Department of Homeland Security Regulations May Impact Ethanol Producers

By Scott E. Hitch and Steven A. Burns | March 10, 2008
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There's no question U.S. ethanol production helps to secure the nation's fuel supply by shifting revenue streams away from foreign fossil fuel interests (often hailing from countries harboring deep resentment toward the United States) to our local farms and communities. However, unwary ethanol producers may find themselves caught in a different sort of homeland security issue: chemical facility regulations. This article briefly describes a new chemical facility regulatory program administered by the Department of Homeland Security, and explains why ethanol producers may be "chemical facilities" for purposes of the program. Under this program, DHS requires regulated facilities to register and disclose detailed information about their chemical inventories. Many ethanol facilities may be out of compliance if they have not already done so.

The chemical facility program had its start with a bill funding DHS operations for fiscal year 2007. Congress tucked a relatively brief provision into that legislation directing DHS to "issue interim final regulations establishing risk-based performance standards for security of chemical facilities and requiring vulnerability assessments and the development and implementation of site security plans for chemical facilities … ." According to the statute, DHS must regulate those chemical facilities that, in DHS's discretion, "present high levels of security risk." Facilities subject to DHS regulation must develop and implement "layered security measures" for site security plans that "in combination, appropriately address the vulnerability assessment and the risk-based performance standards for security for the facility," all subject to DHS approval.

DHS finalized regulations in late 2007 to flesh out its chemical facility security program. Under those regulations, the agency's first step is to identify "chemical facilities." If you thought a chemical facility was a facility that manufactures, distributes or sells chemicals, you'd be wrong. It's much broader than that. DHS defines a chemical facility not by what it produces but by the chemicals it uses onsite. Any facility which possesses any one of approximately 325 "chemicals of interest" in an amount that exceeds a "screening threshold quantity" set by DHS is defined to be a chemical facility and is subject to registration and reporting requirements.

DHS has identified chemicals and screening threshold quantities reflecting terrorism risks such as a release affecting the community, theft for use in a weapon, and sabotage or contamination. The DHS list includes chemicals that are commonly used in many industrial applications, as well as fertilizers and explosives. Some chemicals, such as anhydrous ammonia, are commonly used in the manufacture of ethanol. Examples of other common chemicals that made the list include chlorine, ethylene, hydrogen peroxide, nitric acid, nitric oxide, propane and sodium nitrate. Further, the screening threshold quantities are low enough to capture many facilities that use a chemical of interest as a major component of their process. For example, larger commercial farm operations may be subject to registration requirements due to their stockpiles of relatively common agricultural chemicals like ammonium nitrate with a nitrogen content of 23 percent or more (screening threshold quantity: 2,000 pounds), potassium nitrate (screening threshold quantity: 400 pounds) and sodium nitrate (screening threshold quantity: 400 pounds). However, the screening threshold quantities for these chemicals apply only to quantities kept in transportation packaging like bulk bags, cylinders or tank cars. The screening threshold quantity for anhydrous ammonia is 10,000 pounds, kept in any mode of storage. That means a facility that measures its anhydrous ammonia consumption by the ton is almost certainly subject to the chemical facility program.

So what must a chemical facility do? First, every chemical facility is required to submit information on the facility through a process known as the "Top-Screen." Completion of the Top-Screen requires registration with DHS followed by the preparation and submission of information including, among other things, an identification of the facility and its location, the number of persons at the facility (including contractors), and, of course, the inventory of chemicals of interest at the facility. Registrations and Top-Screens are made on a facility-by-facility basis, not company-wide.

Initial Top-Screens—that is, Top-Screens for facilities that already possessed a chemical of interest above the screening threshold quantity—were due Jan. 22, 2008. After that, a facility that acquires chemicals of interest above the screening threshold quantity has 60 days to submit the Top-Screen to DHS. After receiving Top-Screen submissions, DHS provides notice of which facilities are "covered" and which of four risk tiers applies, with Tier 1 being the highest risk and Tier 4 the lowest. A covered facility then has 90 days to develop and submit to DHS a security vulnerability assessment, which has five specific elements: 1) an asset characterization, including potentially critical assets, the facility's surroundings, supporting infrastructure and existing layers of protection, 2) a threat assessment, including internal and external threats, 3) a security vulnerability analysis, including potential vulnerabilities and existing countermeasures, 4) a risk assessment, and 5) a countermeasures analysis, including strategies and various options to address potential attacks and reduce risks.

Thirty days after submitting the security vulnerability assessment, the facility must submit a Site Security Plan. The Site Security Plan is where the risk-based performance standards come in. The agency has identified 18 standards in areas including securing assets, controlling access to the facility, managing shipments and storage, addressing various threats and risks, training employees, assuring "personnel surety" through background checks, identifying responsible officials, and reporting and recordkeeping. The Site Security Plan must address vulnerabilities identified in the security vulnerability assessment and explain how the facility's security measures will "address the applicable risk-based performance standards and potential modes of terrorist attack." That doesn't mean every covered facility has to implement specific measures (such as background checks) for every performance standard. However, the Site Security Plan must demonstrate that the facility has satisfied each standard, given the risk tier and site-specific considerations at the facility.

Adding another layer of complexity, DHS has created a category of information that must be guarded from disclosure and is subject to special handling requirements. "Chemical-terrorism vulnerability information" includes the Top-Screen itself, the letter from DHS informing a facility of its covered status and risk tier, the security vulnerability assessment and Site Security Plan, as well as many other documents. The only persons allowed to access chemical-terrorism vulnerability information are "authorized users." Only people who have a need to know the information may become authorized, and they must complete a training course, sign a non-disclosure agreement with DHS and receive DHS approval. A host of requirements govern how to mark chemical-terrorism vulnerability information, store it, track its whereabouts—including the use of unique tracking numbers—transport it—both physically (using multiple envelopes) and electronically (using encryption technology)—and train authorized users and maintain personnel's awareness of chemical-terrorism vulnerability information requirements.

DHS regulations authorize civil penalties of up to $25,000 per day per violation. DHS can also issue compliance orders and orders to cease operations at a facility. Now that the deadline for initial Top-Screens has passed, some facilities may already be vulnerable to a potential enforcement action. As further implementation of the chemical security program continues, DHS has other investigation and enforcement powers which it may use to audit and inspect regulated facilities.

The law authorizing the chemical facility program included a "sunset" date calling for DHS's authorization to expire October 2009. However, the U.S. House Homeland Security Committee and the Senate Committee on Homeland Security and Governmental Affairs are busy writing legislation to make the program permanent. Their work will likely ensure that the chemical facility program will continue uninterrupted for the foreseeable future. Some of the details of the program may be subject to change, and there may be opportunities through the legislative process for alert members of the regulated community to have their say about how (or whether) this program should apply to them.

For now, existing ethanol production facilities may already be storing quantities of anhydrous ammonia and other chemicals in quantities that trigger the Top-Screen process. Those facilities must submit Top-Screens as soon as possible. If they haven't already, they must also prepare to explain to DHS why their submissions are late. In any event, the Top-Screen is only the beginning of a process that requires a complete evaluation of security measures at the facility and a number of personnel issues, all under the supervision of DHS. That process applies not just to the chemical sector, but also to all major consumers of any of the chemicals of interest—including the ethanol industry.

Scott E. Hitch is a partner and Steven A. Burns is an associate with the Environmental & Natural Resources Group at Balch & Bingham LLP, a southeastern-based full-service business law firm serving producers of renewable fuels and other industries.

Reach Hitch at or (404) 962-3553.

Reach Burns at or (205) 226-8736.