ij< i i r , 11 ' i «y ' T ! - i i r r 11 '" r " -" [ 'in , , _, lr||, United States Office of Po'ic1 Waste Sw-962 '' | Environmental Protection fnu Ernenit cy Ri -nionse Nove.nbei 1982 Agency Washington JC i0460 c, / / Solid Waste SEPA Federal Financial Requirements for Owners and Operators of Hazardous Waste Treatment, Storage, and Disposal Facilities A Summary ,-,.. fv?cn r-'" . ,;_, ------- c 5, Environmental Protection Agency ------- Federal Financial Requirements for Owners and Operators of Hazardous Waste Treatment, Storage, and Disposal Facilities The Resource Conservation and Recovery Act of 1976, as amended (RCRA), requires the U.S. Environmental Protection Agency (EPA) to establish a regulatory program covering management of hazardous wastes. Administered by EPA and States authorized by EPA, this pro- gram aims to protect human health and the environment from the improper management of hazardous wastes. As part of the program, in April 1982 EPA issued regulations requir- ing owners or operators of hazardous waste treatment, storage, and disposal facilities to show that funds are available for: meeting their obligations under RCRA for proper closure and post- closure care of their facilities, and compensating others for bodily injury or property damage caused by accidents arising from operations of the facilities. These financial requirements became effective in July 1982. This pamphlet summarizes key points about the requirements for the convenience of owners, operators, and other interested persons. The regulations themselves must be consulted for the full range of require- ments. Copies of the regulations are available from the RCRA/ Superfund Hotline. Information about the requirements is available from the Hotline, the EPA Regional Offices, and the EPA Small Business Ombudsman. Telephone numbers and addresses for sources of informa- tion are listed at the end of this pamphlet. APPLICABILITY These Federal financial requirements apply only to owners and operators regulated by EPA under RCRA and not to those regulated by State RCRA programs. Over 30 States are now administering at least a portion of the RCRA program in place of EPA. All State RCRA pro- grams will have requirements equivalent to those of the Federal program in the next few years. At present, however, the State RCRA programs vary considerably in their financial requirements, although some States have adopted the Federal regulations with few changes. ------- The Federal financial requirements apply to both interim status facilities (existing facilities awaiting permits) and facilities with permits. The financial requirements for interim status facilities appear in Subpart H of Part 265, Title 40, of the Code of Federal Regulations. The requirements for facilities with permits are in Subpart H of Part 264, Title 40. The two sets of financial requirements are very similar; key differences are noted in the descriptions of the regulations in the follow- ing sections. Some States are authorized to administer the RCRA program for interim status facilities but are not yet authorized to issue RCRA per- mits. In that situation, EPA does the permitting, applying the Federal standards. An owner or operator regulated by EPA and therefore required to comply with the Federal regulations is also subject to any applicable State and local requirements. In some States, owners or operators may have State financial requirements to meet in addition to the Federal requirements. The facilities subject to the Federal financial requirements and other facility standards are specified in Subpart A of Parts 264 and 265. Owners and operators who are uncertain about whether they are required to comply with these requirements, or whether they belong in the hazardous waste regulatory program at all, should contact their EPA Regional Office. For information about State requirements, contact the State hazardous waste agency. FINANCIAL ASSURANCE OF CLOSURE AND POST-CLOSURE CARE Many instances of environmental damage have resulted from abandon- ment of hazardous waste facilities and other failure or inability of owners and operators to provide adequately for closure and post-closure care. The financial requirements are designed to assure that funds are available for adequate closure and post-closure care. These regulations were issued on April 7, 1982, and became effective on July 6, 1982. Financial assurance of closure must be provided for treatment, storage, and disposal facilities subject to the hazardous waste facility standards of Parts 264 and 265. Financial assurance of post-closure care must be provided for disposal facilities and, under amendments to Part 264 issued July 26, 1982, for certain surface impoundments and waste piles not intended to be used for disposal purposes. ------- Plans and Cost Estimates The amount of funds that must be assured is determined by plans and cost estimates prepared by the owner or operator and subject to approval by the EPA Regional Office. The rules for closure and post-closure plans appear in Subpart G of the facility standards (Parts 264 and 265); the cost-estimating standards are in Subpart H. The cost estimates must be adjusted for inflation annually and for any changes in plans that would increase costs. For