s ~
financial Assurance for RCRA
^Closure and Post-Closure Care
November 20 and 21,2002
U.S. Environmental Protection Agency
Region 7
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TABLE OF CONTENTS
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Table of Contents
Overview 1-1
Trust Funds 2-1
Letters of Credit 3-1
Surety Bonds 4-1
Insurance 5-1
Financial Tests 6-1
Guarantees 7-1
Third-Party Liability 8-1
Attachments
Glossary of Terms
Bibliography
Check Lists
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1 -1
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Module 1:
Overview of RCRA Subtitle C
and Subtitle D Financial
Assurance Requirements
EPA
1-1
Notes:
This module describes the financial assurance requirements under Subtitle C (hazardous waste)
and Subtitle D (solid waste) of the Resource Conservation and Recovery Act (RCRA) for
closure and post-closure care and third-party liability, and summarizes the strengths and
weaknesses of allowable financial assurance mechanisms. Please note that this module only
briefly summarizes the financial assurance requirements for corrective action.
1-1
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Notes:
This Module Includes
4 Overview of Subtitle C and Subtitle D financial
assurance requirements
*• Procedures for updating cost estimates
4Timeframes for financial assurance
4-Allowable financial assurance mechanisms
4 Comparison of mechanisms
EPA
1-2
1-2
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Summary of RCRA Subtitle C and
Subtitle D Financial Assurance
Requirements
+ TSDFs and MSWLFs:
» Closure and post-closure care
» Corrective action \
4-TSDFs also must have financial assurance or
third-party liability \
*• Financial assurance is designed to provide funds
when owners or operators are unable or
unwilling to pay for obligations
continued...
EPA
/ 1-3
Notes:
Owners or operators of treatment, storage, and disposal facilities (TSDFs) and municipal solid
waste landfills (MSWLFs) are required to demonstrate financial assurance for:
- Closure and post-closure care
- Corrective action for known releases
Owners or operators of TSDFs are also required to provide financial assurance for third-party
liability.
Requirements for financial assurance help to ensure that funds are available to cover the costs
of meeting environmental obligations should owners or operators of TSDFs and MSWLFs be
unable or unwilling to pay those costs.
1-3
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Summary of RCRA Subtitle C and
Subtitle D Financial Assurance
Requirements
+ Owners or operators of TSDFs or MSWLFs
must:
I -:.'.'\
» Estimate costs of closure and post-closure
care
» Establish funds to qdver those costs
\ •
» Submit information to states or place
information in operating record
continued...
EPA
, 1-4
Notes:
Both the Subtitle C and Subtitle D programs require owners or operators to prepare detailed
cost estimates for closure or post-closure care. These cost estimates may be based on a
combination of the following:
- Costs based upon the experience of the owner or operator
- Estimates by contractors
- Cost estimation handbooks (for example, the Means cost guides)
- Workup based on requirements for labor, materials, and equipment
Funds are required to be established based on one of several allowable financial assurance
mechanisms for both the Subtitle C and Subtitle D programs.
Regulations under the Subtitle C program require that owners or operators of TSDFs submit
cost estimates and financial assurance documents to the authorized agency (typically the state).
By contrast, the Subtitle D program for MSWLFs is designed to be "self-implementing." This
means that owners or operators of MSWLFs must notify the state director that cost estimates
and financial assurance documentation have been placed into the operating record for the
facility, but must submit such documents to the state only upon request.
1-4
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
States may allow owners or operators of MSWLFs to "discount" cost estimates based on the
time value of money. Under the Subtitle D program, regulations at Title 40 of the Code of
Federal Regulations (40 CFR) 258.75 allow a state to permit discounting if:
- The state director determines that cost estimates are complete and accurate and the
owner or operator has submitted a statement from a registered professional engineer so
stating;
- The state finds the facility in compliance with applicable and appropriate permit
conditions;
- The state director determines that the closure date is certain and the owner or operator
certifies that there are no foreseeable factors that will change the estimate of site life;
and
- Discounted cost estimates must be adjusted annually to reflect inflation and years of
remaining operating life.
