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To estimate the total economic savings that a violator may have obtained due to noncompliance, EPA`s BEN model calculates the costs that the firm or municipality would have incurred assuming the entity had complied `on-time,` and subtracts from that value the costs that actually resulted from `delayed compliance.` These two streams of cash flows include the capital investment to purchase required pollution control equipment, the costs of operating and maintaining the equipment through its useful life, and the present value of the cost of replacing and operating the equipment in the future. The difference between the `present value` of `on-time` and `delayed` compliance is assumed to be the economic savings resulting from noncompliance.
For corporations, BEN uses a single rate, the "weighted average cost of capital" ("WACC") both to adjust past and future cash flows to the date of assumed penalty payment. (WACC is the weighted average of the component costs of debt and equity for a company, with the respective weights being the percentages of debt and of equity in the firm`s capital structure.)
For municipalities, EPA uses the municipality`s bond rating as the discount/interest forward rate. For cases involving federal agencies, EPA uses U.S. Treasury rates.
BEN has been controversial since it was first used in the mid-1980s. The use of the identical rate both for discounting and for adjusting past costs for interest has been a source of significant controversy.