interim status facilities, owners or operators were to have prepared plans and cost estimates for closure and post-closure care by May 19, 1981. Plans and cost estimates are to be kept at the facility and made available to EPA upon request. Mechanisms for Assurance Owners or operators may use any of several mechanisms to satisfy the requirements for financial assurance of closure and post-closure care. These include: Trust funds Surety bonds Letters of credit Closure/post-closure insurance Financial test and corporate guarantee State-required mechanisms and State guarantees. Any of the mechanisms may be used for assurance of closure, post-closure care, or both closure and post-closure care, for one or more facilities. Assurance must be established for the whole amount of the current closure or post-closure cost estimate except when a trust fund is used. A trust fund may be built up to the amount of the cost estimate over a "pay-in" period. Following an increase in the cost estimate, the owner or operator must increase the amount of funds assured. More than one mechanism may be used to provide financial assurance for one facility. All the mechanisms may be used to cover a portion of a closure or post-closure cost estimate except the following: one type of surety bond (the bond guaranteeing performance of closure or post- closure care) and the financial test and corporate guarantee; these mechanisms, if used, must always be for the entire closure or post- closure cost estimate. ------- The regulations contain the wording of documents to be submitted as evidence of financial assurance. This wording must be used exactly as shown in the regulations. Trust Fund One of the financial assurance options is a trust fund. It must be established at a bank or other institution with authority to act as a trustee and whose trust activities are examined and regulated by a State or Federal agency. There are about 4,000 banks in the country, plus trust companies and some savings and loan institutions, with such qualifica- tions. An owner or operator who is interested in establishing a trust fund for closure or post-closure care should consult the financial institutions he deals with; they should be able to assist him, either by serving as trustee or by referring him to trust institutions. By making annual payments over a pay-in period, an owner or operator may build up the trust fund to the amount of the closure or post-closure cost estimate. For interim status facilities, the pay-in period is a maximum of 20 years or the remaining operating life of the facility, whichever is shorter. Upon receiving a RCRA permit, the facility's pay-in period is the term of the initial permit or remaining operating life, whichever is shorter. The amount of the annual payment during the pay-in period is based on a simple formula: The payment is equal to the current cost estimate, minus the current value of the trust fund, divided by the number of years remaining in the pay-in period. The trustee will carry out responsibilities that are described in the trust agreement. The agreement and the accompanying "certificate of acknowledgement" (a notary's statement attesting to the identity of the owner's or operator's representative signing the trust agreement) must be submitted to the EPA Regional Administrator. Among the trustee's responsibilities are: investing the funds; providing an annual valuation to the owner or operator and to EPA; notifying EPA if a payment into the fund is not made during the pay-in period; and releasing funds as directed by EPA. In investing the funds the trustee will follow the general guidance of the owner or operator as long as it is in accordance with the trust provisions. EPA will approve payments from the fund in reimbursement for costs of closure or post-closure activities as these activities are completed. If the cost of closure appears to be significantly higher than the value of the closure trust fund at the time closure begins, however, EPA can ------- delay releasing funds until closure is completed and certified. EPA will approve refunds if the value of the trust fund exceeds the estimated costs of closure or post-closure care, or if other financial assurance is substituted for the trust fund, or if closure or post-closure care is completed and funds still remain in the trust. Surety Bond A surety bond is a guarantee by a surety company that obligations specified in the bond will be fulfilled. Surety bonds are commonly used to guarantee that construction projects or other obligations will be car- ried out according to specifications. Usually the obligations are of a much shorter term than closure and post-closure care, which may take place many years in the future. Because of the unusual nature of the closure and post-closure bonds, surety representatives have stated that in general these bonds will be limited in availability to large companies or to instances where closure is expected within a short time. Two kinds of surety bonds are specified in the regulations. One kind, the Financial Guarantee Bond, may be used for either interim status facilities or facilities with permits. It guarantees that if the owner or operator does not establish a closure or post-closure trust fund before closure of the