Monday
July 1, 1991
Part'VIII
Environmental
Protection Agency
40 CFR Parts 264, 265 et al.
Standards Applicable to Owners and
Operators of Hazardous Waste
Treatment, Storage, and Disposal
Facilities; Liability Requirements and
Financial Responsibility; Final Rule and
Proposed Rule
-------
302CO
Pederal Register / Vol. 56. No. 126 / Monday. July 1, 1991 / Fules and Regulations
ENVIRONMENTAL PROTECTiON
AGENCY
40 CFR Parts 264 and 265
(FRL-3968-1]
Standards Applicable to Owners and
Operators of Hazardous Waste
Treatment, Storage, and Disposal
Facilities; Liability Requirements
AGENCY: Environmental Protection
Agency.
ACTION: Final rule; technical
amendment.
SUMMARY: This document corrects
certain omission errors in the financial
responsibility requirements under
subtitle C of the Resource Conservation
and Recovery Act (RCRA). These errors
were made in a rulemaking related to
liability coverage that appeared in the
Federal Register on September 1,1988
(S3 FR 33938).
EFFECTIVE DATE: July 1,1991.
FOR FURTHER INFORMATION CONTACT:
The RCRA/Superfund Hotline at (800)
424-9346 (toll free), or (20'2) 382-3000 in
Washington, DC, or Ed Coe, Office of
Solid Waste (OS-341), U.S.
Environmental Protection Agency,
Washington, DC 20460, (202) 382-6259.
SUPPtEMEHTARY INFORMATION: In a final
rule published on September 1,1988 (53
FR 33938). EPA promulgated
amendments to the financial
responsibility requirements related to
liability coverage at 40 CFR subpart H.
Following publication of that rule.
Chemical Waste Management, Inc.
(CWM) filed suit against the Agency
challenging several provisions. Among
other matters, CWM pointed out certain
omissions in the rule language that the
Agency recognized to be inadvertant.
The parties entered into a settlement
agreement on February 23,1990. To
satisfy, in part, the terms of that
agreement, this notice corrects omission
errors in §§ 284.147{a)(2) and
2G5.147(a)(2) (a proposed rule published
elsewhere in today's issue satisfies
some of the remaining previsions of the
settlement agreement). In addition, this
notice corrects the omission in the
September 1,1988 rule of "miscellaneous
units" as units subject to the
requirements of § 264.147(b).
/. Sections 264.147(a)(2) and
265.147(a)(2)
The Agency inadvertently omitted a
reference to the financial test as an
acceptable means of providing financial
assurance for liability coverage when it
amended §§ 264.147(a)(2) and
265.147{a)(2) as part of the September 1,
1988 rulemaking. This notice corrects
this error and inserts a reference to the
financial test in those sections.
II. Miscellaneous Units—Sections
264.147(b) and 265.147(b)
Section 264.147(b) requires owners
and operators of certain hazardous
waste management units to demonstrate
financial responsibility for bodily injury
and property damage to third parties
caused by nonsudden accidental
occurrences arising from operations of
the facility. A final rule published on
December 10.1987 (52 FR 46946)
extended that requirement to disposal
"miscellaneous" units. When the
Agency again amended § 264.147(b) in
the September 1,1988 rulemaking, the
December 10,1987 change was
inadvertently omitted. Today's
correction restores the December 10,
1987 change, and incorporates all
amendments to that paragraph to date.
List of Subjects for 40 CFR Parts 264 and
265
Hazardous waste. Insurance.
Dated: June 6.1991.
Don R. Clay,
Assistant Administrator.
PART 264—STANDARDS FOR
OWNERS AND OPERATORS OF
HAZARDOUS WASTE TREATMENT,
STORAGE AND DISPOSAL FACILITIES
L.The authority citation for part 264
continues to read as follows:
Authority: 42 U.S.C. 6905. 6912(a), 6924. and
6925.
2. In § 264.147, paragraph (a)(2) and
the first sentence of the introductory
text in paragraph (b) are revised to read
as follows:
§ 264.147 Liability requirements.
(a) * * *
(2) An owner or operator may meet the
requirements of this section by passing a
financial test or using the guarantee for
liability coverage as specified in
paragraphs (f) and (g) of this section.
*****
(b) Coverage for nonsudden
accidental occurrences. An owner or
operator of a surface impoundment,
landfill, land treatment facility, or
disposal miscellaneous unit that is used
to manage hazardous waste, or a group
of such facilities, must demonstrate
financial responsibility for bodily injury
and property damage to third parties
caused by nonsudden accidental
occurrences arising from operations of
the facility or group of facilities. * * *
PART 265—INTERIM STATUS
STANDARDS FOR OWNERS AND
OPERATORS OF HAZARDOUS WASTE
TREATMENT, STORAGE, AND
DISPOSAL FACILITIES
3. The authority citation for part 265
continues to read as follows:
Authority: 42 U.S.C. 6905. 6912(a), 6924,
6925, and 6935.
§265.147 [Amended]
3. In section 265.147 paragraph (a){2)
is revised to read as follows:
(a) * * *
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraphs (f) and (g) of this
section.
[FR Doc. 91-15057 Filed 6-28-91; 8:45 am]
BILLING CODE 656G-SO-M
-------
Federal Register / Vol. 56. No. 126 / Monday. July 1, 1991 / Proposed Rules
30201
ENVJRONMENTAL PROTECTION
AGENCY
40 CFR Parts 264,265, 280, and 761
[FRL-3861-7]
BIN 2050-AC71
Standards Applicable to Owners and
Operators of Hazardous Waste
Treatment, Storage, and Disposal
Facilities; Financial Responsibility
AGENCY: Environmental Protection
Agency.
ACTION; Proposed rule.
SUMMARY: The Environmental Protection
Agency (EPA) is today proposing to
amend its financial assurance
requirements under subtitle C of the
Resource Conservation and Recovery
Act (RCRA). First, EPA is proposing to
revise the financial test criteria for
closure and post-closure care by
amending the financial ratio
requirements and to revise the financial
tests for closure and post-closure care
and third-party liability coverage by
amending the net-worth and net-
working-capital multiples. Second, EPA
is proposing to amend the claims
reporting provision and the provisions
for obtaining a letter of credit in the,
recently promulgated regulations that
expanded the allowable financial
assurance mechanisms for liability
coverage (53 FR 33S38, September 1,
1988). Third, the Agency is proposing to
allow a nonparent company to provide a
guarantee as a demonstration of
financial assurance for closure and post-
closure care. Finally, today's proposal
would require the owner or operator of a
disposal facility to certify compliance
with deed notice requirements after
closure of a hazardous waste facility,
before being released from closure
financial assurance requirements.
Today's notice addresses in part a
rulemaking petition submitted by the
National Solid Wastes Management
Association on February 16,1990. A
related notice elsewhere in today's issue
makes technical revisions to the
language of the liability coverage
requirements. •
DATES: Comments must be submitted on
or before August 30,1991.
ADDRESSES: Written comments oh
today's proposal should be addressed to
the docket clerk at the following
address: Environmental Protection
Agency, RCRA Docket (OS^305), 401M
St. SW., Washington, DC 20460.
Commenters should send one original
and two copies and place the docket
. number (F-91-RCFP-^FFFFFJ on the
comments. The docket is open from 9
a.m. to 4 p.m., Monday through Friday,
except for Federal holidays. Docket
materials may be reviewed by
appointment by calling (202) 475-9327.
Copies of docket materials may be made
at no cost, with a maximum of 100 pages
of material from any one regulatory
docket. Additional copies are $.15 per
page.
FOR FURTHER INFORMATION CONTACT:
RCRA Hotline at 1-800-424-9345 (in
Washington, DC, call 382-3000), or Ed
Coe at (202) 382-6259, Office of Solid
Waste (OS-341), U.S. Environmental
Protection Agency, Washington, DC
20460.
SUPPLEMENTARY INFORMATION:
Preamble Outline
I. Authority
II. National Solid Wastes Management
Association Rulemaking Petition
in. Proposed Revisions to the Financial Test
A. Background
B. Development of the Financial Test
1.1981 Analysis and Results
2. Rationale for Revising Current Financial
Tests
3.1989 Analysis Methodology
C. Section-by-Section Analysis of Proposed
Financial Test Revisions
1. Summary of Proposed Revisions
2. Financial Test for Closure and Post-
Closure Care
3. Financial Test for Liability Coverage
4. Financial Test for Closure, Post-Closure
Care, and Liability Coverage
5. Bond Rating Alternative
6. Integration with Other Programs and
Conforming Changes
7. Combining the Financial Test with Other
Mechanisms
IV. Amendments to the September 1,1988
Rule Regarding Third Party Liability
Coverage
A. Background
B. Claims Reporting Requirement
C. Standby Trust for Owners or Operators
Who Use a Letter of Credit to
Demonstrate Liability Coverage
D. Instruments Available to Owners and
Operators That No Longer Meet the
Requirements of the Financial Test
V. Release from Financial Assurance
Requirements for Closure
VI. The Expanded Guarantee for
Demonstrating Financial Assurance for.
Closure and Post-Closure Care
VII. Automated Financial Responsibility
Reporting System
VIII. State Authorization
A. Applicability of Rules in Authorized
States
B. Effect of Rule on State Authorizations
IX. Regulatory Analysis
A. Regulatory Impact Analysis
B. Regulatory Flexibility Act
I. Authority
This proposed rule Is issued under the
authority of section 3004 of the Resource
Conservation and Recovery Act
(RCRA), as amended, 42 U.S.C. 6924.
II. National Solid Wastes Management
Association Rulemaking Petition
On February 16,1990, the National
Solid Wastes Management Association
submitted to the Agency a rulemaking
petition related to RCRA and other EPA
financial responsibility requirements.
The petition requested the Agency to
initiate rulemakings to: (1) Revise
methods of establishing individual
amounts of financial assurance; (2)
revise several of the mechanisms
(including the corporate financial test
and the corporate guarantee) currently
used to demonstrate financial
responsibility requirements under RCRA
subtitle C and related programs; and (3)
consider centralized Federal
management of financial assurance. As
part of the centralized Federal
management approach, NSWMA
suggested changes to the methods of
calculating financial assurance levels
and suggested that states should not be
allowed to'set financial assurance
requirements that deviate from the
Federal.
Many of the issues raised by NSWMA
in its petition were not new to the
Agency. For example, at the time that
the petition was submitted, the Agency
was in the process of developing the
revisions to the subtitle C corporate
financial test that are proposed today.
Though not developed in response to the
petition, the Agency believes that the
proposed revisions to the financial test
address many of the concerns related to
the financial test that were raised by
NSWMA in its petition.
In its petition, NSWMA pointed out
that in the September 1,1988 rulemaking
related to third party liability, the
Agency had allowed the use of the
corporate guarantee by firms that are
not the direct parent of the facility
owners or operators. NSWMA urged the
Agency to extend the non-parent
corporate guarantee to closure and post-
closure financial assurance
requirements as well. The revisions to
the corporate guarantee, proposed in
this notice and discussed in section V of
this preamble, respond to this portion of
NSWMA's petition.
m. Proposed Revisions to the Financial
Test
A. Background
Section 3004 of subtitle C of the
Resource Conservation and Recovery
Act (RCRA) of 1976, requires the
Environmental Protection Agency (EPA)
to promulgate regulations establishing
such performance standards applicable
to owners and operators of facilities for
the treatment, storage, or. disposal of
-------
30202
Federal Register / Vol. 56. No. 126 / Monday. July 1. 1991 / Proposed. Rules
hazardous waste as may be necessary
to protect human health and the
environment. Section 30Q4(a)(6) stains
that these standards shall include
requirements respecting "* * * the
maintenance of operation of such
facilities and requiring such additional
qualifications as to ownership,
continuity of operation, * * * and
financial responsibility as may be
necessary or desirable * * *" (emphasis
added). "Financial responsibility." while
not defined in the original RCRA or
subsequent amendments, has been
defined by Congress in other legislation
(including the Comprehensive
Environmental Response. Compensation
and Liability Act of 1980. or CERCLA) as
being demonstrable through a variety of
mechanisms, including passing a test of
corporate financial strength (hereafter, a
financial test).
Pursuant to its statutory authority
under RCRA, EPA proposed in 1978 a
set of financial assurance regulations
requiring owners or operators of TSDFs
to provide demonstrations that thuy
possess adequate resources to cover the
costs of closure and post-closure care
(43 FR 59006, December 18,1978). The
original financial assurance proposal
included only the trust fund as a
mechanism for assuring the costs of
closure and post-closure care. After
receiving comments contending that
allowing only trust funds was
financially burdensome, the Agency
added several alternative mechanisms.
including a financial test, in the revised
proposal of May 19.1980 (45 FR 33260).
The proposed financial test provided a
set of financial criteria which, if passed,
allowed.the owner or operator to
demonstrate financial assurance
without actually setting aside funds in a
trust fund for closure or post-closure
care or obtaining a third-party financial
assurance mechanism that would
guarantee an available source of funds
(e.g., letter of credit or insurance). After
receiving many comments on the May
19.1980 reproposal suggesting other
criteria for evaluating financial viability,
the Agency conducted an extensive
analysis of possible financial tests that
resulted in the current financial test for
closure and post-closure care that was
promulgated in the interim final rule of
April 7.1982 (47 FR 15032). These
requirements are in 40 CFR parts 264
and 265, subpart H. which cover
permitted and interim status facilities
respectively.
The Agency proposed financial
assurance requirements for third-party
liability coverage simultaneously with
the proposal for closure and post-closure
care financial assurance (43 FR 59006.
December 18,1978). In developing a
financial test for liability coverage, the
Agency applied the same basic
analytical approach used for evaluating
potential financial tests for closure and
post-closure care. The Agency's
financial test analysis led ;to the
promulgation on April 16,1982, of the
current financial test in 40 CFR parts 264
and 265 subpart H for liability coverage
(47 FR 16544).
Under the current regulations, which
have been in effect since 1982. TSDF
owners or operators can satisfy the
requirements for financial assurance of
closure and post-closure care by
demonstrating that they meet either of
the following sets of criteria:
Closure/Post Closure Care
Alternative I:
(A) Two of the following three ratios:
(1) A ratio of total liabilities to net
worth of less than 2.0:
(2) A ratio of the sum of net income
plus depreciation, depletion, and
amortization to total liabilities of
greater than 0.1; and,
(3) A ratio of current assets to current
liabilities of greater than 1.5; and
(B) Net working capital and tangible net
worth each at least six times the
sum of current closure and post-
closure care cost estimates being
covered by the test; and
(C) Tangible net worth of at least $10
million; and
(D) Assets in the United Slates
amounting to at least 90 percent of
total assets or at least six times the
sum of the current closure and post-
closure care cost estimates being
covered by the test.
Alternative II:
(A) A current rating for the owner or
operator's most recent bond
issuance of AAA, AA, A, or BBB as
issued by Standard and Poor's or
Asa, Aa, A, or Baa as issued by
Moody's; and
(B) Tangible net worth at least six times
the sum of current closure and post-
closure care cost estimates being
covered by the test; and
(C) Tangible net worth of at least $10
million; and
(D) Assets in the United States
amounting to at least 90 percent of
total assets or at least six times the
sum of the current closure and post-
closure care cost estimates being
covered by the test.
Under the current regulations, owners
or operators can satisfy the
requirements for financial assurance for
liability coverage by demonstrating that
they meet either of the following sets of
financial test criteria:
Alternative I:
(A) Tangible net worth of at least S10
million: snd
(B) Net working capital and tangible net
worth each at least six times the
sum of liability coverage to be
demonstrated by the test; and
(C) Assets in the United States
amounting to at least 90 percent of
total assets or at least six times the
sum of liability coverage to be
demonstrated by the test.
Alternative II:
(A) A current rating for his most recent
bond issuance of AAA, AA, A, or
BBB as issued by Standard and
Poor's or Aaa, Aa, A, or Baa as
issued by Moody's; and
(B) Tangible net worth at least six times
the sum of liability coverage to be
demonstrated by the test; and
(C) Tangible net worth of at least $10
million: and
(D) Assets in the United States
amounting to at least 90 percent of
total assets or at least six times the
sum of liability coverage to be
demonstrated by the test.
B. Development of the Financial Test
1.1981 Analysis and Results
In developing the current financial
test regulations, EPA performed an
extensive analysis of financial test
options for demonstrating financial
responsibility for the costs of closure,
post-closure care, and liability coverage
under RCRA subpart H. This analysis is
described fully in the Background
Document for the Financial Test and
Municipal Revenue Test: Financial
Assurance for Closure and Post-Closure
Care, U.S. EPA, November 30,1981. and
is summarized below.
The methodology used by the Agency
to select financial tests in 1981 consisted
of the following basic steps:
(1) Establish minimum net worth
requirement for firms using the
financial test.
(2) Analyze the performance of various
financial tests in discriminating
between bankrupt and viable firms.
(3) Evaluate those tests that best
discriminate between viable and
bankrupt firms according to a "least
cost" criterion.
(4) Impose "multiples requirements" on
firms using the test for closure, post-
closure care, and/or liability
coverage.
(5) Establish bond rating alternative for
firms with unique financial
characteristics.
Each of these steps is discussed
below.
-------
Federal Register / Vol. 56, No. 126 / Monday, July 1, 1991 / Proposed Rules 30203
a. Establish Minimum Net Worth
Requirement. If a firm uses a financial
test for demonstrating financial
assurance, it does not have to set aside
funds or purchase a financial assurance
mechanism from a third party (e.g., letter
of credit) to satisfy the financial
assurance requirements. Thus, if a firm
passes the financial test as its
demonstration of financial assurance
and then experiences financial duress or
goes bankrupt, it is unlikely that the firm
will be able to cover the required costs
(e.g.i the costs of closure and post-
closure care) in a timely manner. To
help ensure that the financial test
included criteria that protected against
financial duress and possibly
bankruptcy, the Agency imposed a $10
million minimum net worth requirement
for firms using the test. Data available to
the Agency in 1981 indicated that the
business failure rate for firms with less
than $10 million in net worth was as
much as double the failure rate for firms
with more than $10 million in net worth,
suggesting that the smaller firms could
be more likely to declare bankruptcy
and leave unfunded obligations.
Moreover, the Agency was concerned
that the expense of environmental
obligations could drive small TSDF
owners into bankruptcy if they failed to
plan for these future costs. The Agency
compared the size of potential closure,
post-closure care, and liability
obligations (which range from $100,000
to over $10 million) with net worth and
determined that a $10 million minimum
net worth requirement would help to
ensure that the costs of conducting
closure and post-closure care activities
and compensation for third-party
damages would not themselves be
burdensome enough to cause TSDF
owners to go into bankruptcy.
b. Analyze Performance of
Alternative Financial Tests. The Agency
was concerned that a minimum net
worth requirement alone would not be
sufficient to preclude firms from passing
the financial test and later going
bankrupt. Thus, the Agency examined
over 300 alternative sets of mesures,. •
consisting largely of different
combinations of financial ratios that
have long been used in the financial
community to assess the financial
performance of firms, for possible
inclusion in a financial test (financial
ratios are discussed in more detail in the
next section).
To measure the performance of
alternative tests in discriminating
between viable and bankrupt firms, the
Agency constructed a sample of 178
non-bankrupt firms and a sample of 66
bankrupt firms. The non-bankrupt firm
sample 'consisted of firms with available
financial information for the years 1973-
1975 that did not declare bankruptcy in
that period. Because data on the actual
owners of TSDFs were not readily
available to the Agency in 1981, the
sample of firms used as a proxy for
actual owners was drawn from
industries identified through Moody's
Industrial Manual as likely to generate,
treat, store, or dispose of hazardous
waste on-site. The bankrupt firm sample
consisted of firms that had filed for
bankruptcy under chapters 10 or 11 of
the Federal Bankruptcy Act between
1966 and 1979 and had available
financial information for the three years
prior to bankruptcy. These firms were
selected from a broader range of
industrial categories than the non-
bankrupt firms and included categories
unlikely to manage hazardous waste.
This broader range of categories was
necessary to ensure an adequate sample
size, since bankruptcy is a relatively
rare event.
The candidate financial tests were
then evaluated against the bankrupt and
non-bankrupt firm samples in terms of
their ability to (1) "pass" non-bankrupt
firms capable of meeting their financial
assurance obligations, and at the same
time (2) "fail" bankrupt firms that would
enter bankruptcy without the means to
meet those obligations. The Agency
quantified these performance indicators
using the following two measures:
A vailability (A): Availability of the
financial test was measured as the
percentage of non-bankrupt firms with over
$10 million in net worth that can pass the
test. '
Bankruptcy Misprediction (M):
Misprediction of the test was measured as
the percentage of bankrupt firms that pass
the financial test within three years before
bankruptcy. The Agency assumed that even if
a firm failed the financial test up to three
years prior to bankruptcy, there may not be
sufficient time or capability for the owner or
operator to obtain alternate assurance prior
to bankruptcy.