Discounting of cost estimates is not permitted under Subtitle C regulations.
7-5
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Summary of RCRA Subtitle C
Financial Assurance Requirements
• For third-party liability, owners or operators of
TSDFsmust: J/ i
» Purchase insurance or establish funds to cover
those costs
» Report the information to the state director
continued...
EPA
1-5
Notes:
The required amounts of coverage for TSDFs will be discussed later in this module.
Owners or operators of TSDFs may use many of the same financial assurance mechanisms for
third-party liability as are allowed for closure and post-closure care. These requirements are
not applicable to MSWLFs.
1-6
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Summary of RCRA Subtitle C and
Subtitle D Financial Assurance
Requirements
Permitted TSDFs and MSWLFs are required to
demonstrate financial assurance for corrective
action for known releases
Financial assurance for corrective" action at ;
interim status TSDFs is implemented through
§3008(h) of RCRA V
continued...
EPA
1-6
Notes:
Detailed requirements for financial assurance for corrective action under the Subtitle C program
were proposed on October 24, 1986 (Federal Register, Vol. 51, 37854); that rule was never
made final or implemented by EPA, state personnel should refer to the proposed rule for
guidance in implementing the requirements for financial assurance for corrective action.
EPA and the states can use the corrective authority under Section 3008(h) of RCRA to
implement the financial assurance requirements for corrective action at interim status TSDFs.
This course will not discuss in detail financial assurance requirements for corrective action for
owners or operators of Subtitle C or Subtitle D facilities.
Financial assurance is not required under the RCRA Subtitle C and Subtitle D programs until
the remedy (or corrective measures) is identified. This is because it is not practical to estimate
costs for corrective action until all activities related to that corrective action (for example,
source removal, groundwater pump-and-treat) have been identified.
1-7
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Summary of RCRA Subtitle C and
Subtitle D Financial Assurance
Requirements
4 New facilities - financial assurance is required
before initial receipt of waste
* Required financial assurance = sum of closure/
post-closure expenses for all facilities owned or
operated by a given entity
^State and Federal agencies are exempt
EPA
; 1-7
Notes:
For a newly constructed TSDF or MSWLF, financial assurance must be in place before the
initial receipt of waste at the facility.
Owners and operators of more than one TSDF or MSWLF must provide financial assurance
equal to the sum of the cost estimates for all their facilities.
TSDFs or MSWLFs owned by state or federal agencies are exempt from financial assurance
requirements. Financial assurance is required from local governments to ensure that obligations
can be addressed in a timely manner.
The exemption for state and federal agencies extends to facilities that are either owned or
operated by the state or Federal government. For example, the exemption applies to
government-owned, contractor-operated (GOCO) and contractor-owned, government-
operated (COGO) facilities.
1-8
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Procedures for Cost Estimating:
Closure
Closure cost estimate must:
» Estimated at the point that makes closure most
expensive
» Provide for conduct by a third party
» Preclude resale or salvage credits
Cost estimates must be increased if:
» Facility conditions change
»The closure plan changes
EPA
/ 1-8
Notes:
Owners or operators must prepare cost estimates for closure based on:
- Closure at the point during the active life of the facility at which the extent and manner
of its operations would make closure most expensive
- Performance of closure activities by a third party
- Disallowance of any resale or salvage credits
The owner or operator must increase the cost estimate if changes in the closure plan or
operating conditions increase the maximum estimated cost of closure. For example, cost
estimates must be increased if (1) the owner or operator of a hazardous waste container
storage area receives a permit modification to store more containers, or (2) an owner or
operator of a MSWLF receives approval for a lateral expansion of the landfill.
1-9
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Procedures for Cost Estimating:
Post-Closure Care
Post-closure care cost estimates must be based
on: ,
»The point at which activities would be mdst
expensive „
» Conduct by a third party
Cost estimates must be calculated by multiplying
annual costs by:
»30 years, or
» Number of years post-closure is required
EPA
; 1-9
Notes:
Owners or operators must prepare estimates of the costs of post-closure care based on:
- Assumption of the point during the post-closure care period at which activities would
be the most expensive
- Performance of post-closure care activities by a third party
Cost estimates for post-closure care are calculated by multiplying the amount of the estimate of
the annual cost of post-closure care by 30 years or by the number of years for which post-
closure care is required.