facility begins, the surety company will fund a standby trust fund (described below) in the amount guaranteed by the bond. The other kind of bond, the Performance Bond, may be used only for facilities with permits. It guarantees that if the owner or operator does not fulfill closure or post-closure requirements, the surety company will perform these duties or pay the amount of the bond into the standby trust fund. The performance bond may not be used before the facility is permitted because specifications for performing closure or post-closure care will generally not have been reviewed by EPA until then. When either kind of surety bond is used, a standby trust fund must also be established. The purpose of the standby trust fund is to receive any funds that may eventually be paid by the surety company. The same rules apply as when the trust fund is used as the basic mechanism, except that the following activities are not required while the trust is a standby mechanism: payments into the trust (although a nominal payment may be required by the trustee institution when the trust is established); updating the trust agreement to show current cost estimates; annual valuations; and notices of nonpayment to EPA. Both the bond and the standby trust agreement must be submitted as evidence of financial assurance. ------- The cancellation provisions of the surety bonds are designed for con- tinuity of financial assurance. The surety company must provide 120 days' notice of cancellation to the owner or operator and EPA. If the owner or operator does not provide substitute assurance to EPA within 90 days of such notice, the surety company must pay the amount of the bond into the standby trust fund. The owner or operator may cancel the bond only after written consent by the EPA Regional Admini- strator. Such consent may be given after substitute assurance is provided or the obligations guaranteed have been fulfilled. These bonds must be issued by surety companies on the U.S. Treasury list (Circular 570) of acceptable sureties on Federal bonds. An owner or operator interested in obtaining a surety bond should consult his insurance agent. The agent should be able to help the owner or operator assess the availability and costs of a surety bond for his facility, including possible requirements for collateral. Letter of Credit A letter of credit may be submitted as evidence of financial assurance. The letter must be from a bank or other institution with authority to issue letters of credit and whose letter-of-credit operations are regulated and examined by a State or Federal agency. The letter will entitle the EPA Regional Administrator to direct the issuing institution to deposit funds into the owner's or operator's standby trust fund if the owner or operator fails to fulfill closure or post-closure requirements. An owner or operator using a letter of credit for financial assurance must also submit to EPA a standby trust agreement (see description under Surety Bond) and a letter identifying the facilities and estimated costs covered by the letter of credit. The cancellation provisions for letters of credit are comparable to those for surety bonds. If, following a 120-day notice of nonrenewal from the issuing institution, the owner or operator does not provide substitute assurance within 90 days, the Regional Administrator will draw upon the letter of credit, and the issuing institution will deposit the funds into the standby trust. The owner or operator may cancel the letter of credit only with the Regional Administrator's written consent. Commercial banks and some savings and loan institutions and credit unions meet the qualifications in the regulations for issuing institutions. If a financial institution does not itself issue letters of credit, it can refer customers to others that do. ------- As with surety bonds, owners and operators may find that letters of credit for financial assurance of closure and post-closure care are at present limited in availability, except where the owner or operator pro- vides collateral amounting to a substantial part, or all, of the amount of the credit. Closure and Post-Closure Insurance Insurance may be purchased that assures funds for closure and post- closure care. This is a new form of insurance that has recently become available. It must be issued by a company that is licensed to transact the business of insurance, or eligible as an excess or surplus lines insurer, in one or more States. As evidence of this insurance, the owner or operator must submit to EPA a certificate of insurance issued by the insurer. The insurer must provide the owner or operator the option to renew the policy each year with coverage in at least the amount of the expiring policy. The insurer cannot cancel or terminate this insurance except for nonpayment of premium. If there is failure to pay the premium, the insurer may elect to cancel or terminate the insurance, but it must first give 120 days' notice to the owner or operator and to EPA. If during the 120 days any of the following events occurs, the insurance must remain in effect: the Regional Administrator deems the facility to be abandoned; the permit or interim status is terminated or revoked or a new permit is denied; closure is ordered by EPA or a