The optimal tests would maximize the
number of viable firms that pass the
test—i.e., maximize "availability" of the
test, or the "A" measure—and minimize
the number of bankrupt firms that pass
the test—i.e., minimize the number of
firms that are "mispredicted," the "M"
measure. As documented in the 1981
analysis, there is a trade-off between
these two performance measures. No
financial test will allow every viable
firm to pass the test while at the same
time screening out all future bankrupt
firms from using the test prior to
bankruptcy. More difficult tests will, in
feneral, prevent more future bankrupt
rms from being able to pass the -test,
but will be more difficult for viable firms
to pass (i.e., more difficult tests will be
less "available" to viable firms). By
contrast, less difficult tests have the
advantage of being widely available to
healthy firms but also tend to allow
more bankrupt firms to pass.
After measuring the performance of
all candidate tests in terms of their
ability to discriminate between
bankrupt and nonfaankrupt firms, the
Agency selected for further analysis a
group of "dominant" tests. Dominant
tests were those that passed the largest
number of non-bankrupt firms for given
levels of misprediction rates. If one test
passed more non-bankrupt firms than
another test but screened out the same
number of bankrupt firms, the first test
was considered to "dominate" the
second test and was used in the
Agency's group of "best tests."
c. Evaluate "Best" Tests According to
a Least-Cost Criterion. Because any
financial test involves a tradeoff
between availability to viable firms and
screening of firms that later go bankrupt,
the choice of an optimal test depends on
the Agency's objectives in allowing a
test, and requires the Agency to select
criteria for determining which "mix" of
performance is best. In 1981, the Agency
used a "least-cost" criterion for selecting
the optimal financial test. That is, EPA
calculated the costs to the public and to
the regulated community associated
with each test that had been identified
previously as a "best test" and selected
the test with the lowest total costs. For
each financial test evaluated, the
Agency calculated [I] tlis costs of the
public sector ("public costs") of paying
for necessary response actions for firms
that pass the test but later go bankrupt
without setting aside firms for closure
and post-closure care and, if necessary,
third-party liability judgments through
other financial assurance mechanisms,
and (2) the costs to viable firms
("private costs") of obtaining alternative
financial assurance mechanisms (e.g.,
letters of credit or trust funds) when
they cannot pass the test Because the
financial test is virtually a costless
means of demonstrating financial
responsibility, the more available the
test the lower the cost of the regulated
community. Widely available tests have
relatively low private costs because
relatively few viable firms are forced to
pay for other financial assurance
mechanisms (e.g., letters of credit or
trust funds). Conversely, the more
available the test, the more likely the
test is to allow bankrupt firms to pass
the test. As a result, highly available
tests have the result of higher public
costs because more firms go bankrupt
-------
30204
Federal Register / Vol. 56, No. 126 / Monday. July 1. 1991 / Proposed Rules
without setting aside funds for closure
and post-closure care and, if applicable.
third-party liability judgments. Tests
with better ability to screen bankrupt
firms have relatively low public costs
because relatively few bankrupt firms
have leave unfunded environmental
obligations by using the financial test
and later going bankrupt. The Agency
selected the test with the lowest sum of
both public and private costs.
The lowest-cost financial test that the
Agency analyzed in 1981 for closure and
post-closure care specified three
financial ratios and required that firms
pass two of these three ratios.
This test was projected to allow about
98 percent of viable firms to pass, while
screening out about half of firms that
later go bankrupt within three years of
passing the test. This balance of
availability to viable firms and
screening out of bankrupt firms resulted
In the lowest combined costs to the
public and private sectors of any other
test that included a $10 million in net
worth requirement.
The Agency also analyzed alternative
financial tests for liability coverage by
measuring the public and private costs
of potential tests. The results of this
analysis differed from the results of the
cost analysis for alternative tests for
closure and post-closure care, however,
because the public costs of third-party
liability coverage are different from the
public and private costs of closure and
post-closure care. Unlike the public
costs related to closure and post-closure
care, which are incurred every time a
firm using the fincncial test goes
bankrupt without providing alternate
assurance, public costs related to
liability coverage are incurred only
when a firm using the financial test
enters bankruptcy and is required to pay
liability claims. Because the probability
of bankruptcy is low, and the
probability of a firm having to pay
liability claims is low, the combined
probability of both events occurring is
very low. Therefore, the public costs of a
financial test for liability coverage are
significantly lower than public costs of
the closure and post-closure care test
even when the ability of a test to screen
out bankrupt firms is relatively weak.
As a result, the test that minimized the
total costs (i.e. the sum of public and
private costs) did not include any ratio
requirements. An easier test without
ratio requirements reduced private costs
because of its greater availability to
viable firms without significantly
increasing public costs (because few
bankrupt firms able to pass the test are
likely to face a liability obligation).
d. Impose Mult/pies Requirements. In
1981 the Agency included in all tests a
requirement that firms have tangible net
worth and net working capital equal to
at least six times the amount of the
financial assurance obligations covered
by the test. These "six times" or
"multiples" requirements were imposed
to provide a cushion of financial
resources for firms that might
experience rapid financial deterioration
after passing other components of the
financial test. Agency data had
indicated that some firms in the sample
of bankrupt firms were able to pass
most of the ratio tests analyzed and yet
deteriorated quickly into bankruptcy.
The Agency performed an analysis of
those firms and concluded that the six
times multiples would provide an
adequate cushion to ensure that even
rapidly deteriorating firms would have
resources adequate to cover the costs of
closure, post-closure care, and third-
party liability judgments.
e. Establish Bond Rating Alternative.
The analysis summarized above
resulted in the selection of financial
tests for closure and post-closure care
and for liability coverage. Both of these
tests included net working capital
requirements: For closure and post1
closure care, the test required a net
working capital multiple of six times the
closure/post-closure cost estimate and a
current ratio of greater than 1.5; for
liability coverage, the test required a net
working capital multiple of six times the
required liability coverage. In the course
of its analysis, the Agency found that
the net working capital multiple
requirements would make the subtitle C
financial test unavailable to many
electric utilities, despite their overall
financial strength, because many
utilities typically operate with negative
net working capital. Thus, the Agency
considered allowing firms to pass an
investment grade bond rating
requirement as an alternative to the
tests selected for closure/post-closure
care and for liability coverage.
An investment grade bond rating was
believed to be a good demonstration of
financial strength because it reflected
the expert opinion of the bond rating
service and the financial community.
Electric utilities, and any other firms
with similar financial characteristics,
could pass such a requirement without
having to have positive net working
capital. Moreover, the Agency
performed a quantitative analysis
indicating that bond ratings have
historically been a reasonably good
indicator for predicting default, and
noted that none of the firms in its
sample of bankrupt firms between 1966
and 1979 had an investment grade rated
bond issuance. After analyzing the
performance of bond ratings in
predicting default, the Agency decided
that allowing the bond rating alternative
test would enhance the availability of
the financial test to financially sound
firms in industries with unusual
financial characteristics, such as the
electric utility industry, while ensuring
that firms passing the requirement have
sufficient financial strength to fund the
potential costs of closure, post-closure
care and third-party liability actions.
2. Rationale for Revising Current
Financial Tests
The Agency decided to reevaluate
alternative financial tests and revise the
current provisions for the subtitle G
financial tests for a number of reasons.
First, the current tests have come under
criticism from both the private and
public sectors for not performing as the
Agency had expected. Second, the
Agency recognized that while the
original analysis of alternative tests was
analytically rigorous and used the best
available information, it was based on
very limited data on the universe of
firms owning TSDFs as well as limited
data on the average costs of closure,
post-closure care, and third-party
liability. The Agency has since compiled
additional data in these areas. Finally,
the Agency's analysis confirmed that the
current financial tests are not
performing as well as the Agency
originally estimated in terms of their
availability to viable firms, while the
tests were not performing any better
than estimated in screening out
bankrupt firms.
a. Criticisms of the Existing Tests.
Since the financial tests were
promulgated, parties in both the private
and public sectors have criticized the
current financial test for closure and
post-closure care and the financial test
for liability coverage. The two key
criticisms are: (1) The financial test is
not as accurate a predictor of firm
bankruptcy as estimated in the 1981
analysis, and (2) the financial test is not
available to some large, financially
strong firms.
The General Accounting Office
criticized the bankruptcy prediction
accuracy of the financial test in a
February 1986 report.1 The report stales
that the 1981 estimate of the percentage
of firms that would pass the test but
later go bankrupt without providing
financial assurance was understated,
and that the financial test may therefore
be an inadequate mechanism for
providing adequate financial assurance.
1 Environmental Safeguards Jeopardized When
Facilities Cease Operating. U.S. General Accounting
Office. February. 1985,' ,
-------
Federal Register / Vol. 56, No. 128 / Monday, July 1. 1991 / Proposed Rules 30205
On the other hand, criticism from the
private sector has focused on the
unavailability of the tests to large,
financially sound firms. For example,
commenters on the proposed financial
responsibility rule for subtitle D
municipal solid waste landfills, which
encouraged States to adopt the Subtitle
C financial test and other financial
assurance mechanisms in developing
State regulations (53 FR 33314, August
30,1988], stated that the test is
unavailable to many strong firms and
thus unnecessarily raises the cost of
providing financial assurance by
requiring alternate assurance
mechanisms to be obtained.
b. Limitations of the 1981 Analysis.
The comments and criticisms regarding
the financial tests substantiate Agency
concerns that the 1981 analysis leading
to the selection of the tests was limited •
in two important respects: (1) Samples
of firms used, and (2) limited
information on the potential costs of
closure, post-closure care, and liability
coverage. Each of these limitations is
discussed below.
Samples of Firms Used. At the time of
the original analysis, the owners and
operators of TSDFs had not been fully
identified. Therefore, the samples of
Firms used in the 1981 analysis, while
drawn from the best available sources
at the time, were not necessarily
representative of the types of firms that
own TSDFs. The Agency's sample of
non-bankrupt firms was drawn from
general industrial categories that
included on-site handlers of hazardous
waste; the bankrupt firm samples was
drawn from a even broader base-of
industrial categories. As a result, in both
samples, the firms considered by the
Agency were not known TSDF owners
or operators. .:
Limited Information on Potential
Financial Assurance Costs. At the time
of the Agency's original financial test
analysis, little information was
available on the numbers and types of
facilities owned and on the costs of
closure and post-closure care. These
limitations had several significant
effects on the evaluation of alternative
financial test..
First the lack of data on the costs of
closure and post-closure care made it-
very difficult for the Agency to analyze
the impact of the multiples requirements
on the performance of financial tests for
closure and post-closure care in terms of
availability to viable firms and ability to
screen out bankrupt firms. Estimates of
closure and post-closure care costs are
necessary to calculate the amount of
tangible net worth and net working
capital a firm must have to satisfy the
'required six times multiples. In the
absence of this information, the Agency
was unable to incorporate the multiples
requirements into the calculation of
availability and bankruptcy
misprediction for alternative financial
tests, and imposed the requirements
separately as a protection against
premature closure and post-closure
obligations themselves causing
bankruptcy.
Second, the lack of data on the types
of facilities owned by each firm limited
the Agency's ability to test the impact of
the multiples requirements on the
performance of alternative financial
tests for liability coverage. In the case of
liability coverage, information on
whether a firm owns land disposal or
non-land disposal facilities is necessary
to determine the required "six times"
multiple for net worth and net working
capital. A firm owning at least one land
disposal facility must have six times the
required $8 million aggregate coverage
(i.e., $48 million) in net working capital
and net worth, while a firm owning
facilities with only container storage,
tank, incinerator, or waste pile units
must have six times the required $2
million in aggregate coverage (i.e., $12
million) in net worth and net working
capital. In the absence of information on
types of facilities, the Agency was
unable to incorporate the multiples
requirements into the calculation of
availability and bankruptcy
misprediction for alternative financial
tests, and imposed the requirements
separately as a protection against third
party liability judgments themselves
causing bankruptcy.
The effect of not including the
multiples requirements in the analysis of
the performance of alternative financial
tests is that the current financial tests
are more difficult to pass than the
Agency predicted. In the case of the
closure/post-closure test, the actual test
includes the six times multiples
requirements for net worth and net
working capital hi addition to the $10
million in net worth requirement and the
two of three ratios requirement analyzed
quantitatively by the Agency. Therefore,
a firm that had sufficient net worth to
pass the $10 million in net worth
criterion required by the test in the 1981
analysis might fail the actual test which
required additional net worth as well as
net working capital to satisfy the
multiples requirements. Because the
current test (including the multiples
requirements) is more difficult than the
test originally analyzed (which did not
include the multiples requirements), it is
highly likely that fewer non-bankrupt
firms are actually able to pass the test
than the Agency anticipated. In
addition, it follows that fewer bankrupt
firms should be able to pass the test
than the Agency anticipated.
Similarly, in the case of the financial
test for liability coverage, the actual test
includes the six times multiples
requirements for net worth and net
working capital in addition to the $10
million in net worth requirement. A firm
that had sufficient net worth to pass the
$10 million in net worth criterion
required by the test in the 1981 analysis
might fail the actual test which required
additional net worth as well as net
working capital to satisfy the multiples
requirements. Again, because the
current test is more difficult than the test
originally analyzed (because the current
test includes multiples requirements), it
is highly likely that fewer viable firms
are actually able to pass the test than
the Agency anticipated. In addition, it is
likely that fewer bankrupt firms should
be able to pass the test than the Agency
anticipated.
In the years since the original
financial test analysis was completed,
the Agency has compiled a data base
containing financial and facility
information for owners and operators of
regulated TSDFs. This data base
provides ownership and financial
information for TSDFs, including the
types of units present at each facility
(the data base is described in more
detail in the next section). The Agency ;
has also developed more refined
estimates of the cost of closure and
post-closure care for each facility, based
on the types of units present at each
facility. These data enabled the Agency
to test explicitly the impact of the
current multiples requirements in the
financial tests, as well as alternative
requirements, in an evaluation of
alternative financial tests.
c. Preliminary Analysis of Current
Test Performance. As a preliminary step
to the revaluation of financial tests, the
Agency analyzed the financial test for
closure and post-closure care and the
financial test for liability coverage, to
compare the actual performance of the
tests relative to the Agency's estimates
in 1981. In this analysis, the current
financial tests were analyzed using the
same performance measures as in the
1981 analysis, but against new samples
of bankrupt and non-bankrupt firms
developed by the Agency (the new
samples are explained in more detail in
the next section). The results of this
analysis showed that the current
financial test for closure and post-
closure care was not performing as well
for firms with TSFDs as the Agency had
predicted in the 1981 analysis of firms in
various industrial categories. The test
was available to about two-thirds of
-------
30206
Federal Register / Vol. 56, No. 126 / Monday, July 1, 1991 / Proposed Rules
viable firms with greater than $10
million in net worth, compared to the
Agency's original estimate of 96 percent .
availability. The test was slightly better
(less than ten percent) at screening out
bankrupt firms than the Agency
originally estimated. The results of this
analysis showed that the financial test
for liability coverage also was not
performing as well as indicated by
previous Agency estimates. The test was
only available to 62 percent of viable
firms compared to the Agency's 1981
estimate of 100 percent availability. In
contrast, the test actually screened 25
percent more bankrupt firms than the
Agency anticipated due to the difficulty
of passing the multiples requirements of
the test. Because the results of this
analysis were so different from the
original estimates, the Agency decided
to reevaluate alternative financial tests.
3.1989 Analysis Methodology
Today's proposed revisions to the
financial test for closure and post-
closure care and for liability coverage
are a result of an analysis of the existing
financial tests and numerous regulatory
alternatives to these tests. In this
analysis, the Agency used the same
basic goals in promulgating a financial.
test as those used in the 1981 analysis:
(1) Funds should be available to pay for
the cost of environmental obligations in
a timely manner to ensure the protection
of human health and the environment;
(2) as a matter of equity, the parties
responsible for environmental
obligations (i.e., owners and operators)
should pay for those costs; (3) total costs
of providing assurance should be
minimized; and (4) cost to the regulated
community of providing financial
assurance should be as low as possible,
while satisfying other goals. The
analysis of alternative tests was
significantly enhanced by the
availability of better data and other
enhancements.
The analysis of financial tests
alternatives for this proposal follows
closely the approach used by the
Agency in the 1981 analysis. First, a
minimum net worth requirement was
established. Second, the Agency
analyzed the performance of various
financial tests in discriminating between
bankrupt and viable firms. Third, those
tests that best discriminated between
viable and bankrupt firms were
evaluated according to a "least cost"
criterion, and a new revised financial
test was selected. Each of these
analytical steps is described
immediately below, while the
conclusions reached as a result of this
analysis are set forth in section III. C. of
this preamble.
a. Establish Minimum Net Worth
Requirement. The Agency reviewed
data on firm failure rates by size of net
worth to determine if a minimum net
worth requirement significantly reduces
the likelihood of bankruptcy among
firms using the financial test. Because
the 1981 analysis used information on
firm failure rates largely from the early
1970's, EPA obtained updated
information from Dun and Bradstreet
(D&B) and U.S. Census data for the
years 1983-1987 to derive average
annual failure rates for manufacturing
firms (which represent nearly all RCRA
firms) by various net worth categories.
Using the derived firm failure rates by
net worth category, EPA analyzed the
effect of various net worth thresholds on
the probability that firms passing the
financial test would later go bankrupt
without providing alternate assurance.
b. Evaluate the Performance of
Alternative Financial Tests. The Agency
followed the same basic approach for
evaluating alternative tests as in the
1981 analysis. First, the Agency
evaluated available financial measures
and then selected a number of
individual financial measures for
inclusion into a set of alternative
financial tests. This set of measures
consisted of measures commonly used
by financial analysis and financial
institutions in gauging the financial
strength of a firm. Second, the set of
alternative tests was analyzed for their
availability to viable firms and ability to
screen out bankrupt firms, and the
"best" performing tests were identified.
"Best" performing tests, or "dominant"
tests, were defined as those that were
the most available to viable firms for a
given level of bankruptcy screening.
Third, these "best" performing tests
were analyzed for their total public and
private costs, a key element in the
selection of alternative tests. Public
costs were defined as the costs to the
public of paying for the unfunded
obligations of firms that passed the
financial test and later went bankrupt,
and private costs were defined as the
costs to viable firms unable to use the
test of paying for alternative financial
assurance mechanisms,,. Each of these
steps is discussed below.
Analysis of Individual Financial
Measures. A research of financial
literature was conducted to identify
possible financial ratios, which
generally fell into one of three
categories of financial ratios typically
used for bankruptcy prediction:
(1) Profitability ratios—measure a
firm's net income or cash flow in
relation to firm size (e.g., cash flow/total
liabilities), and reflect the ability of a
firm to use its assets profitably and
sustain operations over time;
(2) Leverage ratios—measure a firm's
debt in relation to firm size (e.g., total
liabilities/net worth), and measure the
degree of difficulty a firm might face in
meeting principal and interest
repayments over time (and the
willingness of lenders to extend
additional credit to the firm); and
(3) Liquidity ratios—measure a firm's
cash or current assets in relation to firm
size or current liabilities (e.g., current
assets/current liabilities), and reflect the
degree to which a firm can meet its
short-term obligations with readily
available liquid assets.
In addition to financial ratios, the
Agency also evaluated a variety of
multiples requirements for net worth
and net working capital (i.e., one
through six times the size of the
financial obligation). The Agency also
analyzed "additive" requirements that
required firms to have a certain level of
net worth (in addition to the minimum
net worth requirement of $10 million)
based on the amount of costs they
wished to cover with the test. Under this
approach, for example, if a test required
a six times additive for net worth, a firm
would have to have a minimum of SiO
million in net worth plus an additional
amount of net worth equal to six times '
the financial assurance obligations
covered by the test. (In contrast, the
current tests allow nel worth to be
applied both to the minimum net worth
requirement and to the net worth
multiple requirement). Requiring a net
worth additive over and above the $10
million net worth requirement ensures
that a firm using the financial test will
maintain a $10 million minimum net
worth even after paying the cost of
environmental obligations covered by
the test. Thus, this provision protects
against the risk of environmental
obligations causing bankruptcy for firms
that use the financial test.
To measure the performance of these
individual financial measures in
discriminating between viable and
bankrupt firms, the Agency used the
new samples of bankrupt and non-
bankrupt firms described in the previous
section. These samples incorporate data
on actual owners of TSDFs compiled by
the Agency in recent years. A sample of
608 non-bankrupt firms was created
from the Agency's firm/facility/financial
data base (F3DB) of known RCRA TSDF
owners who had not gone bankrupt
while they owned a facility. A sample of
31 firms that had gone bankrupt while
owning a facility was developed from
the F3DB and supplemented by a.data
base of owners of facilities included on
-------
Federal Register / Vol. 56. No. 126 / Monday, July 1, 1991 / Proposed Rules
30207
CCRCLIS. By creating new samples of
bankrupt and non-bankrupt firms from
owners or operators of hazardous waste
facilities, the Agency could evaluate
how the individual financial measures
and financial tests combining those
measures actually perform against firms
affected by the regulations.