7-70
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Procedures for Cost Estimating:
Adjustment of Cost Estimates for
Inflation
Must be done annually during the active life of
the facility
Within 60 days before the anniversary date of the
establishment of the financial instrument
For the financial test or corporate guarantee,
within 30 days after the close of the firm's or
municipality's fiscal year
• Procedures explicitly spelled out under Subtitle C
(recalculate or use implicit price deflator to
generate inflation factor)
continued...
EPA
Notes:
Annually during the active life of the facility, owners or operators must adjust cost estimates for
inflation. Owners or operators of TSDFs are not required to adjust cost estimates for inflation
after the facility is certified closed. However, owners or operators of MSWLFs are required to
adjust for inflation cost estimates for post-closure care throughout the post-closure care period.
Owners or operators must adjust cost estimates for inflation 60 days before the anniversary
date of the establishment of the financial instrument that is used to demonstrate financial
assurance for the facility.
Owners or operators that use the financial test or corporate guarantee must adjust cost
estimates for inflation within 30 days after the close of the firm's or municipality's fiscal year.
Owners or operators of TSDFs are required to update for inflation by (1) recalculating the cost
estimate annually, or (2) using the implicit price deflator for Gross National Product (GNP)
published the Department of Commerce (as discussed later, the Gross Domestic Product
(GDP) also may be used for this purpose). The regulations for MSWLFs do not specify
required procedures for adjusting cost estimates for inflation. However, the same inflation
factors designed to adjust cost estimates for inflation for TSDFs also may be used to adjust
cost estimates for MSWLFs.
1-11
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Procedures for Cost Estimating:
Adjustment of Cost Estimates for
Inflation
do I derive the most recent inflation factor?
2001 Deflator
= 2002 Factor
2000 Deflator
Divide the most recent annual implicit price
deflator (2001) by the deflator for the previous
year(2000)
• Multiply 2001 cost estimates by the resulting
factor to adjust correctly for inflation in 2002
1-11
Notes:
Source of the implicit price deflator for Gross National Product (GNP)
U.S. Department of Commerce
Bureau of Economic Analysis
Washington, D.C.
Telephone: (202)606-9732
Owners of operators may also use implicit price deflators for Gross Domestic Product (GDP)
to adjust for inflation. However, EPA requires such owner/operator to use a consistent
approach (i.e., TSDFs cannot switch back and forth between the use of GNP and GDP data.)
According to EPA policy, owners or operators of TSDFs also have flexibility with respect to
the use of quarterly implicit price deflator data. For example, it may not be practical (based on
when the firm's fiscal year ends) to use the annual deflator, which typically is published in
March, April, or May of every year. Owners or operators may use quarterly deflators if such
data are used consistently (e.g., if a facility uses first quarter deflator data to adjust for inflation
one year it must use such data to adjust for inflation every year).
7-72
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Inflation Factors, 1989 through 2002 *
1989 Cost Estimate
1990 Cost Estimate
1991 Cost Estimate
1992 Cost Estimate
1993 Cost Estimate
1994 Cost Estimate
1995 Cost Estimate
1996 Cost Estimate
1997 Cost Estimate
1998 Cost Estimate
1999 Cost Estimate
2000 Cost Estimate
2001 Cost Estimate
1.042
1.042
1.040
1.028
1.026
1.022
1.026
1.019
1.019
1.012
1.015
1.023
1.024
1990 Cost Estimate
1991 Cost Estimate
1992 Cost Estimate
1993 Cost Estimate
1994 Cost Estimate
1995 Cost Estimate
1996 Cost Estimate
1997 Cost Estimate
1998 Cost Estimate
1999 Cost Estimate
2000 Cost Estimate
2001 Cost Estimate
2002 Cost Estimate
* Note: The inflation factors presented were prepared using annual implicit price deflator data for Gross National
Product (GNP).