court; the owner or operator is named a debtor in a bankruptcy proceeding; or the premium due is paid. The owner or operator may terminate the policy only with prior con- sent from EPA; such consent will be given when substitute assurance is provided or when closure or post-closure responsibilities are completed. Failure to pay the premium without providing substitute assurance will constitute a significant violation of the RCRA regulations. The insurer will make payments in reimbursement of closure or post- closure costs as approved by the Regional Administrator. If EPA deter- mines that the cost of closure of the facility will be significantly higher than the policy limit for closure, the Agency may delay approval of payments for closure until closure is completed and certified. Insurance agents and brokers can help owners and operators obtain information about the availability and costs of closure/post-closure insurance. An agent or broker unfamiliar with this insurance might con- tact the major insurance trade associations or the EPA Regional Office for information. ------- Financial Test and Corporate Guarantee Evidence of passing a test of financial strength is also accepted as financial assurance. Two alternative sets of test criteria are specified: The first set of criteria is: A. Two of the following three ratios: , Total liabilities , , 1. = less than 2 Net worth Net income plus depreciation, depletion, and amortization , . -r~~T~~ = greater than 0.1 Total liabilities , Current assets , 3. ; = greater than 1.5 Current liabilities B. Net working capital and tangible net worth each at least 6 times the sum of closure and post-closure cost estimates covered by the test. C. Tangible net worth of at least $10 million. D. U S. assets amounting to at least 90 percent of total assets or at least 6 times the sum of closure and post-closure cost estimates covered by the test. The alternative set of criteria is: A. Bond rating of most recent bond issuance within the highest four categories of ratings by Standard and Poor's or Moody's. B. Tangible net worth at least 6 times the sum of the closure and post-closure cost estimates covered by the test. C. Tangible net worth of at least S10 million. D. U.S. assets amounting to at least 90 percent of total assets or at least 6 times the sum of closure and post-closure cost estimates covered by the test. To demonstrate that he meets this test, the owner or operator must submit data each year from his independently audited financial statements, a special report from an independent auditor confirming that the data are consistent with those in the audited statements, and a copy of the standard auditor's report accompanying the annual financial statements. Qualifications in the auditor's opinion may be grounds for disallowance. Upon failing the test or being disallowed from using the test, the owner or operator must provide substitute assurance within the periods specified in the regulations. ------- If an owner's or operator's parent corporation passes the financial test, the parent's guarantee of closure or post-closure costs may be used as financial assurance. The guarantee must be from a parent that directly owns at least 50 percent of the owner's or operator's voting stock. Use of State Mechanisms State-Required Mechanisms. States in which EPA is administering the RCRA financial requirements may have their own requirements for financial assurance of closure or post-closure care. The Federal regula- tions allow owners or operators to use a State-required mechanism to satisfy the Federal requirements if it provides assurance equivalent to that of mechanisms specified in the Federal regulations. The owner or operator must submit to EPA evidence of having established the State- required mechanism and a letter requesting that it be considered accept- able for meeting the Federal requirements. State Guarantees. Similarly, if a State assumes responsibility for closure or post-closure care or for the costs of these obligations, such guarantees may be used by owners or operators to satisfy the Federal requirements if they provide assurance equivalent to that of mechanisms specified in the regulations. The owner or operator must submit a letter from the State describing the assumption of responsibility and a letter requesting that the State's guarantee be considered acceptable for satisfy- ing the Federal requirements. Comparing Costs To determine which method of financial assurance is least costly for an owner or operator, he should review all the mechanisms and consult various providers of financial services. For each mechanism, the owner or operator should consider any fees or premiums charged, requirements for collateral to secure the mechanism, tax consequences, possible effect on credit standing, and "opportunity cost" the cost to him of using funds which could other- wise be invested in ways that would bring a higher return. The financial test or corporate guarantee is probably the least expen- sive mechanism for owners or operators who meet the requirements for these mechanisms. Assuming that the owner or operator or his parent company would have audited financial statements prepared anyway, the only additional charge would be the auditor's charge for his