The candidate financial measures
were evaluated against the bankrupt
and non-bankrupt firm samples in terms
of their ability to (1) "pass" non-
bankrupt firms capable of meeting their
financial assurance obligations, and at
the same time (2) fail bankrupt firms
that would enter bankruptcy without the
means to meet those obligations. Each
financial measure was evaluated using
two performance measures:
Availability (A): Measured as the
percentage of total financial assurance
obligations (i.e., costs of closure, post-
closure care, and third-party liability
coverage) facing non-bankrupt firms
with over $10 million in net worth that
can be covered using a particular
financial measure or financial test.
Mispi-ediction (M): Measured as the
percentage of total financial assurance
obligation facing bankrupt firms that
can be covered by bankrupt firms using
the financial test.
In the 1981 analysis, availability was
measured as the percentage of non-
bankrupt firms able to use the financial
test to cover ail of their financial
assurance obligations, and
misprediction was measured as the
percentage of bankrupt firms able to use
the financial test to cover all of their
obligations. In the 1989 analysis,
availability is measured as the
percentage of financial assurance
obligations (i.e.. the percentage of
closure/post-closure care obligations or
required liability coverage) covered by
non-bankrupt firms using the test, and
misprediction measured as the
percentage of obligations covered by
bankrupt firms using the test. These
"dollar-based" percentage
measurements are used because they
produce a more accurate calculation of
public and private costs, as discussed in
the next section.
Those individual financial measures
that performed relatively well at
differentiating between the two samples
had a high differential between the
availability (A) and misprediction (M)
measures; i.e., they allow viable firms to
cover a relatively large percentage of
obligations and, at the same time, screen
out a large share of obligations of
bankrupt firms. Those measures that
performed relatively poorly had about
the same availability to viable firms and
bankrupt firms; i.e., they allowed
bankrupt arid non-bankrupt firms to
cover a similar percentage of
obligations. In some cases, poorly-
performing measures had a negative
differential—they allowed bankrupt
firms to cover a higher percentage of
obligations than non-bankrupt firms.
The Agency's analysis of ratio
measures found that profitability ratios
(e.g., cash flow/total liabilities) and
leverage ratios (i.e., total liabilities/net
worth) were particularly good at
discriminating between bankrupt and
non-bankrupt firms. For financial tests
based on a single profitability ratio or a
single leverage ratio, the difference
between the percentage of
environmental obligations covered by
non-bankrupt firms (defined as "A," or
availability), and the percentage
covered by bankrupt firms (defined as
"M," or misprediction), was about 30
percent. A large number of the
"dominant" financial tests identified in
the next step of the analysis consisted of
a combination of one profitability ratio
and one leverage ratio. All of the most
cost-effective financial test alternatives
identified in the last step of the analysis
required firms to pass either a
profitability ratio or a leverage ratio (the
required thresholds for each ratio were
different for different tests).
In contrast to the results for the
profitability and the leverage ratios, the
liquidity ratios (i.e., current assets/
current liabilities and net working
capital/total assets) were particularly
poor discriminators between bankrupt •
and non-bankrupt firms. In some cases,
financial tests consisting of a single
liquidity ratio allowed bankrupt firms to
cover a larger percentage of
environmental obligations than non-
bankrupt firms. This result may reflect
the fact that firms will often liquidate
assets to meet their pressing cash '
obligations in the years just prior to
entering bankruptcy or may reflect
attempts to reschedule short-term
obligations over longer periods. An
anaylsis of the bankrupt firm sample
showed that liquidity measures in
general rose over the three-year period
prior to bankruptcy. Therefore, liquidity
ratios were not included in alternative
financial test configurations.
The Agency's analysis of multiples
and additive requirements showed that
the multiples for net worth and net
working capital and the net worth
additive requirement did not
discriminate very well between
bankrupt and non-bankrupt firms (i.e.,
there was little difference in the
percentage of obligations covered by
viable and bankrupt firms passing the
requirement). However, these
requirements are not intended to be
bankruptcy predictors but rather are
designed to ensure thai a large
environmental obligation will not itself
cause bankruptcy. Therefore, each of the
potential multiples and additive
requirements initially analyzed were
incorporated into the alternative
financial test configurations.
The various profitability and leverage
ratios that performed well at
distinguishing between bankrupt and
non-bankrupt firms combined to form
alternative financial tests. In addition, a
variety of possible multiple and additive
requirements for net worth were also
added to each combination of financial
ratios. This process led to the
development of over 500 alternative
financial tests to be evaluated against
the samples of bankrupt and non-
bankrupt firms.
Analysis of Alternative Financial
Tests. The set of candidate financial
tests, similar to the set of individual
financial measures, were evaluated
against the bankrupt and non-bankrupt
firm samples in terms of their ability to
pass non-bankrupt firms capable of
meeting their financial assurance
obligations (availability or "A") and
their ability to screen out bankrupt firms
that would enter bankruptcy without the
means to meet those obligations
(misprediction or "M"). In general the
alternative tests, which were
combinations of the individual measures
previously analyzed, performed better at
discriminating between bankrupt and
viable firms that the individual
measures alone. Thus, the Agency
focused on these combination tests for
further analysis.
Establish Set of "Best" Tests. As
discussed earlier, there is a fundamental
trade-off between the availability and
misprediction performance measures. .
No test allows every viable firm to pass
the test and at the same time screens out
all future bankrupt firms from using the
test prior to bankruptcy. As in 1931, the
Agency narrowed the set of potential
tests by selecting a group of "dominant"
tests, i.e., tests with the highest ability to
pass non-bankrupt firms for given levels
of bankruptcy misprediction. A separate
group of dominant tests Was selected for
both closure/post-closure care and for
liability coverage.
c. Evaluate Test Based on a Least-
Cost Criterion. As in the 1981 analysis,
the Agency calculated the public and
private costs of each "dominant" test
selected in the previous step. Consistent
with earlier analyses, the Agency
defined public costs as the costs to the
public sector of paying for financial
assurance obligations for firms that pass
the test but later go bankrupt without
funding their obligations, and private
-------
30208
Federal Register / Vol. 56, No. 126 /Monday, July 1,. 1991 / Proposed Rules
costs as the cost to viable firms of
obtaining alternative financial
assurance mechanisms when they
cannot pass the test. The amount of
public and private costs associated with
a particular test depends on the test's
performance in terms of its availability
to viable firms and its ability to screen
out bankrupt firms. The higher the
availability of a test to viable firms, the
lower the private costs because fewer
firms must pay the costs of obtaining
alternate financial assurance.
Conversely, the better the test is at
screening out bankrupt firms from using
the test, the lower the public costs
because fewer firms will leave unfunded
obligations after bankruptcy.
The Agency calculated these costs for
each candidate test and selected the
lowest-cost tests that best satisfied
Agency policy considerations for further
analysis. In contrast to the 1981
analysis, in which the lowest-total-cost
test was selected for promulgation, the
Agency chose in the 1989 analysis to
identify a set of low-cost tests and select
a test from that group based on policy
considerations. This approach was used
because several tests had very similar
total costs but different balances
between public and private costs. Using
this modified cost-effectiveness
approach, the Agency could consider the
balance of public and private costs
among tests of approximately equal
total costs. The Agency solicits
comment on this approach.
While the methodology used to
calculate public and private costs was
consistent with the 1981 analysis, the
Agency had significantly better data
available for the current analysis. For
example, more recent data on firm
failure rates were used to estimate the
likelihood that a firm passing the
financial test would later go bankrupt
and leave unfunded obligations (i.e.,
public costs). The Agency has also
compiled better data on the costs of
other financial assurance mechanisms
which are the basis for estimating the
costs to firms of obtaining alternate
assurance if they are unable to pass the
financial test (i.e., private costs).
The calculation of costs was also
enhanced by basing the A and M
performance measures on the
percentage of obligations (i.e., the
percentage of closure/post-closure costs
or required liability coverage) covered
by a financial test rather than the
percentage of firms able to pass the'
financial test for their total financial
assurance obligations. Because the
Agency had better data available on the
•costs of closure and post-closure care
and had specific information on facility
ownership, it could compare the total
amount of financial responsibility
required for each firm with that firm's
capacity to pass a financial test for that
specified amount. If the firm could not
pass the test for the entire amount, then
the Agency calculated the percentage of
the financial assurance requirements
that could be covered using the test. In
contrast, because of the lack of data on
costs and facility ownership, the 1981
analysis assumed that all firms faced
similar costs and either covered all or
none of their obligations with the
financial test.
Calculating costs covered by a
financial test as a percent of total
financial responsibility required
improves the calculation of total costs
for two major reasons: (1) The approach
accounts for the differences among firms
in terms of their impact on total public
and private costs; and (2) the approach
accounts for the combinations of.
financial assurance mechanisms that
firms are allowed to use in providing
coverage of obligations.
First, if a viable firm is unable to pass
the financial test, the annual cost of
obtaining an alternate financial
assurance mechanism is equal to a
percentage of the amount of financial
assurance obligations covered by the
mechanism. For example, the annual
cost of a letter of credit may equal 1.5
percent of the closure cost estimate for
which assurance is provided. If the firm
faces substantial financial assurance
obligations (e.g., it owns several
disposal facilities with high closure and
post-closure costs) and cannot pass the
financial test, then private costs are
increased by a much greater amount
than if a viable firm with only limited
obligations (e.g., a firm with one small
facility) cannot pass the test. Similarly,
if a firm facing substantial financial
assurance obligations goes bankrupt
after using the financial test, the public
costs will be much greater than if a firm
with minimal obligations goes bankrupt.
By counting availability and
misprediction in terms of the percentage
of obligations facing firms that can be
covered using the financial test, the
relative impact of a viable firm's
inability to pass the test (which results
in private costs) or of a bankrupt firm's
ability to pass the test (which results in
public costs) is incorporated into the
cost analysis. Second, a dollar-based
measure of availability and
misprediction also allowed the Agency's
analysis to reflect the fact that financial
assurance regulations allow firms to
combine the financial test with other
financial assurance mechanisms. In the
case of closure and post-closure care, •
the regulations allow firms to use the
financial test to cover the obligations of
some facilities, and use other
mechanisms to cover the obligations of
other facilities. In the case of liability
coverage, regulations explicitly allow
firms to use the financial test to cover as
much of their liability requirements as
possible, and use other mechanisms to
cover the remainder of their liability
requirements. Because the financial test
can be combined with other
mechanisms in many cases, and because
the financial test is likely to be at least-
cost financial assurance mechanism, the
Agency assumed that all firms will use
the financial test to cover as much of
their financial assurance obligations as
possible and then cover remaining
obligations with other mechanisms. For
example, if a firm can satisfy the
financial test requirements sufficiently
to .cover 70 percent of its closure, post-
closure care and liability coverage
obligations, then the Agency assumed
that the firm would obtain alternate
financial assurance mechanisms to
cover the remaining 30 percent of its .
obligations.
C. Section-by-Section Analysis of
Proposed Financial Test Revisions
1. Summary of Proposed Revisions
The Agency is proposing regulatory
language that would allow an owner or
operator to satisfy the financial
assurance requirements for closure and
post-closure care by meeting either of
the following sets of criteria:
Alternative I
(A) One of the following two ratios:
(1) a ratio of total liabilities to net
worth less than 1.5; or
(2) a ratio of cash flow (net income
plus depreciation, depletion, and
amortization) minus $10 million to total
liabilities greater than O.i; and
(B) Tangible net worth of at least $10
million plus the sum of all financial
assurance obligations covered by the
financial test (i.e., $10 million plus
current closure and post-closure care
cost estimates covered by the test); and
(C) Assets in the United States
amounting to at least 90 percent of total
assets or at least six times the sum of
the current closure and post-closure care
cost estimates.
Alternative II
(A) A current rating for the owner or
operator's most recent bond issuance of
AAA, AA, A, or BBB as issued by
Standard and Poor's or Aaa, Aa, A, or
Baa as issued by Moody's; and
(B) Tangible net worth greater than
the sum of the current closure and post-
-------
Federal Register / Vol. 56. No. 126 / Monday, July. 1. 1991 / Proposed Rules
30203
closure cost estimates and any other
obligation covered by the financial test
plus $10 million; and
(C) Assets in the United States
amounting to at least 90 percent of total
assets or at least six times the sum of
the current closure and post-closure care
cost estimates and any other obligations
covered by the financial test.
The Agency is also proposing
regulatory language that would allow an
owner or operator to satisfy the
financial assurance requirements for
liability coverage by demonstrating that
he meets the following criteria:
Alternative I
(A) Tangible net worth of at least $10
million plus the sum of liability coverage
requirements; and
(B) Assets in the United States
amounting to at least 90 percent of total
assets or at least six times the amount of
aggregate liability coverage to be
demonstrated.
Alternative II
(A) A current rating for the owner or
operator's most recent bond issuance of
AAA, AA, A, or BBB as issued by
Standard and Poor's or Aaa, Aa, A, or
Baa as issued by Moody's; and
(B) Tangible net worth of at least $10
million plus the sum of liability coverage
requirements; and
(C) Assets in the United States
amounting to at least 90 percent of total
assets or at least six times the amount of
aggregate liability coverage to be
demonstrated.
It should be noted that both proposed
revised tests retain the requirement that
the owner or operator have assets in the
United States amounting to at least 90
percent of total assets or at least six
times the sum of the current 'closure and
post-closure cost estimates. This
provision serves to ensure that assets
are available within the United States in
the event that either the United States or
a State seeks assets to such assets to
carry out the assured task. Because this
requirement serves a purpose other than
prediction of financial condition, the
Agency is not revising this provision as
part of its amendments to the financial
tests.
2. Financial Test for Closure and Post-
Closure Care
The financial test for closure and
post-closure care comprises a minimum
net worth requirement and a set of
financial ratios. These are discussed
below.
Minimum Net Worth Requirements.
The current .financial test requires firms
to have over $10 million in tangible net
worth. This cutoff was established
because data available to the Agency in
1981 indicated that firms with less than
$10 million in net worth were more
likely to go bankrupt than were firms
with more than $10 million in net worth.
Moreover, it was assumed that a $10
million minimum net worth requirement
would help to ensure that the costs of
closure, post-closure care, and liability
judgments would not themselves cause
TSDF owners to go into bankruptcy. In
addition'to the ordinary business
misfortunes that lead to bankruptcy, the
expense of meeting the costs of closure,
post-closure care, and third party
liabilities could drive small TSDF
owners into bankruptcy if they fail to
plan for these obligations.
The Agency reevaluated the validity
of this assumption and is proposing to
retain the $10 million minimum net
worth requirement. The Agency
continues to believe that the failure rate
for TSDF owners with less than $10
million in net worth could be
substantially higher than for larger
firms. An analysis of a sample of RCRA
bankrupt firms showed that firms with
less than $10 million in net worth failed
four times more frequently than firms
with greater than $10 million in net
worth. The Agency also is concerned to
ensure that the costs of closure and
post-closure care and liability
judgments, which could result in costs of
millions of dollars, do not themselves
cause smaller firms to go bankrupt. In
order to avoid the potential for
increased public costs due to smaller
firms going bankrupt and leaving
unfunded environmental obligations, the
Agency is proposing to limit eligibility
for the financial test to firms with
greater than $10 million in net worth.
The Agency does not believe that
making the test available to firms with
less than $10 million in net worth would
significantly reduce the costs of
financial responsibility to the regulated
community. Although allowing firms
with less than $10 million in net worth to
use the test would reduce the private
costs of obtaining alternate mechanisms.
the Agency believes that these savings
would be largely offset by the costs of
audits required to use the financial test.
The reporting requirements of the
financial test require that firms have
audited financial statements. Most
TSDF owners with less than $10 million
are privately-held firms that are not
required by the SEC to have audited
statements. The Agency estimates that
the costs of obtaining audits would
represent over 50 percent of the savings
to firms with less than $10 million in net
worth of using the financial test.
The Agency considered raising the
minimum net worth requirement to $20
million in net worth because data on
average failure rates for all
manufacturing firms suggested that firms
with less than $20 million in net worth
had a significantly higher failure rate
than those with greater than $20 million.
The Agency, however, rejected this
option. The Agency analyzed the public
and private costs associated with a $20
million in net worth requirement and
concluded that the savings in public
costs of such a requirement (i.e., the
savings due to a reduction in the number
of firms using the test that later would
go bankrupt) would not offset the
additional costs to the regulated
community (i.e., the private costs) of
obtaining alternative financial
assurance mechanisms.
Ratios and Multiple/Additive
Requirements. As discussed in section
III, the best financial ratios (i.e., those
that discriminated relatively well
between viable and bankrupt firms)
were combined with a series of possible
multiple and additive requirements for
net worth and net working capital to
form over 500 alternative tests for
further analysis. These tests were then
evaluated against the samples of viable
and bankrupt firms in terms of
availability (A) and misprediction (M)
(as defined above). Those tests that
proved "dominant," or better performing
than other tests, were further evaluated
in terms of their public and private
costs. The best tests according to the
cost evaluation were then selected for
today's proposal.
EXHIBIT 1.—RESULTS OF ALTERNATIVE FINANCIAL TESTS FOR CLOSURE AND POST-CLOSURE CARE
Test
C/PC-94 '
Test requirements
Net Worth of at least $10 Million .- ~
Pass Either of Two flatios:
—Cashflow - (0.66 X FR) / Total Liabilities > 0.05 or
Private costs ($
thousands).
S2.868
Public costs ($
thousands)
$15.408
*-
Total costs (S
thousands)
$15.277
-------
30210
Federal Register / VoL 56, No. 126 / Monday, July 1, 1991 / Proposed Rules
EXHIBIT 1 .—RESULTS OF ALTERNATIVE FINANCIAL TESTS FOR CLOSURE AND POST-CLOSURE CARE—Continued
Test
'Test requirements
Private costs ($ i
thousands)
Public costs (S
thousands)
Total costs (S
thousands)
C/PC-802.
Currant Test-
—Total Liabilities / Net Worth < 2.5
Nat Worth at least 1 X Closure and Post-Closure Care Cost Estimate
Not Worth of at toast S10 Million Plus Net Worth in the amount of Closure and Post-
Closure Caro Cost Estimate.
Pass Either of Two Ratios:
-Cashflow - S10 Maiion / Total LiabSities > 0.10 or
—Total Liabilities /Net Worth < 1.5 ' .
Net Worth o( at teast $10 MHSon
Pass Two of Three Ratios:
—Cashflow / Total Liabilities > 0.10
—Total Uabllities / Net Worth < 2.0
—Current Assets / Current Liabilities > 1.5
Both Net Worth and Net Working Capital at teast€ X Closure and Post-Closure Care
Cost Estimate
12,075
21,828
6,898
S.752
18;972
31,580
Exhibit 1 presents total public and
private costs of the top two tests for
closure and post-closure care in
comparison to the current test. These
tests each have a cash flow ratio, a total
liabilities to net worth ratio, and a $10
million in net worth requirement. In
addition, Test 94 has a net worth
multiple requirement of one (i.e., a firm
must have net worth of one times the
closure/post-closure cost estimate), and
Test 902 has a net worth additive
requirement of one (i.e., a firm must
have net worth at least equal to the
closure/post-closure cost estimate in
addition to $10 million in net worth].
The Agency believes that there are
advantages to both Test 94 and Test 902.
Test 94 was the lowest-cost test
analyzed. However, the test includes a
tax rate adjustment in the cash flow
ratio which may change over time, thus
making it a more difficult test to
implement and verify. (The estimate
shown in Exhibit 1 is that all firms are
subject to a 34 percent corporate tax
rate). In addition, the Agency is
concerned that a test with a net worth
multiple of one does not provide
sufficient assurance that a firm will
have adequate funds to cover closure
and post-closure care activities when
they are required. Allowing a firm to use
the financial test to cover obligations
equal to the net worth of the firm could
result in the firm going bankrupt if it
were forced to pay for the costs of
closure and post-closure care earlier
than expected. Because the results of the
Agency's analysis do not account for
these unforseen bankruptcies, the
estimates of public costs in Exhibit 1
may be underestimated.
Test 902 was the second most cost-
effective test, with private costs of $12.1
million and public costs of $6.9 million
for a total cost of about $19 million. Test
902 also has substantially lower total
costs than the current test, which has
costs of over $31 million.
The Agency prefers Test 902 for
several reasons. First, the test requires a
cash flow ratio adjusted by $10 million
rather than by a tax adjusted cost
estimate, which will be much easier to
verify. Second, the test includes a net
worth additive requirement of one
instead of the multiple requirement of
one used in Test 94. The net worth
additive requirement would ensure that
a firm has net worth sufficient to cover
its financial assurance obligations and
has an additional $10 million in net
worth to cover other debts and
obligations as necessary.
Third, Test 902 has a different balance
of public and private costs than Test 94.
Because it is less available to firms, it
has higher private costs than Test 94.
However, tie substantial improvement
in bankruptcy screening (lower
misprediction, or "M") leads to far lower
public costs than Test 94, so that the
total costs are close to the total costs of
Test 94. The Agency has developed
proposed language that reflects this
balance of public and private costs
because it believes that public costs
may be understated by the calculations
shown. The calculations assume that
public costs for closure and post-closure
care activities for a given facility will
equal the estimated private cost for
these activities. In the time it takes to
address closure and post-closure care
activities using public funds, the costs of
those activities may be significantly
higher than if they were addressed
immediately by the firm responsible for
the activities. Furthermore, selection of
a test that results in lower public costs
inconsistent with the Agency's position
that it is equitable to make the party
who creates the environmental
obligation pay for it. Test 902 results in
lower public costs than Test 94, and is
one of the most cost-effective tests
examined by the Agency.