1-13
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Third-Party Liability Requirements
Subtitle C regulations require coverage for bodily
injuries and property damage from TSDF
operations
•Sudden accidental occurrences:
»$1 million per occurrence
»$2 million annual aggregate
•Nonsudden accidental occurrences:
»$3 million per occurrence
» $6 million annual aggregate
EPA
.1-12
Notes:
Third-party liability coverage includes coverage for bodily injuries and property damage that
arise from operations of TSDFs. (These requirements do not apply to MSWLFs under the
Subtitle D program.) Examples may include lawsuits filed by local residents because of alleged
health problems, or to cover costs to provide bottled water necessitated by groundwater
contamination caused by the facility.
All TSDFs must demonstrate financial assurance for third-party liabilities arising from sudden
accidental occurrences. Sudden accidental occurrences are occurrences that are not
continuous or repeated in nature (for example, explosions or fires).
TSDFs that operate land disposal units also must demonstrate financial assurance for third-
party liabilities arising from nonsudden accidental occurrences. Nonsudden accidental
occurrences are occurrences that take place over prolonged periods of time and involve
continuous or repeated exposure (for example, a leaking landfill).
1-14
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
RCRA Subtitle C and Subtitle D
Financial Assurance Mechanisms
» Trust fund
» Surety bond
» Letter of credit
» Insurance
» Corporate financial test
» Corporate guarantee
EPA
» Local government
guarantee (Subtitle D)
» Local government financial
test (Subtitle D),
» State mechanisms
» Combined mechanisms
£'
Notes:
A single mechanism can be used to meet requirements for financial assurance for more than one
TSDF or MSWLF.
A combination of mechanisms also typically may be used to meet requirements for financial
assurance.
Under Subtitle C, financial mechanisms must be worded exactly as specified in 40 CFR
264.151. No required wording for financial assurance mechanisms is specified under Subtitle
D; however, EPA anticipates that states may use the wording in Subtitle C as a starting point in
developing any state-specific required wording.
1-15
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Release from RCRA Financial
Assurance Requirements
* Within 60 days of closure certification
+Within 60 days of post-closure certification
4-Requires certification of approved activities from
a licensed professional engineer
,1-14
Notes:
Within 60 days of receipt of certification that closure activities have been completed, the state
director may relieve owners or operators of responsibility for demonstrating financial assurance
for closure and third-party liability.
Within 60 days of receipt of certification that post-closure care activities have been completed,
the state director may relieve owners or operators of responsibility for demonstrating financial
assurance for post-closure care.
A certification by an independent, licensed, registered professional engineer (PE) is required (1)
see 40 CFR 264.143(i) (closure) and 264.145(i) (post-closure) for permitted TSDFs, (2) see
265.143(i) (closure) and 265.145(i) (post-closure) for interim status TSDFs, and (3) see
258.7 l(b) (closure) and 258.72(b) for post-closure care.
The state director may extend those deadlines if he or she suspects that closure or post-closure
care activities have not been implemented properly.
1-16
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
COMPARISON OF FINANCIAL ASSURANCE MECHANISMS
I Attributes of Mechanisms Appropriate for
• >-il? ; '<:_,,<•->- .-;-^:4---*:-fev -.^%--^,- • ^>.1'\... ..^-.
Demonstrating Financial Assurance for Closure and
', g > .: Rost-Closure and, Third-Party Liability <
Paid-in Trust Funds
Trust Funds That Allow Payments Over Time
Escrow Agreements
External Sinking Funds
Certificates of Deposit
Negotiable Government-Issued Securities
Collateral Bonds Backed by Real Property
Cash Accounts
Annuities
Surety Bonds
Letters of Credit
Lines of Credit
Collateral Bonds Backed by Life Insurance Policies
Insurance
Self Bonding/Financial Tests
Corporate Guarantees
• 4
NOTES:
1) Mechanisms shown in bold are
permitted under the federal subtitle C
and subtitle D programs. All other
unbold mechanisms on this table
may be allowable if such
mechanisms are expressly allowed
under state regulations.