special ------- report on comparing the financial data submitted to EPA with data in the financial statements. The fees charged for letters of credit and premiums for surety bonds will vary. They are determined by the issuing institutions on a case-by- case basis. The amounts are usually in terms of percentages of the amount of the letter of credit or bond. The owner's or operator's finan- cial condition, history, and size would be important factors affecting these charges. If he is already a major client of long standing with the financial institution, that fact would certainly be in his favor. These fac- tors will also determine any requirements for collateral. The cost of the trust fund includes a trustee's fee, which varies among trust institutions. The amount of the premium for closure/post-closure insurance (and availability and terms of the insurance) will depend on the risk evaluation required by the insurer. LIABILITY COVERAGE REQUIREMENTS The requirements for liability coverage are designed to assure that funds are available from which people may seek compensation for bodily injury and property damage caused by accidents arising from operations of hazardous waste facilities. The pollution incidents, fires, explosions, and other accidents that have occurred at hazardous waste facilities and the inherent risks associated with hazardous wastes indicate that such requirements are desirable. On April 16, 1982, EPA issued regulations requiring owners or operators to have liability coverage in the form of liability insurance (evidenced by a certificate of insurance or policy endorsement) or finan- cial strength shown by passing a financial test for liability coverage. They may also use the financial test for part of the required coverage and insurance for the rest. By July 15, 1982, owners or operators were required to submit evidence of coverage for sudden accidental occurrences in the amount of at least $1 million per occurrence and $2 million annual aggregate (annual total), exclusive of legal defense costs. Owners or operators of surface impoundments, landfills, and land treatment facilities are also required to show coverage for nonsudden, or gradual, accidental occurrences in the amount of at least $3 million per occurrence and $6 million annual aggregate, exclusive of legal defense costs. Because of the current limited availability of insurance covering nonsudden accidental occurrences, this requirement is phased in over a 3-year period, with the largest companies required to show coverage first. 10 ------- Those with sales over $10 million must submit evidence of coverage by January 15, 1983; those with sales between $5 million and $10 million, by January 15, 1984; and the remainder by January 15, 1985. Owners or operators required to meet the 1984 or 1985 dates must send a letter by January 15, 1983, to the Regional Administrator stating when they intend to establish such coverage. The amounts of coverage required apply to the owner or operator for all his facilities, not separately to each of his facilities. The present regulations include certain provisions for lowering or rais- ing the required amounts of coverage in individual cases and for impos- ing the requirement for coverage of nonsudden accidental occurrences on facilities other than surface impoundments, landfills, and land treatment facilities. The Agency is planning to propose deleting these provisions, however, because of the present lack of data for establishing specific criteria for variances on a national basis. Liability Insurance Insurance used to satisfy the requirements for liability coverage must meet certain specifications, including: The insurance must provide coverage for bodily injury and property damage caused by accidental occurrences arising from facility operations. "Bodily injury" and "property damage" are as defined by applicable State law. However, they do not include liabilities which, consistent with standard insurance industry practice, are excluded from coverage by liability policies for bodily injury and property damage. "First-dollar" coverage is required. That is, the amount of any deductible must be covered by the insurer, with right of reimbursement from the insured. However, the insurer need not cover any amount of the deductible for which coverage has been shown through the financial test. The dollar amounts of coverage must represent money available for compensation for damages. They must not include amounts for paying legal defense costs. The insurance policies must be issued by insurers who are licensed, or eligible as excess or surplus lines insurers, in one or more States. The insurer must notify EPA when the insurance is to be terminated for any reason (60 days' notice for cancellation during the term of the policy; 30 days' notice for any other termination). 