The Agency has developed proposed
regulatory language for Test 902 but, in
light of the fact that Test 94 is the lowest
cost test, the Agency solicits comment
on both Test 94 and 902. If, after
evaluating public comment, the Agency
decides that the benefit of Test 94
(lowest cost test) outweighs the benefits
of Test 902 described above, the Agency
will develop regulatory language for
Test 94 in the final rule.
3. Financial Test for Liability Coverage
The Agency analyzed alternative tests
for liability coverage using the same set
of alternative tests as in the analysis for
alternative test for closure and post-
closure care. As discussed earlier, the
analysis shows different results than the
analysis for closure and post-closure
care because the public and private
costs for liabilty coverage are different
than for closure and post-closure care.
Exhibit 2.—RESULTS OF ALTERNATIVE FINANCIAL TESTS FOR LIABILITY COVERAGE
T«*t
L-37 «. -,™.
L-43_^___™_™_
Test requirements
Net Worth of at toast S10 Million
Nat Worthed x Liability Coverage Requirement
Net Worth of a least S10 Million Plus Net Worth in the amount of the Liability
Coverage Requirement
Private costs ($
thousands)
$389
7.107
Public costs ($
thousands)
$2£43
2£59
Total costs ($
thousands)
$3,331
9,767
-------
Federal Register / Vol. 56, No, 126 / Monday, July 1, 1991 / Proposed Rules
30211
Exhibit 2.—RESULTS OF ALTERNATIVE FINANCIAL TESTS FOR LIABILITY COVERAGE—Continued
Test
Current Tost
Test requirements
Net Worth of at least S10 Million
Both Net Worth and Net Working Capital at least 6 x Liability Coverage Requirement
Private costs (S
thousands)
30,698
Public costs ($
thousands)
2080
Total costs {$
thousands)
32779
Exhibit 2 shows the total public and
private costs of two of the top ten
financial tests for liability coverage. The
least-cost test, Test 37, is very easy to
pass. It requires an owner or operator to
have $10 million in net worth and to
have net worth one times the liability
coverage requirement (the net worth of a
firm can be applied to both requirements
simultaneously). The test has very low
private costs because almost every firm
with over $10 million in net worth can
pass it At the same time, although every
bankrupt firm in the Agency's sample of
firms can pass the test, the public costs
of the test are relatively low. Because
public costs for third party liability
judgments are not incurred unless a firm
goes bankrupt and faces a liability
judgment which are both low
probability events, public costs of the
alternative tests are relatively low.
The Agency, however, does not prefer
Test 37 because, as discussed in the
previous section, tests with net worth
multiples of one may actually lead to
more substantial public costs than
shown hi the calculations because a
liability obligation itself may cause
bankruptcy. While the probability of a
liability judgment facing a bankrupt firm
is low, the potential amount of one
incident could be in the millions of
dollars, causing a firm with low net
worth (i.e., $10 million] to declare
bankruptcy. In such a case, the public
costs could be much higher than the $2.9
million shown for Test 37 in Exhibit 2.
While the Agency recognizes that the
nature of liability coverage may dictate
an easier test than for closure and post-
closure care, the Agency is mandated to
protect human health and the
environment, and thus prefers a test that
is less likely to risk a failure to address
significant compensation of third parties
in a timely manner.
Thus, the Agency prefers Test 43, a
net worth additive requirement of one.
This test, like Test 37, is a minimal
requirement with no ratios. It has high
availability to viable firms (about 95
percent of obligations covered) and thus
much lower private costs than the
current test (which has private costs of
over $30 million). Test 43 also provides
assurance that a firm passing the test
will have a sufficient cushion of net
worth to prevent a liability obligation
from causing bankruptcy, thus it is more
reliable at controlling public costs than
Test 37.
However, in light of the fact that Test
37 is the lowest cost test, the Agency
solicits comment on both Test 37 and
Test 43. The Agency has developed
proposed regulatory language for Test
43. If, after evaluating public comment,
the Agency decides mat the benefit of
Test 37 (lowest cost test) outweighs the
benefits of Test 43 described above, the
Agency will develop regulatory
language for Test 37 in the final rule.
4. Financial Test for Closure, Post-
Closure Care, and Liability Coverage
The Agency also analyzed alternative
tests for use in providing financial
assurance for the combination of
closure, post-closure care, and liability
coverage. Under the current regulations,
firms are required to pass the financial
test for closure and post-closure care in
order to provide coverage for the
combination of closure, post-closure
care, and liability coverage. The Agency.
examined alternative tests for the
combined obligations to determine
whether this approach is still
appropriate.
EXHIBIT 3.—RESULTS OF ALTERNATIVE FINANCIAL TESTS FOR CLOSURE/POST CLOSURE CARE AFTER PROVIDING LIABILITY
COVERAGE
Test
Test requirements
Private costs (S
thousands)
Public costs (S
thousands)
Total costs ($
thousands)
C/PC-902
C/PC-95.
Current Test™.™
Net Worth of at least $10 Million Plus Net Worth in the amount of Closure. Post-
Closure Care, and Liability Cost Estimate.
Pass Either of Two Ratios:
—Cashflow - $10 Million/Total Liabilities > 0.10 or
—Total Liabilities/Net Worth < 1.5
Net Worth of at least $10 Million
Pass Either of Two Ratios:
—Cashflow - (0.66 x FR)/Total Liabilities > 0.10 or
—Total Liabilities/Net Worth < 1.5
Net Worth at toast 1 x Closure
Post-Closure Care, and Liability Cost Estimates
Nat Worth of at least $10 Million .
Pass Two of Three Ratios: ;
—Cashflow/Total Liabilities > 0.10
—Total Liabilities/Net Worth < 2.0
—Current Assets/Current Liabilities > 1.5
Both Net Worth and Net Working Capital at least 6 x Closure, Post-Closure Care,
and Liability Cost Estimate
$13,052
11.223
27,368
$4,181
7.218
8389
$17,233
18.441
36,257
Exhibit 3 shows the total public and
private costs of the two lowest cost
financial tests for the combined
obligations. The lowest cost test Test
902, is the same test as the one preferred
by the Agency for closure and post-
closure care only. This test requires a
firm to pass either a cash flow ratio or a
leverage ratio, and to have net worth at
least equal to the total cost estimates for
closure and post-closure care and the
liability coverage requirement, in
addition to $10 million in net worth (an
additive requirement). Test 95, the
second lowest cost test requires a firm
-------
\
30212 Federal Register / Vol. 56. No. 126 / Monday, July 1. 1991 / Proposed Rules
to pass either a cash flow ratio or a
leverage ratio, and to have net worth of
one times the total cost estimates for
closure and post-closure care and the
liability coverage requirement (a
multiple requirement).
The Agency prefers Test 902 for firms
using the test to cover the combination
of closure, post-closure, and liability
•coverage. This test was the lowest cost
test when the combined obligations
were imposed on sample firms. It is also
consistent with the Agency's current
approach of requiring the closure/post-
closure requirements to be passed for
firms using the test for the combination
of obligations. Finally, unlike Test 95,
Test 902 imposes the net worth additive
requirement and thus protects against
the potential for increased public costs
that may result from a closure, post-
closure, or liability obligation causing
bankruptcy. The Agency requests
comment on its proposed decision to
adopt Test 902 for firms using the test to
cover the combination of closure, post-
closure, and liability coverage.
The Agency has developed proposed
regulatory language for Test 902 but also
solicits comment on Test 95. If, after
evaluating public comment, the Agency
decides to adopt Test 95, the Agency
will develop regulatory language for
Test 95 in the final rule.
Commenters should note that the
current financial tests for closure and
post-closure, third party liability, and
combined coverage are consistent in
approach in that they all have a
minimum net worth additive
requirement. The Agency believes that a
consistent approach among the three
tests is desirable and assists in
implementation, thus, the Agency seeks
to adopt revised tests with a consistent
approach as well. Commenters should
consider consistency in approach when
evaluating the proposed financial tests
described above.
5. Bond Rating Alternative
The Agency is proposing to include a
bond rating alternative in the revised
financial tests for closure and post-
closure and for liability coverage. As
discussed in section HLB.l.(e) of this
preamble, when the Agency developed
the current financial tests in 1981, it
included a bond rating alternative
because it found that the net working
capital requirements of the tests
discriminated against electric utilities.
The Agency believed that an investment
grade bond rating was a good
demonstration of financial strength
because it reflected the expert opinion
of the bond rating service and the
financial community. The Agency also
believed that allowing a bond rating
alternative"would enhance the
availability of the financial test to
financially sound firms with unusual
characteristics while ensuring that firms
passing the requirement have sufficient
financial strength to fund the potential
costs of closure and post-closure and
third party liability.
As a result of the revisions to the
financial tests that are proposed today,
the Agency believes there is less need
for a bond rating alternative than there
was in 1981. However, bond ratings
reflect the expert opinion of bond rating
services, which are organizations that
have established credibility in the
financial community for their
predictions. And, the Agency believes
that investment grade bond ratings are a
good demonstration of financial
strength. Absent a compelling indication
that bond ratings have permitted
inappropriate companies to pass the
financial test, the Agency does not
believe it should eliminate a.market-
oriented option currently available to
the regulated community.
As part of the bond rating alternative
proposed today, the Agency is also
proposing to eliminate the requirement
for having net worth equal to six times
the amount assured and replacing this
requirement with a $10 million additive
requirement. The Agency believes that
this change is supported by the analysis
provided in connection with other
revisions to the ratio-based financial
test.
The Agency solicits comment on its
proposal to include bond rating
altenatives in the financial tests for
closure and post-closure and for liability
coverage.
6. Integration with Other Programs and
Conforming Changes
Integration with Other Programs. The
Agency has a number of financial
responsibility programs in place that
allow an owner or operator to use a
financial test as a way to demonstrate
financial responsibility. In order for the
subtitle C financial test to effectively
ensure that an owner or operator will
'not go bankrupt without fulfilling his
closure/post-closure or liability
coverage obligations, the financial
strength of the firm must be sufficient to
cover all of its obligations, including
routine business expenditures and
environmental obligations under all
Agency programs. If the financial test
criteria do not require a firm to account
for all financial assurance obligations .
under all programs, a firm could use the
same financial measures to demonstrate
financial strength for multiple programs,
which could undermine the
effectiveness of the test. For example, if
a firm is subject to financial
responsibility requirements under both
subtitle C and the Underground
Injection Control (UIC) program and
uses the financial test to demonstrate
financial responsibility for each program
separately, the firm would be
demonstrating only that it could afford
the obligations of each program
independently. However, if the firm
incurred costs to cover closure of a UIC
well, its financial position could
deteriorate to the extent that it could not
afford any subtitle C costs despite its
ability to pass the test for those costs
alone.
The current subtitle C financial test
requirements require owners or
operators to account for both the
subtitle C obligations being covered by
the financial test and plugging and
abandonment costs, associated with
Class I UIC wells that are covered by
the financial test allowed under 40 CFR
part 144. Since the promulgation of the
current subtitle C financial test, the
Agency has adopted additional financial
assurance requirements applicable to
the costs of closure of PCB commercial
storage facilities under 40 CFR part 761,
and corrective action and third-party
liability coverage for underground
petroleum storage tanks under 40 CFR
part 280. All of these programs included
a financial test as an allowable financial
assurance mechanism.
The Agency continues to believe that
the effectiveness of the subtitle C
financial test could be jeopardized if the
obligations of other financial assurance
programs are not incorporated into the
requirements of the subtitle C financial
test. Thus, the Agency is proposing to
require that a firm using the financial
test for subtitle C closure, post-closure
care, or liability coverage must account
for all obligations also covered by a
financial test under parts 144,280, and/
or 761. Specifically, a firm using the
subtitle C financial test must have net
worth of $10 million plus net worth in
the amount of the subtitle C closure,
post-closure, and liability obligations
being covered, and net worth in the
amount of any obligations being covered
by a financial test, including those under
parts 144, 280, and/or 761.
Conforming Changes. As noted above,
the Agency has promulgated financial
responsibility requirements under 40
CFR part 144 for Class I hazardous
waste underground injection facilities,
part 280 for underground storage tanks,
and part 761 for PCB commercial storage
facilities, all of which include a financial
test similar or identical to the one
included under RCRA "subtitle C.
-------
Federal Register / Vol. 56. No. 126 / Monday. July 1, 1991 / Proposed Rules
30213
The financial assurance requirements
for owners and operators of
underground petroleum storage tanks
under 40 CFR part 280 allow the use of a
financial test for providing financial
assurance for the costs of corrective
action and third party liability coverage.
The financial test in part 280 includes
two alternative sets of financial criteria
that may be used. The second
alternative (§ 280.95(c)(l)) allows an
owner or operator to satisfy the subtitle
C financial test for liability coverage
(§ 264.147(f)(l)). As a result of this rule.
owners and operators of underground
storage tanks wishing to use the
§ 280.95(c)(l) alternative to demonstrate
third-party liability coverage would
have to meet the requirements of the
revised § 264.147(f)(l).
40 CFR part 761 requires that
commercial storers of PCB wastes
demonstrate financial responsibility for
the costs of closure either by obtaining
specific financial assurance mechanisms
(e.g., trust funds, letters of credit] that
will ensure that funds will be available
to cover the costs of closure, or by
passing a specified financial test. These
provisions are found in 40 CFR part
761.65 (f) and (g). The financial
assurance mechanisms in the PCB
notification and manifesting rule are
essentially the same as those allowed in
40 CFR parts 264 and 265 governing
hazardous waste TSDFs. The
regulations in 40 CFR part 761, in fact,
incorporate sections of part 264 by
reference, including § 264.143(f) which
covers the provisions of the subtitle C
financial test. Therefore, to the extent
that today's proposed revisions to parts
264 or 265 modify the requirements that
are incorporated by reference in part
761, those modifications would apply
with equal force and effect to PCB
commercial storage facilities subject to
40 CFR 761.65 (f) and (g).
The Agency is not proposing changes
to the financial test requirements under
40 CFR part 144 regarding Class I
underground injection facilities. The
Agency is still assessing the
applicability of the revised Subtitle C
corporate financial test upon owners or
operators of UICs and may propose to
adopt the revised subtitle C corporate
financial test at a later date. •
7. Combining the Financial Test with
Other Mechanisms
The current subtitle C financial
responsibility requirements for closure
and 'post-closure care allow owners and
operators of TSDFs to use the financial
test or guarantee to cover multiple
facilities, and to combine the use of the
financial test with another mechanism
(or mechanisms) to cover multiple
facilities. However, the regulations
prohibit combining the financial test or
guarantee with another mechanism for
one particular facility. The Agency was
concerned that if a firm did not have
sufficient financial strength to cover the
full amount of closure and post-closure
care for a facility, there could be a
greater risk that the firm would go
bankrupt without fulfilling its
obligations.
The Agency is proposing to amend
this requirement to allow owners and
operators to combine the financial test
or guarantee with any other mechanism
for a particular facility.
The Agency does not believe that
combining the financial test or
guarantee with another mechanism to
demonstrate financial assurance being
provided by the firm. In designing a
financial test, the objective is to ensure
that a firm has sufficient financial
strength to cover the amount of financial
obligations being covered by the test.
Therefore, allowing an owner or
operator to use a financial test for part
of his obligations will not affect the
effectiveness of the test as long as
another instrument is used to cover the
balance of the obligations.
It should be noted, however, that the
Agency is not proposing to allow the
combining of a financial test with a
guarantee or a particular facility. The
Agency believes that where the
financial test is the only mechanism
relied on to cover the costs of closure or
post-closure, either by the owner or
operator itself or the guarantor, one or
the other should have the requisite
financial strength to guarantee those
costs for the entire facility.
IV. Amendments to the September 1,
1988 Rule Regarding Third Party
Liability Coverage
A. Background
On September 1,1988, the Agency
issued a final rule that expanded the
instruments available to owners and
operators to demonstrate financial
responsibility for third party liability.
(see 53 FR 33938). Prior to the September
1,1988 rule, the RCRA regulations at 40
CFR 264.147 allowed the use of a
financial test or a parent corporate
guarantee for third party liability
assurance; the Agency, in that
rulemaking, expanded the options to
include the letter of credit, surety bond.-
trust fund, and non-parent corporate
guarantee. The September 1,1988
rulemaking also established in
§ § 264.147 and 265.145 a claims
reporting requirement for third-party
claims.
Chemical Waste Management, Inc.
(CWM) challenged several provisions of
the September 1,1988 rulemaking, in
particular, several provisions related to
the letter of credit and the claims
reporting requirement On February 23,
1990 the parties entered into a Joint
Stipulation of Settlement in which the
Agency agreed to: (1) Revise the claims
reporting requirement of §§ 264.147 and
265.147 to clarify the type of claims that
must be reported; (2) amend § 264.151(k)
to authorize the creation of a standby
trust fund for owners and operators who
obtain letters of credit to demonstrate
liability coverage; and (3) issue a
correction to §§ 264.147(a)(2) and
265.147(a)(2) to insert a reference to the
financial test. In accordance with the
February 23 settlement agreement, this
notice proposes changes to the claims
reporting requirement of §§ 264.147 and
265.147 and the use of a standby trust
fund under | 264.151(k). The technical
correction to §§ 264.147(a)(2) and
265.147(a)(2) can be found in a
correction notice published elsewhere in
today's issue.
In addition to the changes resulting
from the settlement agreement, the
Agency is proposing to amend
|§ 264.147(f)(6) and 265.147(f)(6) to
expand the instruments available to
owners and operators that no longer •
meet the requirements of the financial
test for liability coverage.
B. Claims Reporting Requirement
As is discussed above, the September
1,1988 rule established in §§ 264.147
and 265.147 a requirement thai owners
and operators report, in writing, to the
Regional Administrator whenever: (1) A
claim for bodily injury or property
damages caused by the operation of a
hazardous waste management facility is
made against the owner, operator, or
instrument providing financial
assurance for liability coverage; and (2)
the amount of financial assurance for
liability coverage is reduced. In its
complaint filed in response to the
September 1,1988 rulemaking, CWM
challenged that the claims reporting
requirement, as worded, was overly
broad and thereby unduly burdensome.
CWM pointed out that it required
reporting of every claim filed against the
owner or operator, no matter how valid.
This reporting requirement is intended
to provide the Agency with early
warning of potential instrument failure
due to pending claims and to provide the
Agency with data concerning the
incidence of third party claims. Today's
notice proposes to revise
§§ 264.147(a)(2),i64.147(b)(2),
265.147(a)(2). and265.147(b)(2) to clarify
-------
30214
Federal Register / Vol. 56, No. 126 / Monday, July a, 1991 / Proposed Rules
lhat intent and require reporting of third
party claims only when: (1) A claim
results in reduction of the amount of an
instrument; (2) a Certification of Valid
Claim is entered between the owner or
operator and third party claimant; or (3)
when a final court order establishing a
judgment is issued. The Agency believes
that this revised reporting requirement
would allow the Agency to collect the
information it intended to collect
without being unduly burdensome.
C. Standby Trust for Owners and
Operators Who Use a Letter of Credit to
Demonstrate Liability Coverage
In establishing the letter of credit as
an instrument available for third party
liability coverage, the September 1,1988
rule required, in §§ 264.147(h),
265.147(h), and 264.151(10, that owners
or operators using letters of credit
demonstrate liability coverage to
designate third-party claimants as
beneficiaries in the event of a valid
claim. As promulgated, those provisions
required the issuer of the letter to
determine whether a claim is valid and
should be paid. In accordance with the
February 23 settlement agreement,
today's notice proposes to amend the
letter of credit requirements
(§§ 264.147(h) and 265.147(h}) and the
language of the letter of credit
mechanism (§ 264.151(k)) to allow for
the creation of the standby trust fund
and the designation of an independent
trustee as beneficiary. As a result of this
change, the trustee, rather than the
issuer of the letter of credit, would be
responsible for distributing funds to the
claimants when a claim for damages is
filed against the owner or operator. The
proposed rule would also add new
sections in 264.147(1). 265.147(1) and
264.151(n) relating specifically to the
requirements and instrument language
of the standby trust. The Agency
believes that these revisions would
make the letter of credit more available
to owners and operators without
reducing its integrity.
D. Instruments Available to Owners and
Operators that no Longer Meet the
Requirements of the Financial Test
The Agency is also proposing
conforming changes to §§ 264.147(f)(6)
and 265.147(f)(6). Those provisions
currently require owners or operators
that have been using the financial test to
assure for third party liability, but no
longer meet the requirements of the test,
to obtain insurance. Today's proposal
would expand the available instruments
to allow those owners and operators to
obtain insurance or a letter of credit,
surety bond, trust fund, or a guarantee. •
This proposed change is a conforming
change that implements the intent of the
September 1,1988 rule expanding the
allowable instruments for;third party
liability coverage.