2) Because the trust fund accepts
payments over time, the full amount
of funds required to pay for the
assured obligations may not be
available if an operator defaults on its
obligations before the trust has
been funded fully.
3) If cash is deposited directly with a
regulatory authority, cash accounts
are not considered to be backed by
the guarantee of a third party.
4) Self bonds, financial tests, and
corporate guarantees are available to
members of a regulated community
only to the extent that those
members are able to meet the
particular criteria established for use
of each type of mechanism.
7-77
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Module 1: Overview of RCRA Subtitle C and Subtitle D Financial Assurance Requirements
Summary of the Module
4- Owners or operators must prepare cost
estimates for closure and post-closure care and
adjust them for inflation
•\
4 Financial assurance is required for:
» Closure and post-closure care
»Third-party liability
» Corrective action
4- Many mechanisms can be used to demonstrate
financial assurance
EPA
Notes:
The remaining sections of this manual are intended to address specific issues related to the
review of financial assurance documentation prepared by owners or operators for the various
mechanisms allowed by federal regulations.
The material in this course is designed for an experienced audience and has been, developed
based on recent trends and developments in the implementation of financial assurance
regulations.
1-18
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2-1
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Module 2:
RCRA Subtitle C and Subtitle D
Trust Funds
EPA
; 2-1
Notes:
This module describes the requirements for using trust funds under Subtitle C and Subtitle D of
RCRA for closure and post-closure care and discusses important considerations for the review
of trust funds submitted by owners or operators of TSDFs and MSWLFs.
2-1
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
This Module Includes
+ Overview of regulatory requirements
+ Differences between Subtitle C and D
requirements
*• Key implementation issues for trust funds
» Qualifications of trustee
» Verification of annual payments into trust
» Requests for reimbursement
»Investment options for owner or operators
EPA
/ 2-2
Notes:
2-2
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
A Trust Fund Is a Three-Party
Contract
4- Grantor (owner or operator)
+Trustee (financial entity)
4 Beneficiary (state director)
EPA
/ 2-3
Notes:
A trust fund is a contract between three parties:
- Grantor (owner or operator) - Transfers assets periodically to a second party, called
the "trustee"
- Trustee (financial entity) - Holds such assets on behalf of a third party, called the
"beneficiary"
- Beneficiary (state director) - Eventually may use the funds to pay for the costs of
closure and post-closure care or third-party liabilities
State and EPA officials reviewing trust fund submissions should review trust fund
documentation in light of the qualifications of the trustee (procedures for conducting this review
are described later in this section).
2-3
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Requirements for the Owner or
Operator
Maintain trust fund value per minimum payment
formula
• Update cost estimates for inflation
• Remains responsible for all closure and post-
closure care costs
EPA
2-4
Notes:
The owner or operator:
- Must maintain the value of the trust fund at no less than the amount specified by the
established minimum payment formula
- Must update the cost estimates annually to account for inflation
- Remains responsible at all times for all costs of closure and post-closure care,
regardless of the amount currently held in trust
2-4
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Requirements for the Trustee
4 Have authority to act as trustee; operations
regulated and examined by federal or state
agency
+ For Subtitle C facilities, must annually submit a
statement of value of assets in the trust to:
» Owner or operator
» State director
EPA
} 2-5
Notes:
The trustee:
- May be a bank, savings and loan institution, or other qualified financial institution
- Is empowered to invest assets held in the trust fund
- Exacts a fee from the owner or operator for its services
The trustee:
- Must be an entity that has the authority to act as a trustee and whose operations are
regulated and examined by a federal or state agency (the owner or operator may not be
its own trustee)
- Must submit annually to both the owner or operator and the state director a statement
of the value of the assets held in trust
Financial institutions regulated by state authorities include:
- Commercial banks
- Savings and loan institutions
- Mutual savings banks
- Credit unions
— Foreign banks licensed by a state
2-5
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
• Financial institutions overseen by the Comptroller of the Currency in the Trust Division of the
U.S. Department of the Treasury include:
- Commercial banks chartered by the federal government
- Foreign banks licensed by the federal government
- Commercial banks chartered in the District of Columbia
• Financial institutions regulated by the Office of Thrift Supervision, U.S. Department of the
Treasury, include:
- Savings and loan institutions chartered by the federal government
- Mutual savings banks chartered by the federal government
• Credit unions chartered by the federal government are overseen by the National Credit Union
Administration.
