The Texas Commission on Environmental Quality ("TCEQ") adopted significant revisions to its compliance history regulations this week. 

These changes could have a dramatic impact on the regulated community. TCEQ has estimated that up to 15% of the regulated entities in Texas may change classification categories as a result of these changes. 

To best position itself under the new compliance history system, a regulated entity should act to ensure that the data on which its compliance history rating is based are accurate. 

To conduct this review in time to affect the next round of compliance history calculations, the entity must submit a Compliance History Review Form by August 15, 2012. 

In addition, an entity should consider maximizing the rule's positive compliance history factors, by conducting environmental audits, implementing an environmental management system, or participating in TCEQ's voluntary pollution reduction or early compliance programs.

TCEQ's rule revisions address several legislative directives that were included in TCEQ's Sunset legislation, HB 2694. 

Some notable features in the revised rule include:

• Industry Grouping: TCEQ groups regulated entities into 14 groups, for the purposes of compliance history, based on the North American Industry Classifications System (NAICS). 
• Use of Complexity Points: Complexity points will be allocated based on an entity's participation in various permitting programs, its size, and its location in a nonattainment area. Complexity points play a critical role in the site rating calculation and in a determination as to whether a site is a "repeat violator."    
• Repeat Violators: TCEQ will consider only those major violations that are of the same nature and the same environmental media that occurred in the preceding five years.  However, the number of repeat violations is tightened from the prior rule. This is important because a "repeat violator" designation adds 500 points to an entity's site rating calculation.
• Site Rating Calculation: Under the revised rule, TCEQ will utilize the following formula:  [(Violation Points) + (Chronic Excessive Emissions Events Points) + (Repeat Violator Points) – (Self-Audit Points)] / [(No. of Investigations x 0.1) + (Complexity Points)] * (Voluntary Program Points). TCEQ is limiting the investigations that are included as part of the denominator to those that do not document any violations. Even then, those violations will only be given one-tenth of the weight they receive under the previous rating system.
• Positive Compliance History Factors:  If the entity is compliant with all ordering provisions and has resolved all violations, the points attributable to that order will be reduced, based on the time period over which compliance has been achieved. The reduction will be 25% for year three, 50% for year four, and 75% for year five. Further, TCEQ added incentives for entities that participate in TCEQ-supported voluntary pollution reduction or early compliance programs.
• Classification Ranges: A high performer will continue to be defined as an entity having fewer than 0.10 points.  A satisfactory performer will be an entity having 0.10 points to 55 points. An unsatisfactory performer will be an entity having more than 55 points. Under the prior rule, a poor performer was an entity that had more than 45.0 points.
• Person Classifications and Ratings: TCEQ will assign a classification to a person by adding the complexity weighted site ratings of all the sites owned and/or operated by that person in the State of Texas.  
• QA/QC: TCEQ will only conduct a QA/QC review of compliance history calculations where the person or site has a rating above zero.  

These revised rules represent important changes to TCEQ's compliance history ratings and classification system. 

TCEQ will continue to use the prior version of the compliance history rule in its permitting and enforcement matters until September 1, 2012, at which point the revised rule will go into effect.

In its discussion, TCEQ's Commissioners noted that the rule is a work in progress and that they will continue to review it. 

Regulated entities should continue to follow this rule and the ratings and classifications that flow from it, and should provide TCEQ with information that can shape further revisions to the rule.