V. Release from Financial Assurance
Requirements for Closure
The current RCRA regulations at
§§ 264.119(b) and 265.119(b) require
owners and operators to record
notations on property deeds within 60
days of certifying closure and submit to
the Regional Administrator a
certification that the deed notation has
been recorded. The deed notation is
de'signed to notify potential buyers that
the land has been used to manage
hazardous wastes and that its use is
restricted under 40 CFR subpart G
regulations.
At the same time, §§ 264.143(i) and
265.143(h) provide that the Regional
Administrator will release owners and
operators from financial assurance
requirements within 60 days of receiving
certification that final closure has been
completed in accordance with the
approved closure plan (unless the
Regional Administrator has reason to
believe that final closure has not been
completed in accordance with the
approved closure plan). There is
currently no explicit language stating
that release from financial assurance
requirements is conditioned upon a
demonstration that the owner or
operator has fully complied with the
requirements of §§ 264.119(b) and
265.119(fa).
Today's proposal would explicitly
require that the owner or operator fully
comply with any applicable provisions
of §§ 264.119(b) or 265.119(b) before
being released from financial assurance
obligations under current §§ 264.143(1)
and 265.143(h). While this requirement
would impose no additional regulatory
burden on owners or operators, the
Agency believes it would assure prompt
compliance with §§ 264.1'.l9(b) and
265.119(b).
VI. The Expanded Guarantee for
Demonstrating Financial Assurance for
Closure and Post-Closure Care
The Agency is proposing in this notice
to amend the requirements for the
guarantee for closure and post-closure
care to allow guarantees to be provided
by a non-parent firm.
The use of a parent corporate
guarantee for liability coverage was
authorized in an interim final rule on
July 11,1986 (51FR 5350) and
promulgated as a final regulation on
November 18,1987 (52 FR 44314).
Several commenters on the interim final
rule urged EPA to allow non-parent
firms to provide guarantees. After
analyzing the validity and enforceability
of guarantee contracts by non-parent
firms, the Agency, in the September 1,
1988 rulemaking discussed in section 111
of this preamble, authorized guarantees
for third-party liability coverage
provided by (1) corporate grandparents.
(2) corporate "sibling" firms, and (3)
firms with a "substantial business
relationship" with the owner or
operator. Further discussion of the non-
parent guarantee can be found in the
September 1,1988 rule (53 FR 33938).
Since authorizing the non-parent
guarantee as an allowable mechanism
for third party liability coverage, the
Agency has received many requests to
extend its use to closure and post-
closure care financial responsibility
requirements, including the petition
submitted by NSWMA and discussed
earlier in this notice. Today's notice
proposes a conforming change to
§§ 264.143, 264.145, 265.143, and 265.145
to allow the same non-parent guarantee
for closure and post-closure as is
currently allowed for third-party
liability.
VII. Automated Financial Responsibility
Reporting System
In addition to the regulatory
provisions proposed today, the Agency
is considering the development of an
automated financial responsibility
reporting system. Using information
from public databases, such a system
could perform many activities including
updating cost estimates for inflation,
calculating the financial test, and
verifying that the value of another
instrument matches the cost estimate.
Since the system could use public
databases, it could significantly reduce
the administrative burden on the
regulated community as well as on the
States and the Agency. Such a system
could also track obligations of multistate
firms in all states and provide
comprehensive and consistent
information about those firms to the
Agency and the states. The Agency
today solicits comment on the utility of
developing an automated financial
responsibility reporting system.
VIII. State Authorization
A. Applicability of Rules in Authorized
States
Under section 3006 of RCRA, EPA
may authorize qualified States to
administer and enforce the RCRA
program within the State (See 40 CFR
part 271 for the standards and
requirements for authorization).
Following authorization, the Agency
retains enforcement authority under
-------
No. 126 / Monday, July 1 i /Proposed Rules
30215
sections 3008, 7003, and 3013 of RCRA,
.although authorized States have primary
enforcement responsibility.
Prior to the Hazardous and Solid
Waste Amendments of 1984 (HSWA), a
State with final authorization
administered its hazardous waste
program entirely in lieu of the Federal
program. The Federal requirements no
longer applied in the authorized State, .
and EPA could not issue permits for any
facilities in a State where the State was
authorized to permit. When new, more
stringent Federal requirements were
promulgated or enacted, the State was
obligated to enact equivalent authority
within specified time frames. New
Federal requirements did not take effect
in an authorized State until the State
adopted the requirements as State law.
In contrast, under section 3006(g) of
RCRA, 42 U.S.C. 6926[g), new
requirements and prohibitions imposed
by HSWA take effect in authorized
-States at the same time that they take
e'ffect in nonauthorized States. EPA is
directed to carry out those requirements
and prohibitions in authorized States,
including the issuance of permits, until
the State is granted authorization to do
so. While States must still adopt
HSWA-related provisions as State law
to retain final authorization, the HSWA
requirements and prohibitions apply in
authorized States in the interm.
B. Effect of Rule on State Authorizations
Today's rule proposes standards that
would not be effective in authorized
States since the requirements would not
be imposed pursuant to the HSWA.
Thus, the requirements would be
applicable only in those States that do
not have final authorization. In
authorized States, the requirements
would not be applicable until the State
revises its program to adopt equivalent
requirements under State law.
In general, 40 CFR 271.21{e)(2)
requires States that have final
authorization to modify their programs
to reflect Federal program changes and
to subsequently submit the
modifications to EPA for approval. It
should be noted, however, that
authorized States are only required to
modify their programs when EPA
promulgates Federal standards that are
more stringent or broader in scope than
the existing Federal standards. Section
3009 of RCRA allows States to impose
standards more stringent than those in
the Federal program. For those Federal
program changes.that. are,less .stringent.
or reduce the scope of the Federal
program. States are not required to
modify their programs {See 40 CFR
271.1(1)).
Several provisions in today's
proposed rule are more stringent than
the current Federal program. Because
the Agency believes that today's
proposed revisions to the corporate
financial test at §§ 264.143(0 (1) and (2),
264.145(f) (1) and (2), 264.147(0 (1),
265.143(e) (1) and (2), 265.145(e) (1) and
(2), and 265.147(f](l), and the
corresponding revisions to the
instruments at 264.151 (0 and (g), would
result in a test that would screen
potentially bankrupt firms more
effectively than the current test, the
Agency is classifying those revisions as
more stringent than the current federal
program. As a result, an authorized
State that allows a financial test to
demonstrate financial responsibility for
closure and post-closure care or third-
party liability coverage would have to
modify its program to adopt this or an
equivalent test in accordance with the
deadlines specified in 40 CFR part 271.
An authorized State that does not allow
use of a financial test would not be
required to adopt one as a result of
today's proposed rule.
In addition, today's proposed
revisions to §§ 2264.119(b)(2), 264.143(i),
265.119(b)(2). and 265.143(h), which
provide that release from financial
responsibility requirements be
conditioned on compliance with the
deed notification requirements, are more
stringent than the current program
requirements.
40 CFR 271.21(e)(2) requires that
States that have final authorization must
modify their programs to reflect more
stringent Federal program changes and
must subsequently submit the
modification to EPA for approval. The
deadline by which a State must modify
its progranito adopt the more stringent
provisions of today's proposed rule will
be determined by the date of
promulgation of the final rule in
accordance with § 271.21(e). This
deadline can be extended in exceptional
cases (40 CFR 271.21(e)(3}). Once EPA
approves the revision, the State
requirements become subtitle C RCRA
requirements.
States with authorized RCRA
programs may already have
requirements similar to those in today's
rule. These State requirements ha%re not
been assessed against the Federal
regulations being proposed today to
determine whether they meet the tests
for authorization. Thus, a State is not
authorized to carry out these
requirements in lieu of the Agency until
the State requirements are approved. Of
course, States with existing standards
may continue to administer and enforce
their standards as a matter of State law.
States that submit official applications
for final authorization less than 12
months after the effective date of these
standards are not required to include
standards equivalent to these standards
in their application. However, the State
must modify its program by the
deadlines set forth in § 271.21(e). States
that submit official applications for final
authorization 12 months after the
effective date of those standards must
include standards in their application. 40
CFR 271.3 sets forth the requirements a
State must meet when submitting its
final authorization application.
The provisions of today's rule that
would expand the allowable
instruments for demonstrating financial
assurance are less stringent than the
current program. Those proposed
revisions are: (1) Revisions to
§§ 264.147(h) (4) and (5), 265.147(h) (4)
and (5), and 264.151(k), and addition of
new section 264.151(n), which would
provide for the use of a stand-by trust
with the letter of credit to demonstrate
financial assurance for liability
coverage requirements; (2) revisions to
§§ 264.143(0(10), 264.145(0(11),
265.143(e)(10), and 265.145(e)(ll), which
would extend the use of the expanded
guarantee to closure and post-closure
care financial assurance, and the
corresponding modified instrument at.
§ 264.151(h); (3) revisions to
§§ 264.143(g), 264.145(g), 265.143(0. and
265.145(0, which would allow the
combining of the financial test or
guarantee with another instrument to
demonstrate financial assurance at a
single facility; and (4) revisions to
§§ 264.147(0(6) and 265.147(0(6), which
would expand the mechanisms
available to owners and operators that
no longer meet the requirements of the
financial test for liability coverage. For
these Federal program changes that are
less stringent or would reduce the scope
of the Federal program, an authorized
State would not be required to modify
its authorized program. If the State does
modify its program, EPA must approve
the modification for the State
requirements to become subtitle C
RCRA requirements.
The September 1,1988 rule related to
liability coverage established a claims
reporting requirement at §§ 264.147(a)(7)
and (b)(7) and 265.147(a)(7) and (b)(7).
The preamble characterized all
provisions of that rule as less stringent
and, therefore, authorized States were
not required to adopt the new
provisions, including the claims
reporting requirement. However, upon
further consideration the Agency has
determined that this claims reporting
requirement is. m fact, more stringent
-------
than the Federal program in effect at
that time.
Because the claims reporting
requirement of § 264.147(a)(2),
204.147(b}{2), 285.147(a)(2), and
205.147{b]{2) was more stringent than
the Federal program in place prior to the
September 1,1988 rule, States should
have been required to modify their.
programs to include it in order to
maintain an equivalent program. In
accordance with § 271.21(e)[2), the
deadline for States to modify their
programs to reflect changes adopted on
September 1,1988 was July 1,1990.
However, the States were not notified ol
this obligation since the rule was
originally classified as less stringent.
Because of the confusion related to the
stringency characterization of the claims
reporting requirement and the fact that
the Agency is in the process of clarifying
that requirement, the Agency will, for
State authorization purposes, treat the
claims reporting requirement of the
September 1,1988 rule as if it were
promulgated on the date that the final
clarified version is promulgated. States
that have not yet adopted the reporting
requirement of the September 1,1988
rule should not do so but should adopt
the clarified version when promulgated.
The deadline for adopting the provision
will be the applicable deadline under
§ 271.21(e)(2) for the final rule
promulgating the clarified reporting
requirement. States that wish to adopt
other provisions of the September 1,
1988 rule may do so and may apply for
authorization for those provisions at any
time.
The revisions to the claims reporting
requirement that are proposed today,
however, are less stringent than the
current claims reporting requirement at
§§ 264.147 (a)(7) and (b)(7) and 265.147
(a)(7) and (b){7) promulgated in the
September 1,1988 rule. Therefore, States
that have already adopted the current
claims reporting requirement would not
be required to adopt the clarified
reporting requirement.
States whose programs have been
modified to adopt the current claims
reporting requirement but wish to adopt
the less stringent clarified reporting
requirement should follow the deadlines
of 40 CFR 271.21(e)(2) for the final rule
promulgating the clarified reporting
requirement.
IX. REGULATORY ANALYSIS
A. Regulatory Impact Analysis
Under Executive Order 12291, EPA
must determine whether a regulation is
"major" and thus whether it must
prepare and consider a Regulatory
Impact Analysis in connection with the
rule. Today's rule is not major because it
will not result in an annual effect on the
economy of $100 million or more, nor
will it result in an increase in costs or
prices to industry. There will be no
adverse impact on the ability of U.S.-
based enterprises to compete with
foreign-based enterprises in domestic or
export markets. Therefore the Agency
has not prepared a Regulatory Impact
Analysis for today's rule. This rule has
been reviewed by the Office of
Management and Budget in accordance
with Executive Order 12291.
B. Regulatory Flexibility Act
Under the Regulatory Flexibility Act, 5
U.S.C. 601 et seq. at the time an Agency
publishes a proposed or final rule, it
must prepare a Regulatory Flexibility
Analysis that describes the impact of
the rule on small entities, unless the
Administrator certifies that the rule will
not have a significant economic impact
on a substantial number of small
entities. Today's rule modifies the
Corporate Financial Test such that a
greater number of viable firms may pass
the test while excluding those firms
which become bankrupt than the
previous test. Therefore, pursuant to 5
U.S.C. 601b, I certify that this regulation
will not have a significant economic
impact on a substantial number of small
entities.
Dated: June 17,1991.
WffliamK.Reaiy,
Administrator.
List of Subjects
40 CFR 264
Hazardous Waste Insurance,
Reporting and recordkeeping
requirements.
40CFR 265
Hazardous Waste Insurance,
Reporting and recordkeeping
requirements.
40.CFR 280
Hazardous substances, Hazardous
waste.
40 CFR 761
Environmental Protection, Hazardous
substances, Polychlorinated biphenyls
(PCB's), Reporting and Recordkeeping
requirements.
40 CFR part 264 is amended as
follows:
PART 264—STANDARDS FOR
OWNERS AND OPERATORS OF
HAZARDOUS WASTE TREATMENT,
STORAGE, AND DISPOSAL
FACILITIES
1. The authority citation for part 264
continues to read as follows:
Authority: 41 U.S.C. 6905, 6912(a). 6924 and
6925.
2. Section 264.119 is amended by
adding a sentence to the end of
paragraph (b){2) to read as follows:
§264.119 Post-closure notices.
(b)
(2) * * * The Regional Administrator
shall not release the owner or operator
from financial assurance requirements
under § 264.143(0 until the owner or
operator has complied with the
provisions of this paragraph.
*****
3. Section 264.143 is amended by
revising paragraphs (f)(l) arid (f)(2), the
introductory text of paragraph (fj(10),
and paragraphs (g) and (i) to read as
follows:
§264.143 Financial assurance for closure.
* *. * * *
(f) Financial test and guarantee for
closure. (1) An owner or operator may
satisfy the requirements of this section .
by demonstrating that he passes a
financial test as specified in this
paragraph. To pass this test the owner
or operator must meet the criteria of
either paragraph (f](l) (i) or (ii) of this
section.
(i) The owner or operator must have:
(A) Either a ratio of total liabilities to
net worth less than 1.5; or, a ratio of the
sum of net income plus depreciation,
depletion and amortization, minus $10
million, to total liabilities greater than
0.10; and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of current closure and post-closure
cost estimates and any other obligations
- covered by a financial test.
(ii) The owner or operator must have:
(A) A current rating for his most
recent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor's or
Aaa, Aa, A or Baa as issued by
Moody's;and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
-------
Federal Register / Vol. 56. No. 126 / Monday. July 1. 1991 / Proposed Rules 30217
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test.
(2) The phrase "current closure and
post-closure cost estimates" as used in
paragraph (f)(l) of this section refers to
the cost estimates required to be shown
in paragraphs 1-7 of the letter from the
owner's or operator's chief financial
officer (264.151(f)).
*****
(10) An owner or operator may meet
the requirements of this section by
obtaining a written guarantee. The
guarantor must be the direct or higher-
tier parent corporation of the owner or
operator, a firm whose parent
corporation is also the parent
corporation of the owner or operator, or
a firm with a "substantial business
relationship" with the owner or
operator. The guarantor must meet the
requirements for owners or operators in
paragraphs (f) (1) through (8) of this
section and must comply with the terms
. of the guarantee. The wording of the
guarantee must be identical to the
wording specified in § 264.151(h). A
certified copy of the guarantee must
accompany the items sent to the
Regional Administrator as specified in
paragraph (f)(3) of this section. One of
these items must be the letter from the
guarantor's chief financial officer. If the
guarantor's parent corporation is also
the parent corporation of the owner or
operator, the letter must describe the
value received in consideration of the
guarantee. If the guarantor is a firm with
a "substantial business relationship"
with the owner or operator, this letter
must describe this "substantial business
relationship" and the value received in
consideration of the guarantee. The
terms of the guarantee must provide
that:
* * *-•*••••'
(g) Use of multiple financial
mechanisms. An owner or operator may
satisfy the requirements of this section
by establishing more than one financial
mechanism per facility. These"
mechanisms are limited to trust funds,
surety bonds guaranteeing payment into
a trust fund, letters of credit, insurance,
and financial test and guarantee, except
that the financial test and guarantee
may not be combined. The mechanisms
must be as specified in paragraphs (a),
(b). (d), (e), and (f), respectively, of this
section, except that it is the combination
of mechanisms rather than the single
mechanism that must provide financial
assurance for an amount at least equal
to the cost estimate. If an owner or
operator uses a trust fund in
combination with a surety bond Or letter
of credit, he may use the trust fund as
the standby trust fund for the other
mechanism. A single trust fund may be
established for two or more
mechanisms. The Regional
Administrator may use any or all of the
mechanisms to provide for closure of the
facility.
*****
(i) Release of the owner or operator
from the requirements of this section.
Within 60 days after receiving
certifications from the owner or operator
and an independent registered
professional engineer that final closure
has been completed in accordance with
the approved closure plan, and, for
facilities subject to § 264.119, after
receiving the certification required
under § 264.119(b)(2}, the Regional
Administrator will notify the owner or
operator in writing that he is no longer
required by this section to maintain
financial assurance for final closure of
the facility, unless the Regional
Administrator has reason to believe that
final closure has not been in accordance
with the approved closure plan or that
the owner or operator has failed to
comply with the applicable
requirements of § 264.119. The Regional
Administrator shall provide the owner
or operator a detailed written statement
of any such reason to believe that
closure has not been in accordance with
the approved closure plan or that the
owner or operator has failed to comply
with the applicable requirements of
§ 264.119.
4. Section 264.145 is revised by
amending paragraphs (f)(l) and (f)(2).
the introductory text of paragraph
(f)(ll), and paragraph (g) to read as
follows:
§264.145 Financial assurance for post-
closure care.
» * * ' * *
(f) Financial test and guarantee for
post-closure care. (1) An owner or
operator may satisfy the requirements of
this section by demonstrating that he
passes a financial test as specified in
this paragraph. To pass this test the
x>wner or operator must meet the criteria
of either paragraph (f)(l) (i) or (ii) of this
section.
(i) The owner or operator must have:
{A} Either a ratio of total liabilities to
net worth less than 1.5; or, a ratio of the
sum of net income plus" depreciation,
depletion and amortization, minus $10
million, to total liabilities greater than
0.10; and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of current closure and post-closure
cost estimates and any other obligations
covered by a financial test.
(ii) The owner or operator must have:
(A) A current rating for his most
recent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor's or
Aaa, Aa, A or Baa as issued by
Moody's; and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test.
(2) The phrase "current closure and
post-closure cost estimates" as used in
paragraph (f)(l) of this section refers to
the cost estimates required to be shown
in paragraphs 1-7 of the letter from the
owner's or operator's chief financial
officer (264.151(f)).
*****
(11) An owner or operator may meet
the requirements of this section by
obtaining a written guarantee. The
guarantor must be the direct or higher-
tier parent corporation of the owner or
operator, a firm whose parent
corporation is also the parent
corporation of the owner or operator, or
a firm with a "substantial business
relationship" with the owner or
operator. The guarantor must meet the
requirements for owner or operators in
paragraphs (f) (1) through (9) of this
section and must comply with the terms
of the guarantee. The Wording of the
guarantee must be identical to the
wording specified in § 264.151(h). A
certified copy of the guarantee must
accompany the items sent to the
Regional Administrator as specified in
paragraph (f)(3) of this section. One of
these items must be the letter from the
guarantor's chief financial officer. If the
guarantor's parent corporation is also
the parent corporation of the owner or
operator, the letter must describe the
value received in consideration of the
.guarantee. If the guarantor is a firm with
a "substantial business relationship"
with the owner or operator, this letter
must describe this "substantial business
relationship" and the value received in
-------
30218
Federal Register / Vol. 56, No. 12? /
July 1. 1991 / Pr°P°ed
consideration of the guarantee. The
terms of the guarantee must provide
that: .
* • * * *
(g) Use of multiple financial
mechanisms. An owner or operator may
satisfy the requirements of this section
by establishing more than one financial
mechanism per facility. These
mechanisms are limited to trust funds,
surety bonds guaranteeing payment into
a trust fund, letters of credit, insurance,
and financial test and guarantee, except
that the financial test and guarantee
may not be combined. The mechanisms
must be as specified in paragraphs (a),
(b), (d), (e), and (f), respectively, of this
section, except that it is the combination
of mechanisms rather than the single
mechanism that must provide financial
assurance for an amount at least equal
to the cost estimate. If an owner or
operator uses a trust fund in
combination with a surety bond or letter
of credit, he may use the trust fund as
the standby trust fund for the other
mechanism. A single trust fund may be
established for two or more
mechanisms. The Regional
Administrator may use any or all of the
mechanisms to provide for post-closure
of the facility.
