Lower Duwamish Natural Resource Damage Assessments (NRD) can be a complicated topic for Potentially Responsible Parties (PRP). That the Trustees have elected to use an innovative market-based approach to settlement even creates some confusion for attorneys who have tackled other NRD settlements. To gain some clarity around this protocol we decided to use an article published in the American Bar Association’s Superfund and Natural Resource Damages Litigation Committee Newsletter as a backdrop to show its strengths and weaknesses and how Bluefield Holdings addresses them.
The “Restoration Up-front” Approach To Satisfying Natural Resource Damage Claims: An Analysis Of The Elliott Bay Trustee Council’s Up-front Protocol by Nate Stenstrom was published in 2011 but does a good job of laying out the background of the protocol and potential strengths and weaknesses. Its points remain relevant to today’s Lower Duwamish context.
Strengths of the Protocol – Stenstrom points out what he sees as five strengths of the Up-front protocol:
- Economies of Scale. The protocol allows one entity (Bluefield Holdings) to gain expertise regarding the unique responsibilities of restoration in the Lower Duwamish. This takes the burden off PRPs, and almost certainly achieves economies of scale.
- Speeds the Process. “Under the old method of restoration, PRPs would be required to find their own land on which to construct projects. To do so, PRPs would probably have to compete with other existing and potential users of that land—often users, such as real estate developers, who have the ability to pay much more for the land because they will be using it as a profit center. By giving PRPs access to NRD credits generated on land that Bluefield controls, the protocol speeds up what is one of the simplest but also most time-consuming aspects of conducting a restoration project: finding land on which to do it”.
- Predictable Timeline. Provides PRPs with the possibility of a shortened and more-predictable timeline by which the NRD liability settlement process can proceed.
- Existing Settlement Structure. Instead of spending time and transaction costs to negotiate a new settlement from scratch, PRPs can use the structure of the protocol. “This predictability provides an unprecedented degree of certainty with which PRPs can quantify their future risks and costs associated with their involvement in the site”.
- Efficient for both the PRP and the Public. Trustees view the protocol as a way to dispose of NRD cases faster and more efficiently. The Public gains access to the lands more quickly and has a consistent standard for oversight. A win-win for both PRPs and the Public.
Weaknesses of the Protocol – While being generally upbeat about the benefits of the protocol Stenstrom notes a few areas he sees as weaknesses. We decided to have our own Kevin Tierney and Bill Granger tackle them point-by-point:
- Only certain PRPs own land in the Ecological Service Area Boundary, so there is a potential for greatly disparate bargaining power among PRPs when approaching a settlement for contribution.
BG: “This is true and it is the rationale behind our credit program. By providing credits to the PRPs, we “even the playing field” among them, and we actually provide an economically competitive alternative to PRPs doing their own negotiation/habitat project”.
KT: “The beauty of the Bluefield model is that you need not own property in the Ecological Service Area Boundary to participate. Bluefield has acquired the land needed through the Master Lease with the City of Seattle and purchasing lands. Any PRP that has liability in the area also has the opportunity to negotiate their settlement through the use of Bluefield Credits”.
- At almost no point throughout the process is the council ever obligated to approve one of Bluefield’s projects, and the council is never obligated to reimburse Bluefield for any money spent pursuant to the protocol.
BG: “This is why our approved statements of work for sites 2 and 3 are gold. We work with the trustees on designs and they provide input through the statement of work process. They do not reimburse us (or any PRP either) for any funds that we spend. We do place escrow funds to pay for our maintenance and operations of sites and we invoice them for draws based on our operations and maintenance activities. Any PRP who builds their own habitat project would have the same set of conditions (a la Boeing)”.
KT: “This is actually another benefit to the PRP. Bluefield assumes all of the up-front risk; from engineering, to permitting, to construction to operations and maintenance, and to monitoring. The PRP just needs to negotiate their liability and buy the credits”.
- There exists the potential for Bluefield to sell NRD credits to a PRP without being financially stable. This would be detrimental to that PRP, and it would also slow the process by which the public’s natural resources are restored.
BG: “We have to post financial assurances for every project to guarantee construction, operations and maintenance and monitoring for our ten-year lease period, and we also fund a long-term stewardship account for the city to maintain the site in perpetuity. Even if we were financially unstable, the funds would be in place to ensure the completion of the project, operations and maintenance of the site, and long-term stewardship. Without these funds in place, the trustees cannot release credits for us to sell. On this basis, the credits are ‘insured’ against us going away”.
KT: “I can’t say it better than Bill did”.
- The protocol is as-yet untested, and the council’s approval and implementation of it could have implications regarding how its members are upholding the public’s trust.
BG: “The protocol has been successfully tested with the City of Seattle consent decree completed. Their liability has been settled using our credits”.
KT: “Credits have been sold pursuant to the Protocol to both public and private entities. The City consent decree has been approved by Department of Justice (DOJ) and is lacking only one stakeholder signature. There remains one private PRP who needs additional Credits to completely settle its liability, but has received a covenant not to sue from DOJ while it awaits its opportunity to purchase the required credits (from Site 2 or 12)”.
- How will Bluefield comport with the protocol’s very strict deadlines if public-comment periods far exceed those deadlines? Likely, along every step of the way, the trustees and Bluefield will have to negotiate longer deadlines than the protocol lists in order to satisfy NEPA.
BG: “This has proved to be a reality, but not because of public comments. The trustee meeting schedules and the permitting timelines are showing themselves not to match up with the deadlines in the protocol. Thus, we do indeed end up negotiating with the trustees and the city on extension of these deadlines. For site 1, this ended up with us paying two extra years worth of lease fee(for example). Now, for site 2, the award of the trustee credit purchase is being held up by a NEPA process that NOAA is undertaking. This timeline has made it such that construction of site 2 will likely not take place during the Fall of 2017 because the NEPA won’t be done in time (even though our permitting and engineering may be ready)”.
KT: “The Parties (Bluefield and the Trustees) recognize that the Protocol is a fluid document, which is why everyone agreed that it would not be a legally binding Agreement. This is a first-of-its-kind process which has evolved as Site 1 was constructed and throughout the Site 2 permitting process. The history of the two Projects shows a course of negotiation between the Trustees and Bluefield which recognizes the need for flexibility in scheduling and deadlines. Neither party has made any sort of claim against the other for “breach” of the Protocol due to missing the projected scheduling”.
To sum up we will quote from Nate Stenstrom:
“By allowing a private for-profit entity to exist solely for the purpose of implementing one portion of a federal environmental statute, the trustees have introduced the potential for the benefits that often come with specialization of labor. These benefits will be realized by the PRPs in the form of efficiencies in time, money, and labor. These benefits will be realized by the public in the form of a natural environment that has been restored to its original condition faster and, potentially, more completely”.
Kevin Tierney is Bluefield Holdings Chief Counsel.
Bill Granger is Bluefield Holdings Wetlands Scientist and Senior Project Manager.