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•  EDR’s ASTM Toolkit

•  EDR Insight •  Contains all past research on

E 1527-13 and vapor risk •  Questions?

•  Email: dcrocker@edrnet.com •  Phone: 203.783.8156

For More Information

© 2014 Environmental Data Resources, Inc.

EPOC

Presented by: Patrick Coyne

EDR

Demystifying Agency File Reviews

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Agency File Review

What’s in them? •  Source files •  Other examples

Page 30

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Beyond the database report •  This is what was in the DB Report

Details •  Two waste oil tanks •  500 & 250 gallons •  Removed in ‘91 •  Filled w/ sand & gravel •  Oversight by FD •  ESA performed •  No contamination observed

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Driver of Agency File Reviews •  Best practice for fully understanding a site

•  60% of Phase I’s always or very often include the EP seeking agency files.

•  How many EP’s have conducted one? •  It is a core ASTM 1527 data element. •  New clarification in the ASTM 1527-13 standard

ASTM 1527-13

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ASTM 1527-13

•  Property or adjoining “hit” in any 8.2.1 database •  Agency files should be reviewed •  Subject to 8.1.1-7 (reasonably ascertainable, reasonable time

and cost) •  If not warranted, EP must explain •  Alternative sources •  Shall include summary of the information reviewed •  EP must comment on sufficiency

•  Operational •  Disparate •  No standardization •  Multiple programs •  Different accessibility •  Not to mention local •  Report templates

•  Business •  Educating clients •  Fees

Challenges

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Market Research

•  Survey of EP’s. •  Calling campaign to all 50 state agencies to document

processes. •  ASTM task group participation. •  EP interviews •  Discussions with lenders

Survey

•  335 total complete surveys •  60% of respondents “very often” or “always” perform

agency file reviews in conjunction with their Phase I’s. •  Only 7.2% “rarely or never” •  26% of respondents state that their agency files are

available online. •  18% of respondents said they have to travel zero

distance, because they can access files online.

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When do you do it?

•  When do they conduct them? •  62% with the Phase I •  31% afterwards

How far?

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Available Online?

•  I had to make an appointment 76% •  Hours are limited 37% •  56% make copies •  60% review and abstract

Once you’re there…

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Subject or Adjacents?

•  What are they looking for? •  Not adjoining properties only •  Either subject property, or both TP and adjoining

Is it a pain?

Respondents don’t think travelling to the agency office is a pain point. 65% respond that travel to the location is “extremely easy” or “moderately easy”.

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A lot of variability

•  In reading the qualitative responses, a majority of the respondents mention a very high variability in information available, quality of information, access to information.

How long does it take?

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How do you charge for it?

Questions Lenders are asking EP Firms •  “Remind me…are you completing AFR’s as a standard part of

the Phase I scope of work you conduct for me?” •  “Will completing a file review affect the TAT and price of my

Phase I?” •  “Should we be revising our scope of work to make it more

clear whether we expect AFR?” •  Regardless of the answers, they want to feel confident that

their EP partner has a rock solid understanding of the details of the changes.

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NFA:

•  Pat Coyne, EDR •  Phone 203.783.8192 •  Email pcoyne@edrnet.com

Questions?