*****
5. Section 254.147 is amended by
revising paragraphs (a)(7), (b)(7), (f)(l),
and (f)(8) and by adding new paragraphs
(h)(4) and (h)(5) to read as follows:
§ 264.147 Liability requirements.
(a)* * *
(7) An owner or operator shall notify
the Regional Administrator in writing
•within 30 days whenever:
(i) A claim results in a reduction in the
amount of financial assurance for
liability coverage provided by a
financial instrument authorized in
paragraphs (a)(l) through (a)(6) of this
section; or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden
accidental occurrence arising from the .
operation of a hazardous waste
treatment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (a)(l)
through (a)(6) of this section; or.
(iii) A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-
sudden accidental occurrence arising
from the operation of a hazardous waste
treatment, storage, or disposal facility is
Issued against the owner or operator or
an instrument that is providing financial
assurance for liability coverage under
paragraphs (a)(l) through (a)(6) of this
section.
(b) * * *
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever:
(i) A claim results in a reduction in the
amount of financial assurance for
liability coverage provided by a
financial instrument authorized in
paragraphs (b)(l) through (b)(6) of this
section; or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden
accidental occurence arising from the
operation of a hazardous waste
treatment, storage, or disposal facility is
entered between the owneror operator
and third-party claimant for liability
coverage under paragraphs (b)((l)
through (b) (6) of this section; or
{iii) A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or no.n-
sudden accidental occurrence arising
from the operation of a hazardous waste
treatment, storage, or disposal facility is
issued against the owner or operator or
an instrument that is providing financial
assurance for liability coverage under
paragraphs (b)(l) through (b)(6) of this
section.
* * * * ' *
(f) Financial test for liability
coverage. (1) An owner or operator may
satisfy the requirements of this section
by demonstrating that he passes a
financial test as specified in this
paragraph. To pass this test the owner
or operator must meet the criteria of
paragraph (f)(l)(i) or (f)(l)(ii) of this
section.
(i) The owner or operator must have:
(A) Tangible net worth greater than
the sum of the amount of liability ••
coverage to be demonstrated by this test
plus $10 million;
(B) Assets located in the United States
amounting to at least 90 percent of total
assets or at lest six times the sum of the
amount of liability coverage and any
.- other obligations covered by a financial
test.
(ii) The owner or operator must have:
(A) A current rating for his most
• recent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor's or
Aaa, Aa, A, or Baa as issued by
Moody's; and
(B) Tangible net worth greater than
the sum of the amount of liability
coverage to be demonstrated by this test
plus $10 million; and
, (C) Assets located in the United
•States amounting to at least 90 percent
of total assets or at least six times the
sum of the amount of liability coverage
and any other obligations covered by a
financial test.
* * * ' * *
(6) If the owner or operator no longer
meets the requirements of paragraph
(fj(l) of this section, he must obtain
insurance, a letter of credit, a surety
bond, a trust fund, or a guarantee for the
entire amount of required liability
coverage as specified in this section.
Evidence of liability coverage must be
submitted to the Regional Administrator
within 90 days after the end of the fiscal
year for which the year-end financial
data show that the owner or operator no
longer meets the test requirements.
* . * * * *
(h) * * *
(4) An owner or operator who uses a
letter of credit to satisfy the
requirements of this section may also
establish a standby trust fund. .Under
the terms of such a letter of credit, all
amounts paid pursuant to a draft by the
trustee of the standby trust will be
deposited by the issuing institution into
the standby trust in accordance with
instructions from the trustee. The trustee
of the standby trust fund must be an
entity which has the authority to art as
a trustee and whose trust operations are
regulated and examined by a Federal or
State agency.
(5) The wording of the standby trust
fund must be identical to the wording
specified in § 264.151(n).
* * * * ' *
7. Section 264.151 is amended by
revising paragraphs (f), (g), (h). and (k)
and adding a new paragraph (n) to read
as follows:
§ 264.151 Wording of the Instruments.
*****
(f) A letter from the chief financial
officer, as specified in § 204.143(f) or
§ 264.145(f) or § 265.143(e) or
§ 265.145(e) of this chapter, must be
worded as follows, except that
instructions in brackets are to be
replaced with the relevant information
and the brackets deleted:
Letter from Chief Financial Officer
[Address to Regional Administrator of
every Region in which facilities for which
financial responsibility is to be demonstrated
through the financial test are located].
I am the chief financial officer of (name
and address of firm]. This letter is in support
of this firm's use of the financial test to
demonstrate financial assurance for closure
and or post-closure costs, as specified in
subpart H of 40 CFR parts 264 and 265.
[Fill out the following two paragraphs. If
there are no facilities that belong in a
particular paragraph, write "None" in the
space indicated. For erfch facility, include its
-------
Federal Register / Vol. 56, No. 126 / Monday, July 1, 1991 / Proposed Rules
30219
EPA Identification Number, name, and
address].
The firm identified above is the owner or
operator of the following facilities for which
financial assurance for closure and/or post-
closure costs is being demonstrated through
the financial test specified in subpart H of 40
CFR parts 284 and 265: .
The firm identified above guarantees,
through the guarantee specified in Subpart H
of 40 CFR parts 264 and 265. financial
assurance for closure and/or post-closure
costs at the following facilities owned or
operated by the following: . The firm
identified above is [insert one or more: (1)
The direct or higher-tier parent corporation of
the owner or operator; (2) owned by the same
parent corporation as the parent corporation
of the owner or operator, and receiving the
following value in consideration of this
guarantee • or (3) engaged in the
following substantial business relationship
with the owner or operator , and
receiving the following value in consideration
of this guarantee —: ]. [Attach a written
description of the business relationship or a
copy of the contract establishing such
relationship to this letter].
[Fill out the following four paragraphs
regarding facilities and associated cost
estimates. If your firm lias no facilities that
belong in a particular paragraph, write
"None" in the space indicated. For each
facility, include its EPA Identification
Number, name, address, and current closure
and/or post-closure cost estimates. Identify
each cost estimate as to whether it is for
closure or post-closure care].
1. This firm is the owner or operator of the
following facilities for which financial
assurance for closure or post-closure care is
demonstrated through the financial test
specified in subpart H of 40 CFR parts 264
and 265. The current closure and/or post-
closure cost estimates covered by the test are
shown for each facility: .
2. This firm guarantees, through the
guarantee specified in subpart H of 40 CFR
parts 264 and .285, the closure or post-closure
care of the following facilities owned'or
, operated by the guaranteed party. The
current cost estimates for the closure or post-
closure care so guaranteed are shown for
each facility: .
3. In States where EPA is not administering
the financial requirements of subpart H of 40
CFR part 264 or 265, this firm, as owner or
operator or guarantor, is demonstrating
financial assurance for the closure or post-
closure care of the following facilities through
the use of a test equivalent or substantially
equivalent to the financial test specified in
subpart H of 40 CFR parts 264 and 265. The
current closure and/or post-closure cost
estimates covered by such a test are shown
for each facility: -
4. This firm is the owner or operator of the
following hazardous waste management
facilities for which financial assurance for
closure or, if a disposal facility, post-closure
care, is not demonstrated either to EPA or a
State through the financial test or any other
financial assurance mechanism specified in
subpart H of 40 CFR parts 264 and 265 or
equivalent or substantially equivalent State
mechanisms. The current closure and/or
post-closure cost estimates not covered by
such financial assurance are shown for each
facility:
[Fill out the following three paragraphs
regarding facilities and associated assured
costs. If your firm has no facilities that belong
in a particular paragraph, write "None" in the
space indicated. For each facility, include its
EPA Identification Number, name, address,
and amount of assured costs],
5. This firm is the owner or operator or
guarantor of the following UIC facilities for
which financial assurance for plugging and
abandonment is required under part 144 and
is assured through a financial test. The
current closure cost estimates as required by
40 CFR 144.62 are shown for each facility:
6. This firm is the owner of operator or
guarantor of the following petroleum
underground storage tank facilities for which
financial assurance is required under part 280
and is assured through a financial test. The
amount of assurance required is shown for
each facility:
7. This firm is the owner or operator or
guarantor of the following PCB commercial
storage facilities for which financial
assurance is required under part 781 and is
assured through a financial test The amount
of assurance required is shown for each
facility.
This firm [insert "is required" or'Ss not
required"] to file a Form 10K with the
Securities and Exchange Commission (SEC)
for the latest fiscal year.
The fiscal year of this firm ends' on [month,
day]. The figures for the following items
marked with an asterisk are derived from this
firm's independently audited, year-end
financial statements for the latest completed
fiscal year, ended [date].
[Fill in Alternative I if the criteria of
paragraph (f)(l)(i) of § 264.143 or $ 264.145, or
of paragraph (e)(l)(i) of 5 265.143 or S 285.145
of this chapter are used. Fill in Alternative II
if the criteria of paragraph (f)(l)(ii) of
§ 264.143 or 8 264.145, of of paragraph
(e)(l)(n) of $ 265.143 or § 285.145 of this
chapter are used].
Alternative I
1. Sum of current closure and post-closure
cost estimates and other environmental
costs to be assured [total of all cost
estimates shown in the seven paragraphs
above]
$ 1 : ;
*2. Total liabilities (if any portion of the
closure or post-closure cost estimates is
included in total liabilities, you may
deduct the amount of the portion from
this line and add that amount to lines 3
and 4)
*3. Tangible net worth _____
*4. Net worth :
*5. The sum of net income plus depreciation,
depletion, and amortization
*a Total assets in the U.S. (required only if
' less than 90 percent of firm's assets are
located in the U.S.).
7. Is line 3 minus line 1 least
$10 million?
8. Is line 2 divided by line 4 less
than 1.5?
9. Is line 5 divided by line 2 greater
than 0.1?
*10. Is line 6 greater than six times line 1
(required only if less than 90 percent of
firm's assets are
located in the U.S.)? _
11. Does the firm answer YES to either of
question 8 or 9, and
question 7 and 10?
Alternative II
1. Sum of current closure and post-closure
cost estimates and other environmental
costs to be assured [total of all cost
estimates shown in the seven paragraphs
above] $
2. Current bond rating of most recent
issuance of this firm and name of rating
service
3. Date of issuance of bond
4. Date of maturity of bond
*5. Tangible net worth [if any portion of the
closure and post-closure cost estimates is
included in "total liabilities" on your
firm's financial statements, you may add
the amount of that portion to
this line]
*6. Total assets in U.S. (required only if less
than 90% of firm's assets are located in
the U.S.).
7. Is line 5 minus line 1 at less
$10 million? _
*8. Is line 6 greater than six times line 1
(required only if less than 90 percent of
firm's assets are located in the
tT.S.}?
I hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR 264.151(f) as such regulations were
constituted on the date shown immediately
below.
[Signature]
[Name]
[Title]
[Date]
(g) A letter from the chief financial
officer, as specified in § 264.147(f) or
§ 265.147(f) of this chapter, must be
worded as follows, except that
instructions in brackets are to be
replaced with the relevant information
and the brackets deleted.
Letter from Chief Financial Officer
[Address to Regional Administrator of
every Region in which facilities for which
financial responsibility is to be demonstrated
through the financial test are located].
I am the chief financial officer of [firm's
name and address]. This letter is in support
of the use of the financial test to demonstrate
financial responsibility for liability coverage
[Insert "and closure and/or post-closure
care" if applicable] as specified in subpart H
of 40 CFR parts 264^ and 285.
{Fill out the following paragraphs regarding
facilities and liability coverage. If there are
-------
30220
Federal Register / Vol. 56. No. 126 / Monday. July 1. 1991 / Proposed Rules
no facilities that belong in a particular
paragraph, write "None" in the space
indicated. For each facility, include its EPA
Identification Number, name, and address].
Tho firm identified above is the owner or
operator of the following facilities for which
liability coverage for [insert "sudden" or
"nonsudden" or "both sudden and
' nonsudden"] accidental occurrences is being
demonstrated through the financial test
specified in subpart H of 40 CFR parts 264
and 285: _
The firm identified above guarantees.
through the guarantee specified in subpart H
of 40 CFR parts 264 and 265. liability
coverage for [insert "sudden" or
"nonsudden" or "both sudden and
nonsudden"] accidental occurrences at the
following facilities owned or operated by the
following: . The firm identified above is
[Insert one or more: (1) The direct or higher-
tier parent corporation of the owner or
operator; (2) owned by the same parent
corporation as the parent corporation of the
owner or operator, and receiving the
following value in consideration of this
guarantee : or (3) engaged in the
following substantial business relationship
with the owner or operator . and
receiving the following value in consideration
of this guarantee ___]. [Attach a written
description of the business relationship or a
copy of the contract establishing such
relationship to this letter].
[If you are using the financial test to
demonstrate coverage of both liability and
closure and post-closure care, fill in the
following four paragraphs regarding facilities
and associated closure and post-closure cost
estimates. If there are no facilities that belong
In a particular paragraph, write "None" in the
apace Indicated. For each facility, include its
EPA Identification Number, name, address,
and current closure and/or post-closure cost
estimates. Identify each cost estimate as to
whether it Is for closure or post-closure care].
l.The firm Identified above owns or
operates the following facilities for which
financial assurance for closure or post-
closure care or liability coverage is
demonstrated through the financial test
specified in subpart H of 40 CFR parts 264
and 205. The current closure and/or post-
closure cost estimate covered by the test are
shown for each facility: •
2. The firm identified above guarantees,
through the guarantee specified in subpart H
of 40 CFR parts 264 and 265, the closure and
post-closure care or liability coverage of the
following facilities owned or operated by the
guaranteed party. The current cost estimates
for closure or post-closure care so guaranteed
are shown for each facility: .
3. In States where EPA is not administering
the financial requirements of subpart H of 40
CFR parts 264 and 265, this firm is
demonstrating financial assurance for the
closure or post-closure care of the following
facilities through the use of a test equivalent
or substantially equivalent to the financial
test specified in subpart H or 40 CFR parts
264 and 265. The current closure or post-
closure cost estimates covered by such a test
are shown for each facility: .
4. The firm identified above owns or
operates the following hazardous waste
management facilities for which financial
assurance for closure or, if a disposal facility,
post-closure care,, is not demonstrated either
to EPA or a State through the financial test or
any other financial assurance mechanisms
specified in subpart H of 40 CFR parts 264
and 265 or equivalent or substantially
equivalent State mechanisms. The current
, closure and/or post-closure cost estimates
not covered by such financial assurance are
shown for each facility: — ,
[Fill out the following three paragraphs
regarding facilities and associated assured
• costs. If your firm has no facilities that belong
in a particular paragraph, write "None" in the
space indicated. For each facility, include its
EPA Identification Number, name, address,
and amount of assured costs];
5. This firm is the owner or operator or
guarantor of the following UIC facilities for
which financial assurance for plugging and
abandonment is required under part 144 and
is assured through a financial test The
current closure cost estimates as required by
40 CFR 144.62 are shown for each
facility:
6. This firm is the owner or operator or
guarantor of the following petroleum
underground storage tank facilities for which
financial assurance is required under part 280
and is assured through a financial test The
amount of assurance required is shown for
each facility:
7. This firm is the owner or operator or
guarantor of the following PCB commercial
storage facilities for which financial
assurance is required under part 761 and is
assured through a financial tfist The amount
of assurance required is shown for each
facility
This firm [insert "is required" or "is not
required"] to file a Form 10K with the
Securities and Exchange Commission (SEC)
for the latest fiscal year.
The fiscal year of this firm ends on [month,
dayj. The figures for the following items
marked with an asterisk are derived from this
firm's independently audited, year-end
financial statements for the latest completed
fiscal year, ended [date].
[Fill in part A if you are using the financial
test to demonstrate coverage only for the
liability requirements under parts 264 and
265].
Part A. Liability Coverage for Sudden and
Non-Sudden Occurrences
[Fill in Alternative I if the criteria of
paragraph (0(1)0) of i 264.147 or § 265.147
are used. Fill in Alternative H if the criteria of
paragraph (f)(l)(ii) of § 264.147 or § 265.147
are used].
Alternative I
1. Sum of required sudden and nonsudden
liability coverage.
•2. Tangible net worth.
*3. Total assets in the U.S. (required only if
less than 00 percent of the firm's assets
are located in the U.S.). _
" ' **• no
4. Is line 2 minus line 1 at least $10 million?
•5. Is line 3 greater than six Mines line 1
(required only if less than 90 percent of
firm's assets are located in the U.S.)?
6. Does the firm answer YES to both
questions 4 and 5?
Alternative II
1. Amount of annual aggregate liability
coverage to be demonstrated.
2. Current bond rating of most recent
issuance and name of rating service.
3. Date of issuance of bond.
4. Date of maturity of bond.
*5. Tangible net worth.
*6. Total assets in U.S. (required only if less
than 90% of assets are located in the
U.S.). .
you no
7. Is line 5 minus line 1 at least $10 million?
*8. Is line 6 greater than six times line 1
(required only if less than 90 percent of
firm's assets are located in the U.S.)?
Part B. Closure or Post-Closure Care and
Liability Coverage
[Fill in Alternative I if the criteria of
paragraphs (f)(l)(i) of § 264.143 or § 264.145
and (f)(l)(i) of § 264.147 are used or if the
criteria of paragraphs (e)(l)(i) of § 265.143 or
5 265.145 and (f)(l)(i) of § 265.147 are used.
Fill in Alternative II if the criteria of
paragraphs (f)(l)(ii) of 5 264.143 or § 264.145
and (f)(l)(ii) of § 264.147 are used or if the
criteria of paragraphs (e)(l)(ii) of § 265.143 or
| 265.145 and (f)(l)(ii) or I 265.147 are used].
Alternative I
1. Sum of current closure and post-closure
cost estimates and other environmental
• costs to be assured [total of all cost
estimates shown in the seven paragraphs
above].
$ —
2. Amount of annual aggregate liability
coverage to be demonstrated.
$
3. Sum of lines 1 and 2.
$__
*4. Total liabilities (if any portion of the
closure or post-closure cost estimates is
included in total liabilities, you may
deduct the amount of that portion from
this line and add that amount to lines 5
and 6).
*5. Tangible net worth
*6. Net worth
*7. The sum of net Income plus depreciation.
depletion, and amortization
*8. Total assets in the U.S. (required only if
less than 90 percent of firm's assets are
located in the U.S.).
yes
9. Is line 5 minus line 3 at least $10 million?
10. Is line 4 divided by line 6 less than 1.5?
11. Is line 7 divided by line 4 greater than 0.1?
*12. Is line 8 greater than six times line 3
(required only if less than 90 percent of
firm's assets are located in the U.S.)?
13. Does the firm answer YES to either to
question 10 or 11, and questions 9 and
42?
-------
Federal Register / Vol. 56. No. 126 / Monday, July 1, 1991 / Proposed Rules
30221
Alternative II
1. Sum of current closure and post-closure
cost estimates and other environmental
costs to be assured (total of all cost
estimates shown in the seven paragraphs
above).
$ ————————^—————_____
2. Amount of annual aggregate liability
coverage to be demonstrated.
$ : ; ,
3. Sum of lines 1 and 2.
$ .
4. Current bond rating of most recent
issuance and name of rating service
5. Date of issuance of bond
6. Date of maturity of bond
*7. Tangible net worth (if any portion of the
closure or post-closure cost estimates is
included in "total liabilities" on your
financial statements you may add that
portion to this line)
*8. Total assets in the U.S. (required only if
less than 9055 of assets are located in the
U.S.).
• yes no
9. Is line 7 minus line 3 at least $10 million?
*10. Is line 8 greater than six times line 1
(required only if less than 90 percent of
firm's assets are located in the U.S.)?
I hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR 264,151(g) as such regulations were
constituted on the date shown immediately
below.
[Signature] '.
[Name] '.
[Title] -
[Date]-
(h)(l) A corporate guarantee, as specified
in { 264.143(f| or § 264.145(f) or 5 265.143(e) or
§ 265.145(e) of this chapter, must be worded
as follows, except that instructions in
brackets are to be replaced with the relevant
information and the brackets deleted:
Corporate Guarantee for Closure or Post-
Closure Care
Guarantee made this [date] by [name of
guaranteeing entity], a business corporation
organized under the laws of the State of
[insert name of State], herein referred to as
guarantor, to the United States
Environmental Protection Agency (EPA),
obligee, on behalf of [owner or operator] of
[business address], which is [one of the
following: "our subsidiary;" "a subsidiary of
[name and address of common parent
corporation], of which guarantor is a
subsidiary;" or "an entity with which
guarantor has'a substantial business
relationship, as defined in 40 CFR [either
264.141(h) or 265.141(h)]".
Recitals
1. Guarantor meets or exceeds the financial
test criteria and agrees to comply with the
reporting requirements for guarantors as
specified in 40 CFR 264.143(f), 264.145(f),
265.143(e), and 265.145(e).