11 ------- Many owners and operators have standard general liability policies that can be used to meet the liability coverage requirements for sudden accidental occurrences. The policies will generally need to be amended to meet the specifications in the regulations. Insurance agents or brokers who need further information about the requirements may call the EPA Regional Offices, or the RCRA Hotline (telephone numbers are listed below). While some owners and operators of surface impoundments, landfills, and land treatment facilities have insurance for nonsudden accidental occurrences, many do not. Owners or operators who need to obtain this insurance should consult their insurance agents or brokers. Since insurers generally require risk assessment surveys before issuing this insurance, owners and operators should not wait until close to the time they are required to have the insurance to begin inquiries; several months' lead time should be allowed. Financial Test for Liability Coverage The financial test for liability coverage is similar to the test for assur- ing closure and post-closure costs. The test criteria are the same except that they do not include financial ratios, and they refer to the amount of liability coverage to be demonstrated rather than to closure and post- closure cost estimates. If an owner or operator is using the financial test to satisfy both the liability coverage requirements and the closure or post-closure financial requirements, he must use a single letter from the chief financial officer for both purposes. The wording for such a letter is specified in the regulations. Unlike the regulations for financial assurance of closure and post- closure care, the liability coverage requirements do not allow use of a guarantee from a parent corporation that passes the financial test as a means of satisfying the requirements. Use of State Mechanisms As with financial assurance for closure and post-closure care, owners and operators may use State-required mechanisms and State guarantees to satisfy the liability coverage requirements if EPA finds the mech- anisms to be equivalent to those specified in the Federal regulations. 12 ------- OTHER REQUIREMENTS If an owner or operator is named as a debtor in a bankruptcy pro- ceeding, he must notify the Regional Administrator within 10 days after the proceeding is initiated. If an owner or operator uses a trust fund, surety bond, letter of credit, or insurance to satisfy the financial requirements, and the issuing finan- cial institution goes bankrupt, the owner or operator must provide substitute assurance or coverage within 60 days after the bankruptcy fil- ing. Also, if an issuing institution's authority to issue the instrument is revoked or suspended, the owner or operator must provide substitute assurance or coverage within 60 days after such action. SOURCES OF INFORMATION RCRA/Superfund Hotline For copies of the regulations and general information about all RCRA and Superfund programs, call the Hotline at (800) 424-9346 (this is a toll- free number) or, in Washington, D.C., (202) 382-3000. 13 ------- EPA Regional Offices Following are EPA Regional staff to whom questions about the finan- cial requirements may be addressed: Region I Gary Gosbee or Mary Sanderson EPA Region I Waste Management Branch John F. Kennedy Bldg. Boston, MA 02203 (617) 223-3468 Region II Helen S. Beggun EPA Region II Grants Administration Branch 26 Federal Plaza New York, NY 10007 (212) 264-9860 Region III Anthony Donatoni EPA Region III Hazardous Material Branch 6th and Walnut Sts. Philadelphia, PA 19106 (215) 597-7937 Region IV Mickey Hartnett EPA Region IV Residuals Management Branch 345 Courtland St. N.E. Atlanta, GA 30308 (404) 881-3067 14 ------- Region V Thomas Golz EPA Region V Waste Management Branch 230 S. Dearborn St. Chicago, IL 60604 (312) 886-4023 Region VI Henry Onsgard EPA Region VI Attn: RCRA Financial Requirements 1201 Elm Street First International Bldg. Dallas, TX 75270 (214) 767-8941 Region VII Robert L. Morby EPA Region VII Waste Management Branch 324 E. llth St. Kansas City, MO 64106 (816) 374-3307 Region VIII Carol Lee EPA Region VIII Waste Management Branch 1860 Lincoln Street Denver, CO 80203 (303) 837-6258 Region IX Richard Procunier EPA Region IX Hazardous Material Branch 215 Fremont St. San Francisco, CA 94105 (415) 974-8157 Region X Kenneth D. Feigner EPA Region X Waste Management Branch 1200 Sixth Ave. Seattle, WA 98101 (206) 442-1236 EPA Small Business Ombudsman This office makes sure small business compliance problems and sugges- tions are heard and fairly treated. Call (800) 368-5888 (toll-free), or in Washington, D.C., call (202) 382-4538. Or write: EPA Small Business Ombudsman, Mail Code PM-220, U.S. Environmental Protection Agency, 401 M St., S.W., Washington, D.C. 20460. 15 ------- Guidance Manuals Guidance manuals on RCRA regulations, for use by owners, operators, and Regional staff, are issued by EPA. They include: Financial Assurance for Closure and Post-Closure Care: Requirements for Owners and Operators of Hazardous Waste Treatment, Storage and Disposal Facilities. Available from the National Technical Infor- mation Service, Port Royal Road, Springfield, VA 22161; (703) 487-4600. Order no.: PB 82-237595. Paper$21, microfiche$4; prices subject to change. Liability Coverage Requirements for Owners and Operators of Hazar- dous Waste Treatment, Storage, and Disposal Facilities. Available from the National Technical Information Service (see above for address and telephone number). Order number and prices not yet assigned. r. ' r..:v/itonmental Protection Agency -on V, Library . j South Dearborn Street Chicago, Illinois 60604 16 ------- ------- ------- |