2-6
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Trust Fund Agreement: Subtitle C
vs. Subtitle D
• Subtitle C: content of agreement specified in
regulations
Subtitle D: no federal requirements; content may
be dictated through state regulations
EPA
Notes:
The content of the trust fund agreement is specified under Subtitle C in 40 CFR 264.151(a)(l).
Under the Subtitle D program, states may use the content of trust fund specified in federal
regulations as guidance to develop their own minimum content requirements.
2-7
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Features of Trust Funds
4 Are sums of money set aside to cover
anticipated costs
+ Interest is paid on assets held
+ Are overseen by a trustee
4-Should be established irrevocably
4 Minimum content specified in Subtitle C
regulations (e.g., Schedule B, Exhibit A)
EPA
/ 2-7
Notes:
Trust funds are sums of money set aside to cover anticipated costs (i.e., expenses for closure
and post-closure care).
Interest is paid on assets held in trust. The interest accrued will add to the value of the trust.
Trust funds are overseen by a trustee (typically the trust department of a bank).
Under Subtitle C regulations, trust funds must be established irrevocably; that is, neither the
trustee nor the owner or operator may cancel the trust fund without the written agreement of the
implementing agency (usually the state director). In addition, under Subtitle C requirements, the
owner or operator may cancel the trust fund with agreement of the implementing agency and the
trustee, only when at least one of the following conditions has been met:
- Alternate financial assurance has been submitted
- The owner or operator is no longer required to demonstrate financial assurance
Although Subtitle D regulations do not explicitly require trust funds to be issued irrevocably,
due to EPA's reliance on Subtitle C standards, EPA expects that they will be issued in this
manner.
2-8
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Trust Agreement:
- Establishes the circumstances under which funds must be withdrawn from the trust
- Requires that payments into the fund consist of cash or other securities acceptable to
the trustee
- Establishes requirements for the investment of funds placed into the trust
- Contains requirements for the assignment of the trust to successor trustees
- Outlines procedures to be followed if the grantor does not make required payments into
the trust
Trust fund ScheduleB:
- Must specify the amount of funds used initially to establish the trust fund
- v Need not be updated or resubmitted
Trust fund Exhibit A:
- Lists all persons authorized and designated by the owner or operator to give orders and
instructions to and makes requests of the trustee
- Need not be updated or resubmitted, unless amended
2-9
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Requirements for Trust Agreements
for Closure and Post-Closure Care
• Under Subtitle C, the trust agreement must:
» Be worded per 264.151 (a)(1)
»Include a certification of acknowledgment
» Be submitted to the state director (duplicate
with original signatures)
• For MSWLFs, trust agreement must be placed in
operating record
EPA
2-8
Notes:
Subtitle C regulations for TSDFs specify that the trust agreement for closure and post-closure
care:
- Must be worded exactly as specified in 40 CFR 264.151 (a)( 1)
- Must be accompanied by a formal certification of acknowledgment
- A duplicate of the trust agreement with original signatures must be submitted to the state
director
Consistent with the self-implementing nature of the Subtitle D regulations, the trust agreement
must be placed in the operating record for the facility. Owners or operators of MSWLFs must
notify the state director that the trust agreement has been placed in the operating record.
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Certification of Acknowledgment
*• Example wording found in 264.151 (a)(2)
* Requirements may vary by state
EPA
2-9
Notes:
Under Subtitle C regulations, owners or operators of TSDFs must submit a certification of
acknowledgment to the state director with the signed duplicate of the trust agreement. An
"acknowledgment" is a formal declaration by persons entering into an agreement that they
affirm their obligations created in the agreement and are acting of their own free will.