2. [Owner or operator] owns or operates
the following hazardous waste management
facility(ies) covered by this guarantee: [List
for each facility: EPA Identification Number,
name, and address. Indicate for each whether
guarantee is for closure, post-closure care, or
both].
3. "Closure plans" and "post-closure plans"
as used below refer to the plans maintained
as required by subpart G of 40 CFR parts 264
and 265 for the closure and post-closure care
of facilities as identified above.
4. For value received from [owner or
operator], guarantor guarantees to EPA that
in the event that [owner or operator] fails to
perform [insert "closure," "post-closure care"
or "closure and post-closure care"] of the
above facility(ies) in accordance with the
closure or post-closure plans and other
permit or interim status requirements
whenever required to do so, the guarantor
shall do so or establish a trust fund as
specified in subpart H of 40 CFR part 264 or
265, as applicable, in the name of [owner or
operator] in the amount of the current closure
or post-closure cost estimates as specified in
subpart H of 40 CFR parts 264 and 265.
5. Guarantor agrees that if, at the end of
any fiscal year before termination of this
guarantee, the guarantor fails to meet the
financial test criteria, guarantor shall send
within 90 days, by certified mail, notice to the
EPA Regional Administrator(s) for the
Region(s) in which the facility(ies) is (are)
located and to [owner or operator] that he
intends to provide alternate financial
assurance as specified in Subpart H of 40
CFR part 264 or 265, as applicable, in the
name of [owner or operator]. Within 120 days
after the end of such fiscal year, the
guarantor shall establish such financial
assurance unless [owner or operator] has
done so.
6. The guarantor agrees to notify the EPA
Regional Administrator by certified mail, of a
voluntary or involuntary proceeding under
title 11 (Bankruptcy), U.S. Code, naming
guarantor as debtor, within 10 days after
commencement of the proceeding.
7. Guarantor agrees that within 30 days
after being notified by an EPA Regional
Administrator of a determination that
guarantor no longer meets the financial test
criteria or that he is disallowed from
continuing as a guarantor of closure or post-
closure care, he shall establish alternate .
financial assurance as specified in subpart H
of 40 CFR part 264 or 265, as applicable, in
the name of [owner or operator] unless
[owner or operator] has done so.
8. Guarantor agrees to remain bound under
this guarantee notwithstanding any or all of
the following: Amendment or modification of
the closure or post-closure plan, amendment
or modification of the permit, the extension
or reduction of the time of performance of
closure or post-closure, or any other
modification or alteration of an obligation of
the owner or operator pursuant to 40 CFR
part 264 or 265.
9. Guarantor agrees to remain bound under
this guarantee for as long as [owner or
operator] must comply with the applicable
financial assurance requirements of Subpart
H of 40 CFR parts 264 and 265 for the above-
listed facilities, except as provided in
paragraph 9 of this agreement [Insert, the
following language if the guarantor is (a) a
direct or higher-tier corporate parent, or (b) a
firm whose parent corporation is also the
parent corporation of the owner or operator]:
Guarantor may cancel this guarantee by
sending notice by certified mail to the EPA
Regional Administrators) for the Region's) in
which the facility(ies) is(are) located and to
[owner or operator], provided that this
guarantee may not be canceled unless and
until [the owner or operator] obtains, and the
EPA Regional Administrator(s) approve(s),
alternate closure and/or post closure care
coverage complying with 40 CFR 264.143,
264.145,265.143, and/or 265.145.
[Insert the following language if the guarantor
is a firm qualifying as a guarantor due to its
"substantial business relationship" with its
owner or operator]
Guarantor may cancel this guarantee 120
days following the receipt of notification,
through certified mail, by the EPA Regional
Administrator(s) for the Region(s) in which
the facility(ies) is(are) located and by [the
owner or operator].
10. Guarantor agrees that if [owner or
operator] fails to provide alternate financial
assurance as specified in subpart H of 40 CFR
part 264 or 265, as applicable, and obtain
written approval of such assurance from the
EPA Regional Administrator(s) within 90
days after a notice of cancellation by the
guarantor is received by an EPA Regional
Administrator from guarantor, guarantor
shall provide such alternate financial
assurance in the name of [owner or operator],
11. Guarantor expressly waives notice of
acceptance of this guarantee by the EPA or
by [owner or operator]. Guarantor also
expressly waives notice of amendments or
modifications of the closure and/or post-
closure plan and of amendments or
modifications of the facility permit(s).
I hereby certify that the wording of this
guarantee is identical to the wording
specified in 40 CFR 264.151(h) as such
regulations were constituted on the date first
above written.
Effective date:
Name of guarantor]
Authorized signature for guarantor]
Name of person signing]
Title of person signing]
Signature of witness or notary:
(2) A guarantee, as specified in § 264.147(g)
or S 265.147{g) of this chapter, must be
worded as follows, except that instructions in
brackets are to be replaced with the relevant
information and the brackets deleted:
Guarantee for Liability Coverage
Guarantee made this [date] by [name of
guaranteeing entity], a business corporation
organized under the laws of [if incorporated
within the United States insert "the State of
" and insert name of State; if
incorporated outside the United States insert
the name of the country in which
incorporated, the principal place of business
within the United States, and the name and
address of the registered agent in the State of
the principal place of business], herein
referred to as guarantor. This guarantee is
made on behalf of [owner or operator] of
[business..address], .which is one of the
following: "our subsidiary;" "a subsidiary of
-------
30222
Federal Register / Vol. 56. No. 126 / Monday. July 1.1991 / Proposed Rules
[nam*. and address of common parent
corporation], of which guarantor is a
subsidiary:" or "an entity with which
guarantor has a substantial business
relationship, as defined in 40 CFR [either
2C4.141(h) or265.141(h)]"], to any and all third
parties who have sustained or may sustain
bodily Injury or property damage caused by
(sudden and/or nonsudden] accidental
occurrences arising from operation of the
facihty(les) covered by this guarantee.
Recitals
1. Guarantor meets or exceeds the financial
tost criteria and agrees to comply with the
reporting requirements for guarantors as
specified in 40 CFR 264.147(g) and 265.147(g).
2. [Owner or operator] owns or operates
the following hazardous waste management
facllityfjes) covered by this guarantee: [List
for each facility: EPA Identification Number,
name, and address: and if guarantor is
incorporated outside the United States list
the name and address of the guarantor's
registered agent in each State]. This -
corporate guarantee satisfies RCRA third-
party llabillty.requirements for [insert
"sudden" or "nonsudden" or "both sudden
and nonsudden"] accidental occurrences In
above-named owner or operator facilities for
coverage in the amount of [insert dollar
nmount] for each occurrence and [insert
dollar amount] annual aggregate.
3. For value received from [owner or
operator], guarantor guarantees to any and
all third parties who have sustained or may
sustain bodily injury or property damage
caused by [sudden and/or nonsudden]
accidental occurrences arising from
operations of the facility(ies) covered by this
guranatee that in the event that [owner or
operator] fails to satisfy a judgment or award
based on a determination of liability for
bodily Injury or property damage to third
parlies caused by [sudden and/or
nonsudden] accidental occurrences, arising
from the operation of the above-named
facilities, or falls to pay an amount agreed to
in settlement of a claim arising from or
alleged to arise from such injury or damage,
the guarantor will satisfy such judgment(s),
award(s) or settlement agreement(s) up to the
limits of coverage identified above.
4, Such obligation does not apply to any of
the following:
(a) Bodily injury or property damage for
what [insert owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement This
exclusion does not apply to liability for
damages that [insert owner or operator]
would bo obligated to pay in the absence of
the contract or agreement
(b) Any obligation of [insert owner or
operator] under a workers' compensation,
disability benefits, or unemployment
compensation law or any similar law.
(c) Bodily Injury to:
(1) An employee of [insert owner or
operator] arising from, and in the course of,
employment by [insert owner or operator]; or
(2) The spouse, child, parent, brother or
sister of that employee as a consequence of,
or arising from, and in the course of
employment by [insert .owner or operator].
This exclusion applies:
(A) Whether [insert owner or operator]
may be liable as an employer or in any other
capacity; and
(B) To any obligation to share damages
with or repay another person who must pay
damages because of the injury to persons
identified in paragraphs (1) and (2).
(d) Bodily injury or property damage
arising out of the ownership, maintenance,
use, or entrustment to others of any aircraft.
motor vehicle or watercraft.
(e) Property damage to:
(1) Any property owned, rented, or
occupied by.[insert owner or operator];
(2) Premises that are sold, given away or
abandoned by [insert owner or operator] if
the property damage arises out of any part of
those premises;
(3) Property loaned to [insert owner or
operator]; •
(4) Personal property in the care, custody
or control of [insert owner or operator];
(5) That particular part of real property on
which [insert owner or operator] or any
contractors or subcontractors working
directly or indirectly on behalf of [insert
owner or operator] are performing
operations, if the property damage arises out
of these operations.
5. Guarantor agrees that if, at the end of
any fiscal year before termination of this
guarantee, the guarantor fails to meet the
financial test criteria, guarantor shall send
within 90 days, by certified mail, notice to the
EPA Regional Administrators] for the
Region[s] in which the facilities] is[are]
located and to [owner or operator] that he
intends to provide alternate liability coverage
as specified in 40 CFR 254.147 and 265.147, as
applicable, in the name of [owner or
operator]. Within 120 days after the end of
such fiscal year, the guarantor shall establish
such liability coverage unless [owner or
operator] has done so.
6. The guarantor agrees to notify the EPA
Regional Administrator by certified mail of a
voluntary or involuntary proceeding under
title 11 (Bankruptcy], U.S. Code, naming
guarantor as debtor, within 10 days after
commencement of the proceeding.
7. Guarantor agrees that within 30 days
after being notified by an EPA Regional
Administrator of a determination that
guarantor no longer meets the financial test
criteria or that he is disallowed from
continuing as a guarantor, he shall establish
alternate liability coverage as specified in 40
CFR 264.147 or 265.147 in the name of [owner
or operator], unless [owner or operator] has
done so.
8. Guarantor reserves the right to modify
this agreement to take into account
amendment or modification of the liability
requirements set by 40 CFR 264.147 and
265.147, provided that such modification shall
become effective only if a Regional
Administrator does not disapprove the
modification within 30 days of receipt of
notification of the modification.
9. Guarantor agrees to remain bound under
this guarantee 'for so long as [owner or
operator] must comply with the applicable
requirements of 40 CFR 264.147 and 265.147
for the above-listed facility(ies), except as
provided in paragraph 10 of this agreement.
10. [Insert the following language if the
guarantor is (a) a direct or higher-tier
corporate parent, or (b) a firm whose parent
corporation is also the parent corporation of
the owner or operator]:
Guarantor may terminate this guarantee by
sending notice by certified mail to the EPA
Regional Administrator(s) for the Region(s) in
which the facility(ies) is (are) located and to
[owner or operator], provided that this
guarantee may not be terminated unless end
until [the owner or operator] obtains, and the
EPA Regional Administrator(s) approve(s),
alternate liability coverage complying with 40
CFR 264.147 and/or 265.147.
[Insert the following language if the •
guarantor is a firm qualifying as a guarantor
due to its "substantial business relationship"
with the owner or operator]:
Guarantor may terminate this guarantee
120 days following receipt of notification.
through certified mail by the EPA Regional
Administrator(s) for the Region(s) in which
the facility(ies) is (are) located and by [thp
owner or operator].
11. Guarantor hereby expressly waives
notice of acceptance of this guarantee by any
party.
12. Guarantor agrees that this guarantee is
in addition to and does not affect any other
responsibility or liability of the guarantor
with respect to the covered facilities.
13. The Guarantor shall satisfy a third-
party liability claim only on receipt of one of
the following documents:
(a) Certification from the Principal and the
third-party claimant(s) that the liability claim
should be paid. The certification must be
worded as follows, except that instructions in
brackets are to be replaced with the relevant
information and the brackets deleted:
Certification of Valid Claim
The undersigned, as parties [insert
Principal]-and [insert name and address of
third-party claimant(s)], hereby certify that
the claim of bodily injury and/or property
• damage caused by a [sudden or nonsudden]
accidental occurrence arising from operating
[Principal's] hazardous waste treatment,
. storage, or disposal facility should be paid in
the amount of $[ ].
[Signatures]
Principal
(Notary) Date
[Signatures]
Claimant(s)
(Notary) Date
(b) A valid final court order establishing a
judgment against the Principal for bodily
injury or property damage caused by sudden
or nonsudden accidental occurrences arising
from the operation of the Principal's facility
or group of facilities.
14. In the event of combination of this
guarantee with another mechanism to meet
liability requirements, this guarantee will be
considered [insert "primary" or "excess"]
coverage.
I hereby certify that the wording of the
guarantee is identical to the wording
specified in 40 CFR 264.151(h)(2) as such
regulations were constituted on the date
shown immediately below.
Effective date: - — '
[Name of guarantor]
-------
Federal Register / Vol. 56, No. 126 / Monday, July 1, 1991 / Proposed Rules
30223
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing] ' "
Signature of witness of notary:
*****
(k) A letter of credit, as specified in
§ 264.147(h) or § 265.147(h) of this
chapter, must be worded as follows,
except that instructions in brackets are
to be replaced with the relevant
information and the brackets deleted:
Irrevocable Standby Letter of Credit
Name and Address of Issuing Institution
Regional Administrator(s)
Region(s)
VS. Environmental Protection Agency
Dear Sir or Madam: We hereby establish
our Irrevocable Standby Letter of Credit No.
in the favor of ("any and all third-
party liability claimants or insert name of
trustee of the standby trust fund], at the
request and for the account of [owner or
operator's name and address] for third-party
liability awards or settlements up to [in
words] U.S. dollars $ per occurrence
and the annual aggregate amount of [in.
words] U.S. dollars $ , for sudden
accidental occurrences and/or for third-party
liability awards or settlements up to the
amount of [in words] U.S. dollars $_
per occurence, and the annual aggregate
amount of [in words] U.S. dollars $ ,
for nonsudden accidental occurences
available upon presentation of a sight draft
bearing reference to this letter of credit No.
, and [insert the following language if
the letter of credit is being used without a
standby trust fund:] "(1) a signed certificate
reading as follows:
Certificate of Valid Claim
The undersigned, as parties [insert
principal] and [insert name and address of
third-party claimant(s)], hereby certify that
the claim of bodily injury and/or property
damage caused by a [sudden or nonsudden]
accidental occurrence arising from operations
of [principal's] hazardous waste treatment,
storage, or disposal facility should be paid in
the amount of $___^_ We hereby certify
that the claim does not apply to any'of the
following:
(a) Bodily injury or property damage for
which [insert principal] is obligated to pay
damages by reason of the assumption of
liability in a contract or agreement. This
exclusion does not apply to liability for
damages that [insert principal] would be
obligated to pay in the absence of the
contract or agreement.
(bj Any obligation of [insert principal]
under a workers' compensation, disability
benefits, or unemployment compensation law
or any similar law.
(c) Bodily injury to:
(1) An employee of [insert principal] arising
from, and in the course of, employment by
[insert principal]; or
(2) The spouse, child, parent, brother or
sister of that employee as a consequence of,
or arising from, and in the course of
employment by [insert principal].
This exclusion applies:
(A) Whether [insert principal] may be
liable as an employer or in any other
capacity; and
(B) To any obligation to share damages
with or repay another person who must pay
damages because of the injury to persons
identified in paragraphs (1) and (2}.
(d) Bodily injury or property damage
arising out of the ownership, maintenance,
use, or entrustment to" others of any aircraft,
motor vehicle or watercraft.
(e) Property damage to:
(1) Any property owned, rented, or
occupied by [insert principal];
(2) Premises that are sold, given away or
abandoned by [insert principal] if the
property damage arises out of any part of
those premises;
(3) Property loaned to [insert principal];
(4) Personal property in the care, custody
or control of [insert principal];
(5) That particular part of real property on
which [insert principal] or any contractors or
subcontractors working directly or indirectly
on behalf of [insert principal] are performing
operations, if the property damage arises out
of these operations.
[Signatures]
Grantor
[Signatures]
Claimants)
or (2) a valid final court order establishing a
judgment against the Grantor for bodily
injury or property damage caused by sudden
or nonsudden accidental occurrences arising
from the operation of the Grantor's facility or
group of facilities.
This letter of credit is effective as of [date]
and shall expire on [date at least one year
later], but such expiration date shall be
automatically extended for a period of [at
least one year] on [date] and on each
successive expiration date, unless, at least
120 days before the current expiration date,
we notify you, the USEPA Regional
Administrator for Region [Region #], and
[owner's or operator's name] by certified mail
that we have decided not to extend this letter
of credit beyond the current expiration date.
Whenever this letter of credit is drawn on
under and in compliance with the terms of
this credit, we shall duly honor such draft
upon presentation to us.
[Insert the following language if a standby
trust fund is not being used: "In the event that
this letter of credit is used in combination
with another mechanism for liability
coverage, this letter of credit shall be
considered [insert "primary" or "excess"
coverage]."
We certify that the wording of this letter of
credit is identical to the wording specified in
40 CFR 264.15100 as such regulations were
constituted on the date shown immediately
below.
[Signature(s) and title(s) of official(s) of
issuing institution] [Date]
. This credit is subject to [insert "the most
recent edition of the Uniform Customs and
Practice for Documentary Credits published
by the International Chamber of Commerce"
or "the Uniform Commercial Code"].
(D ' * *
(n)(l) A standby trust agreement, as
specified in § 264.147(h) or $ 265.147(h) of this
chapter, must be worded as follows, except
that institutions in brackets are to be
replaced with the relevant information and
the brackets deleted:
Standby Trust Agreement
Trust Agreement, the "Agreement," entered
into as of [date] by and between [name of the
owner or operator] a [name of a State] [insert
"corporation," "partneship," association," or
"proprietorship"], the "Grantor," and [name
of corporate trustee], [insert, "incorporated in
the State of " or "a national bank"].
the "trustee."
Whereas the United States Environmental
Protection Agency, "EPA," an agency of the
United States Government, has established
certain regulations applicable to the Grantor.
requiring that an owner or operator of a
hazardous waste management facility or
group of facilities must demonstrate imanci;:;
responsibility for bodily injury and properly
damage to third parties caused by sudden
accidental and/or nonsudden accidental
ocurrences arising from operations of the
facility or group of facilities.
Whereas, the Grantor has elected to
establish a standby trust into which the
proceeds from a letter of credit may be
deposited to assure all or part of such
financial responsibility for the facilities
identified herein.
Whereas, the Grantor, acting through its
duly authorized officers, has selected the
Trustee to be the trustee under this
agreement, and the Trustee is willing to act
as trustee.
Now, therefore, the Grantor and the
Trustee agree as follows:
Section 1. Definitions. As used in this
Agreement:
(a) The term "Grantor" means the owner or
operator who enters into this Agreement ami
any successors or assigns of the Grantor.
(b) The term 'Trustee" means the Trustee
who enters into this Agreement and any
successor Trustee.
Section 2. Identification of Facilities. This
agreement pertains to the facilities identified
on attached schedule A [on schedule A, for
each facility list the EPA Identification
Number, name, and address of the
facility(ies) and the amount of liability
coverage, or portions thereof, if more than
one instrument affords combined coverage as
demonstrated by this Agreement].
Section 3. Establishment of Fund. The
Grantor and the Trustee hereby establish a
standby trust fund, hereafter the "Fund," for
the benefit of any and all third parties injured
or damaged by [sudden and/or nonsudden]
accidential occurrences arising from
operation of the facility(ies) covered by this
guarantee, in the. amounts of [up to
$1 million] per occurrence and [up
to $2 million] annual aggregate for sudden
accidental occurrences and [up to S3
million] per occurrence and [up to
$8 million] annual aggregate for nonsudden
occurrences, except -that the Fund is not
established for the benefit of third parties for
the following:
(a) Bodily injury or property damage for
which [insert Grantor] is obligated to pay
damages by reason of the assumption of
liability in a contract or agreement. This
-------
30224
Federal Register / Vol. 56, No. 126 / Monday. July 1. 1991 / Proposed Rules .
exclusion does not apply to liability for
damages that [Insert Grantor] would be
obligated to pay In the absence of the
contract or agreement
(b) Any obligation of [insert Grantor] under
a workers' compensation, disability benefits.
or unemployment compensation law or any
similar law.
(c) Bodily Injury to:
(1) An employee or [insert Grantor] arising
from, and in the course of. employment by
[Insert Grantor]; or
(2) The spouse, child, parent, brother or
sister of that employee as a consequence of,
or arising from, and in the course of
employment by [insert Grantor].
This exclusion applies:
(A) Whether [insert Grantor] may be liable
us an employer or in any other capacity; and
(0) To any obligation to share damages
\vUh or repay another person who must pay
damages because of the injury to persons
identified in paragraphs (1) and (2).
(d) Bodily injury or property damage
arising out of the ownership, maintenance,
use, or cntnutment to others of any aircraft.
molur vehicle or watercraft.
(e) Property damage to:
(1) Any property owned, rented, or
occupied by [insert Grantor]:
(2) Premises that are sold, given away or
abandoned by [insert Grantor] if the property
damage arises out of any part of those
premises;
(3) Property loaned to [insert Grantor];
(4) Personal property in the care, custody
or control of [insert Grantor];
(5) That particular part of real property on
which [insert Grantor] or any contractors or
subcontractors working directly or indirectly
on behalf of [insert Grantor] are performing
operations, if the property damage arises out
of those operations.
In the event of combination with another
mechanism for liability coverage, the fund
shall be considered [insert "primary" or
"excess"] coverage.
Tha Fund is established initially as
consisting of the proceeds of the letter of
credit deposited into the Fund. Such proceeds
and any other property subsequently
transferred to the Trustee is referred to as the
Fund, together with all earnings and profits
thereon, less any payments or distributions
made by the Trustee pursuant to this
Agreement. The Fund shall be held by the
Trustee, IN TRUST, as hereinafter provided.
The Trustee shall not be responsible nor shall
it undertake any responsibility for the
amount or adequacy of, nor any duty to
collect from the Grantor, any payments
necessary to discharge any liabilities of the
Grantor esteblished by EPA.
Section 4. Payment for Bodily Injury or
Prcpariy Damage. The Trustee shall satisfy a
third party liability claim by drawing on the
letter of credit described in Schedule B and
by making payments from the Fund only upon
receipt of one of the following documents:
(a) Certification from the Grantor and the
third party claimants) that the liability claim
should be paid. The certification must be
worded as follows, except that instructions in
brackets are to be replaced with the relevant
information and the brackets deleted:
Certification of Valid Ciaim
The undersigned, as parties [insert
Grantor] and [insert name and address of
third party claimants)], hereby certify that
the claim of bodily injury and/or property
damage caused by a [sudden or nonsudden]
accidental occurrence arising from operating
[Grantor's] hazardous waste treatment,
storage, or disposal facility should be paid in
the amount of S[ }•
[Signatures]
Grantor
[Signatures]
Claimant(s)
(b) A valid final court order establishing a
judgment against the Grantor for bodily
injury or property damage caused by sudden
or nonsudden accidental occurrences arising
from the operation of the Grantor's facility or
group of facilities.
Section 5. Payments Comprising the Fund.
Payments made to the Trustee for the Fund
shall consist of the proceed^ from the letter of
credit drawn upon by the Trustee in
accordance with the requirements of 40 CFR
264.151(k) and section 4 of this Agreement.
Section 6. Trustee Management The
Trustee shall invest and reinvest the principal
and income, in accordance with general
investment policies and guidelines which the
Grantor may communicate in writing to the
Trustee from time to time, subject, however,
to the provisions of this section. In investing,
reinvesting, exchanging, selling, and
managing the Fund, the Trustee shall
discharge his duties with respect to the trust
fund solely in the interest of the beneficiary
and with the care, skill, prudence, and
diligence under the circumstances then
prevailing which persons of prudence, acting
in a like capacity and familiar with such
matters, would use in the conduct of an
Enterprise of a like character and with like
"aims; except that:
(i) Securities or other obligations of the
Grantor, or any other owner or operator of
the facilities, or any of their affiliates as
defined in the Investment Company Act of
1940, as amended, 15 U.S.C. 80a-2(a), shall
not be acquired or held, unless they are
securities or other obligations of the Federal
or a State government;
(ii) The Trustee is authorized to invest the
Fund in time or demand deposits of the
Trustee, to the extent insured by an agency of
the Federal or a State Government; and
(iii) The Trustee is authorized to hold cash
awaiting investment or distribution
uninvested for a reasonable time and without
liability for the payment of interest thereon.
Section 7. Commingling end Investment.
The Trustee is expressly authorized in its
discretion: '
(a) To transfer from time to time any or all
of the assets of the Fund to any common.
commingled, or collective trust fund created
by the Trustee in which the Fund is eligible to
participate, subject to all of the provisions
thereof, to be commingled with the assets of
other trusts participating therein; and
(b) To purchase shares in any investment
company registered under the Investment
Company Act of 1940,15 U.S.C. 80a-l et seq..
including one which may be created.
managed, underwritten, or to which
investment advice is rendered or the shares
of which are sold by the Trustee. The Trustee
may vote such shares in its discretion.
Section o. £xpi-ess Powers of Trustee.
Without in any way limiting the powers and
discretions conferred upon the Trustee by the
other provisions of this Agreement or by law,
the Trustee is expressly authorized and
empowered;
(a) To sell, exchange, convey, transfer, or
otherwise dispose of any property held by it.
by public or private sale. No person dealing
with the Trustee shall be bound to see to the
application of the purchase money or to
inquire into the validity or expediency of any
such sale or other disposition;
(b) To make, execute, acknowledge, and
deliver any and all documents of transfer and
conveyance and any and all other
instruments that may be necessary or
appropriate to carry out the powers herein
granted:
(c) To register any securities hold in the
Fund in its own name or in the name of a
nominee and to hold any security in bs
-------
Federal Register / Vol. 56, No.126 / Monday, July 1, 1991 / Proposed Rules 3Q225
compensation for its services as agreed upon
in writing from time to time with the Grantor,
Section 12. Successor Trustee. The Trustee
may resign or the Grantor may replace the
Trustee, but such resignation or replacement
shall not be effective until the Grantor has
appointed a successor trustee and this
successor accepts the appointment. The
successor trustee shall have the same powers
and duties as those conferred upon the
• Trustee hereunder. Upon the successor
trustee'! acceptance of the appointment, the
Trustee shall assign, transfer, and pay over to
the successor trustee the funds and properties
then constituting the Fund. If for any reason
the Grantor cannot of does not act in the
event of the resignation of the Trustee, the
Trustee may apply to a court of competent
jurisdiction for the appointment of a
successor trustee or for instructions. The
successor trustee shall specify the date on
which it assumes administration of the trust
in a writing sent to the Grantor, the EPA
Regional Administrator and the present
Trustee by certified mail 10 days before such
change becomes effective. Any expenses
incurred by the Trustee as a result of any of
the acts contemplated by this Section shall be
paid as provided in Section 9.
Section 13. Instructions to the Trustee. All
orders, requests, certifications of valid
claims, and instructions to the Trustee shall
be in writing, signed by such persons as are
designated in the attached Exhibit A or such
other designees as the Grantor may designate
by amendments to Exhibit A. The Trustee
shall be fully protected in acting without
inquiry in accordance with the Grantor's
orders, requests, and instructions. The
Trustee shall have the right to assume, in the
absence of written notice to the contrary, that
no event constituting a change or a
termination of the authority of any person to
act on behalf of the Grantor or the EPA
Regional Administrator hereunder has
occurred. The Trustee shall have no duty to
act in the absence of such orders, requests,
and instructions from the Grantor and/or
EPA, except as provided for herein.
Section 14. Amendment of Agreement. This
Agreement may be amended by an
instrument in writing executed by the
Grantor, the Trustee, and the EPA Regional
Administrator, or by the Trustee and the EPA
Regional Administrator if the Grantor ceases
to exist
Section 15. Irrevocability and Termination.
Subject to the right of the parties to amend
this Agreement as provided in section 14, this
Trust shall be irrevocable and shall continue
until terminated at the written agreement of
the Grantor, the Trustee,-and the EPA
Regional Administrator, or by the Trustee
and the EPA Regional Administrator, if the
Grantor ceases to exist Upon termination of
the Trust, all remaining trust property, less
final trust administration expenses, shall be
paid to Ae Grantor.
The Regional Administrator will agree to
termination of the Trust when the owner or
operator substitutes alternative financial
assurance as specified in this section.
Section 16. Immunity and Indemnification.
The Trustee shall not incur personal liability
of any nature in connection with any act or
omission, made in good faith, in the
administration of this Trust or in carrying out
any directions by the Grantor and the EPA
Regional Administrator issued in accordance
with this Agreement. The Trustee shall be
indemnified and saved harmless by the
Grantor or from the Trust Fund, or both, from
and against any personal liability to which
the Trustee may be subjected by reason of
any act or conduct in its official capacity,
including all expenses reasonably incurred in
its defense in the event the Grantor fails to
provide such defense.
Section 17. Choice of Law. This Agreement
shall be administered, construed, and
enforced according to the laws of the State of
[enter name of State],
Section 18. Interpretation. As used in this
Agreement, words in the singular include the
plural and words in the plural include the
singular. The descriptive headings for each
Section of this Agreement shall not affect the
interpretation of the legal efficacy of this
Agreement
In Witness Whereof the parties have
caused this Agreement to be executed by
their respective officers duly authorized and
their corporate seals to be hereunto affixed
and attested as of the date first above
written. The parties below certify that the
wording of this Agreement is identical to the
wording specified in 40 CFR 264.151{n) as
such regulations were constituted on the date
first above written.
[Signature of Grantor]
[Title]
Attest:
[Title]
[Seal]
[Signature of Trustee]
Attest:
[Title]
[Seal]
(2) The following is an example of the
certification of acknowledgement which must
accompany the trust agreement for a standby
trust fund as specified in §S264.147(h) or
265.147{h) or this chapter. State requirements
may differ on the proper content of this
acknowledgement
State of
County of. '
On this [date], before me personally came
[owner or operator] to me known, who, being
by me duly sworn, did depose and*ay lhat
she/he resides at [address], that she/he is
{title] of {corporation], the corporation
described in and which executed the above
instrument; that she/he knows the seal of
said corporation; that the seal affixed to such
instrument is such corporate seal; that it was
so affixed by order of the Board of Directors
of said corporation, and that she/he signed
her/his name thereto by like order.
[Signature of Notary Public]
40 CFR part 265 is amended as
follows:
PART 265—INTERIM STATUS
STANDARDS FOR OWNERS AND
OPERATORS OF HAZARDOUS WASTE
TREATMENT, STORAGE, AND
DISPOSAL FACILITIES
1. The authority citation for part 265
continues to read as follows:
Authority: 42 U.S.C. 6905, 6912(a), 6924,
6925, and 6935.
2. Section 265,119 is amended by
adding a sentence to the end of
paragraph (b)(2) as follows.
§ 265.119 Post-closure notices.
• * * * *
(b)*'*
(2) * * * The Regional Administrator
shall not release the owner or operator
from financial assurance requirements
under § 265.143(h) until the owner or
operator has complied with the
provisions of this paragraph,
*****
3. Section 265.143 is amended by
revising paragraphs (e)(l), (e)[2), (e)(10)
introductory text, (f), and (h) to read as
follows:
§265.143 Financial assurance for closure.
* * * * •
(e) Financial test and guarantee for
closure. (1) An owner or operator may
satisfy the requirements of this section
by demonstrating that he passes a
financial test as specified in this
paragraph. To pass this test the owner
or operator must meet the criteria of
either paragraph (e)(l)(i) or (ii) of this
section.
(i)The owner or operator must have:
(A) Either a ratio of total liabilities to
net worth less than 1.5; or, a ratio of the
sum of net income plus depreciation,
depletion and amortization, minus $10
million, to total liabilities greater than
0.10; and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of current closure and post-closure
cost estimates and any other obligations
covered by a financial test.
pi) The owner or operator must have:
(A) A current rating for his most
recent bond issuance of AAA, AA, A, or
BBS as issued by Standard and Poor's or
Aaa, Aa, A or Baa as issued by
Moody's; and
(B) Tangible net worth greater than
the sum of the current closure and post-
•closure cost estimates and any other
-------
30226
Federal Register / Vol. 56, No. 126 / Monday, July 1. 1991 / Proposed Rules
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
Slates amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test.
(2) The phrase "current closure and ,
post-closure cost estimates" as used in
paragraph (e)[l) of this section refers to
the cost estimates required to be shown
In paragraphs 1-7 of the letter from the
owner's or operator's chief financial
officer (2B4.151(f)).
» « * * *
(10) An owner or operator may meet
the requirements of this section by
obtaining a written guarantee. The
guarantor must be the direct or higher-
tier parent corporation of the owner or
operator, a firm whose parent
corporation is also the parent
corporation of the owner or operator, or
a firm with a "substantial business
relationship" with the owner or
operator. The guarantor must meet the
requirements for owners or operators in
paragraphs (e)(l) through (8) of this
section and must comply with the terms
of the guarantee. The wording of the
guarantee must be identical to the
wording specified § 264.151(h). A
certified copy of the guarantee must
accompany the items sent to the
Regional Administrator as specified in
paragraph (e)(3) of this section. One of
these items must be the letter from the
guarantor's chief financial officer. If the
guarantor's parent corporation is also
the parent corporation of the owner or
operator, the letter must describe the
value received in consideration of the
guarantee. If the guarantor is a firm with
a "substantial business relationship"
with the owner or operator, this letter
must describe this "substantial business
relationship" and the value received in
consideration of the guarantee. The .
terms of the guarantee must provide
that:
« * * •. *
(f) Use of 'multiple financial
mechanisms. An owner or operator may
satisfy the requirements of this section
by establishing more than one financial
mechanism per facility. These
mechanisms are limited to trust funds,
surety bonds guaranteeing payment into
a trust fund, letters of credit, insurance,
and financial test and guarantee, except
that the financial test and guarantee
may not be combined. The mechanisms
must be as specified in paragraphs (a),
(b), (d), (e). and (f), respectively, of this
section, except that }t is the combination
of mechanisms rather than the single
mechanism that must provide financial
assurance for an amount at least equal
to the cost estimate. If an owner or
operator uses a trust fund'in
combination with a surety bond or letter
of credit, he may use the trust fund as
the standby trust fund for the other
mechanism. A single trust fund may be
established for two or more
mechanisms. The Regional
Administration may use any or all of the
mechanisms to provide for closure of the
facility.
* * * * *
(h) Release of the owner or operator
from the requirements of this section.
Within 60 days after receiving
certifications from the owner or operator
and an independent registered
professional engineer that final closure
has been completed in accordance with
the approved closure plan, and, for
facilities subject to § 265.119, after
receiving the certification required
under § 265.119(bX2), the Regional
Administrator will notify the owner or
operator in writing that he is no longer
required by this section to maintain
financial assurance for final closure of
the facility, unless the Regional
Administrator has reason to believe that
final closure has not been in accordance
with the approved closure plan or that
the owner or operator has failed to
comply with the applicable
requirements of § 265.119. The Regional
Administrator shall provide the owner
or operator a detailed written statement
of any such reason to believe that
closure has not been in accordance with
the approved closure plan or that the
owner or operator has failed to comply
with the applicable requirements of
| 265.119.
4. Section 265.145 is amended by
revising paragraphs (e)(l) and (2), the
introductory text of paragraph (e)(ll),
and paragraph (f) to read as follows:
§ 265.145 Financial assurance for post-
closure care.
* - * * • * * • '
(e) Financial test and guarantees for
post-closure care. (1) An owner or
operator may satisfy the requirements of
this section by demonstrating that he
passes a financial test as specified in
this paragraph. To pass this test the
owner or operator must meet the criteria
of either paragraph (e)(l)(i) or (ii) of this
section.
(i) The owner or operator must have:
(A) Either a ratio of total liabilities to
;net worth less than 1.5; or, a ratio of the
sum of net income plus depreciation,
depletion and amortization, minus $10
million, to total liabilitieis greater than
0.10; and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of current closure and post-closure
cost estimates and any other obligations
covered by a financial test.
(ii) The owner or operator must have:
tA) A current rating for his most
recent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor's or
Aaa, Aa, A or Baa as issued by
Moody's; and
(B) Tangible net worth greater than
the sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and any other
obligations covered by a financial test.
(2) The phrase "current closure and
post-closure cost estimates" as used in
paragraph (e)(l), of this section refers to
the cost estimates required to>be shown
in paragraphs 1-7 of the letter from the
owner's or operator's chief financial
officer (264.151 (f)).
* * * * *
(11) An owner or operator may inoel
the requirements of this section by
obtaining a written guarantee. The
guarantor must be the direct or higher-
tier parent corporation of the owner or
operator, a firm whose parent
"corporation is also the parent
corporation of the owner or operator, or
a firm with a "substantial business
relationship" with the owner or
operator. The guarantor must meet the
requirements for owners or operators in
paragraphs (e) (1) through (9) of this
section and must comply with the terms
of the guarantee. The wording of the
guarantee must be identical to the
wording specified § 264.151(h). A
certified copy of the guarantee must
accompany the items sent to the
Regional Administrator as specified in
paragraph (e)(3) of this section. One of
these items must be the letter from the
guarantor's chief financial officer. If the
guarantor's parent corporation is also
the parent corporation of the owner or
operator, the letter must describe the
value received in consideration of the
guarantee. If the guarantor is a firm with
a "substantial business relationship"
with the owner or operator, this letter
must describe this "substantial business
relationship" and the value received in
consideration of the guarantee. The
-------
Federal Register / Vol. 56, No. 126 / Monday, July 1, 1991 / Proposed Rules
30227
terms of the guarantee must provide
that:
* * * * * .
(f) Use of multiple financial
mechanisms. An owner or operator may
satisfy the requirements of this section
by establishing more than one financial
mechanism per facility. These
mechanisms are limited to trust funds,
surety bonds guaranteeing payment into
a trust fund, letters of credit, insurance,
and financial test and guarantee, except
that the financial test and guarantee
may not be combined. The mechanisms
must be as specified in paragraphs (a),
(b), (d), (e), and (f), respectively, of this
section, except that it is the combination
of mechanisms rather than the single
mechanism that must provide financial
assurance for an amount at least equal
to the cost estimate. If an owner or
operator uses a trust fund in
combination with a surety bond or letter
of credit, he may use the trust fund as
the standby trust fund for the other
mechanism. A single trust fund may be
established for two or more
mechanisms. The Regional
Admininstrator may use any or all of the
mechanisms to provide for post-closure
of the facility.
*****
5. Section 265.147 is amended by
revising paragraphs (a}(7), (b)(7),•(£)[!),
and (f)(6), and by adding new
paragraphs (h)(4) and (h)(5) to read as
follows:
§265.147
(a)
Liability requirements.
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever:
(i) a claim results in a reduction in the
amount of financial assurance for
liability coverage provided by a
financial instrument authorized in
paragraphs (a}(l) through (a)(6) of this
section; or
(ii) a Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden
accidental occurrence arising from the
operation of a hazardous waste
treatment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (a)(l)
through (a)(6) of this section; or
(iii) a final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-
sudden accidental occurrence arising
from the operation of a hazardous waste
treatment, storage, or disposal facility is
issued against the owner or operator or
an instrument that is providing financial
assurance for liability coverage under
paragraphs (a)(l) through (a}(6) of this
section.
(b) * * *
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever:
(i) A claim results in a reduction in Jhe
amount of financial assurance for
liability coverage provided by a
financial instrument authorized in
paragraphs (b)(l) through (b}(6) of this
section; or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden
accidental occurrence arising from the
• operation of a hazardous waste
treatment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (bj(l)
through (b)(6) of this section; or
(iii} A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-
sudden accidental occurrence arising
from the operation of a hazardous waste
treatment, storage, or disposal facility is
issued against the owner or operator or
an instrument that is providing financial
assurance for liability coverage under
paragraphs (b)(l) through (b)(6) of this
•section.
* * •* * * " '
(f) Financial test for liability
coverage. (1) An owner or operator may
satisfy the requirements of this section by
demonstrating that he passes a financial
test as specified in this paragraph. To
pass this test the owner or operator
must meet the criteria of paragraph
(f)(l)(i) or (f)(l)(ii} of this section.
(i) The owner or operator must have:
(A) Tangible net worth greater than
the sum of the amount of liability
coverage to be demonstrated by this test
plus $10 million;
(B) Assets located in the United States
amounting to at least 90 percent of total
assets or at least six times the sum of
the amount of liability coverage and any
other obligations covered by a financial
test.
(ii) The owner or operator must have:
(A) A current rating for his most
recent bond issuance of AAA, AA, A, or
BBS as issued by Standard and Poor's or
Aaa, Aa, A, or Baa as issued by
Moody's; and
(B) Tangible net worth greater than
the sum of the amount of liability
coverage to be demonstrated by this test
plus $10 million; and
(C) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
.sum of the amount of liability coverage
and any other obligations covered by a
financial test.
*****
(6) If the owner or operator no longer
meets the requirements of paragraph
(f)(l) of this section, he must obtain
insurance, a letter of credit, a surety
bond, a trust fund, or a guarantee for the
entire amount of required liability
coverage as specified in this section.
Evidence of liability coverage must be
submitted to the Regional Administrator
within 90 days after the end of the fiscal
year for which the year-end financial
data show that the owner or operator no
longer meets the test requirements.
(4] an owner or operator who uses a
letter of credit to satisfy the
requirements of this section may also •
establish a standby trust fund. Under
the terms of such a letter of credit, all
amounts paid pursuant to a draft by the
trustee of the standby trust will be
deposited by the issuing institution into
the standby trust in accordance with
instructions from the trustee. The trustee
of the standby trust fund must be an
entity which has the authority to act as
a trustee and whose trust operations are
regulated and examined by a Federal or
State agency.
(5) The wording of the standby trust
fund must be identical to the wording
specified in § 264.151(n).
[FR Doc. 91-15060 Filed 3-28-91; 8:45 am]
BILLING CODE 6560-50-41
-------
------- |