40 CFR 264.151(a)(2) provides an example of wording that might be used to execute the
acknowledgment.
Requirements governing the content of the acknowledgments may vary from state to state.
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Requirements for Trust Fund
Payments: Closure and Post-
Closure Care
Permitted TSDFs: Annual payments over term of
initial permit, or remaining operating life
/
Interim status TSDFs: Annual payments for 20
years or remaining operating life
MSWLFs: Annual payments over term of initial
permit, or remaining operating life
EPA
,2-10
Notes:
At closure, the value of the trust fund must be equal to the current estimates of the costs of
closure and post-closure care.
Trust funds do not guarantee that the total amount of funds required to conduct closure and
post-closure care activities will be available should the facility close before the payment
schedule is completed.
2-72
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Payment Schedule for Trust Funds
for Closure and Post-Closure Care
Payment Value =
CE-CV
+ CE = Current cost estimates for closure and
post-closure care
+ CV = Current value of the trust fund
4- Y = Number of years remaining in the pay-in
period
EPA
2-11
Notes:
The amounts of the payments made into the trust fund depend on:
— The current value of the trust fund
- The total costs assured
- The period over which payments are to be made
2-73
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Example Trust Fund Payment
* Assume:
»The original total amount of the current cost
estimates was $100,000
»The trust fund is to be fully funded over a five-
year period
» No interest is paid on the assets in the trust
EPA
,2-12
Notes:
2-14
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Sample Trust Fund Payment Schedule, 1997 - 2002
Year
1997
1998
1999
2000
2001
2002
;WsV-cvr$) :•-.-
• ' v Y'
100.000-0
5
101.900-20,000
4
103.123-40.475
3
104.670-61.358
2
107.077-83,014
1
109,647-107,077
';'•/ Mandatory ..:
Payments ($)
20,000
20,475
20,883
21,656
24,063
2,570
Total Value of
Trust Fund ($)
20,000
40,475
61,358
83,014
107,077
109,647
Inflation Factor
1.019
1.012
1.015
1.023
1.024
(2003 factor not yet available)
Notes:
This example does not include the effects of interest earned. Interest payments will increase the
total value of the trust fund (CV), and therefore will reduce required minimum payments.
2-15
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Trust Fund Payment Requirements
+ Owners or operators must continue to adjust for
inflation, after end of pay-in period
•* Pay-in period may be shortened if switching from
another mechanism
EPA
12-13-
Notes:
The owner or operator must continue to update the trust fund annually to account for inflation,
even if the operating life of the facility extends beyond the original pay-in period.
If the trust fund is established after another mechanism has been used, the first payment must be
at least the amount that the fund would have contained if the trust fund had been used from the
beginning.
2-16
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Key Implementation Issues for
Trust Funds: Qualifications of
Trustee
^State regulators can call the appropriate
regulatory authority to verify the qualifications of
trustees
EPA
2-14
Notes:
RCRA Trust Fund: Regulatory Authorities for Financial Institutions
Type of Financial Institution
1 . State-Chartered financial
institutions, including
Commercial Banks, Savings and
Loans, Mutual Savings Banks,
Credit Unions, State Licensed
Foreign Banks
2. Nationally-Chartered
Commercial Banks, Nationally-
Licensed Foreign Banks, All
Washington, D.C. commercial
banks
3. Nationally-Chartered Savings
and Loans
4. Nationally-Chartered Mutual
Savings Banks
5. Nationally-Chartered Credit
Unions
Primary Regulatory
Authority
State Authority
Comptroller of the Currency
Federal Housing Finance Board
Federal Housing Finance Board,
State Authorities
National Credit Union
Administration
Whom to Call
Examples include:
- Superintendent of Banks
- Office of the Comptroller
- Department of Banking and Finance
- Commissioner of Banking
(202) 874-5000
(202) 408-2500
As Number 3, or Number 1
(202)518-6300
2-77
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Key Implementation Issues for
Trust Funds: Verification of Annual
Payments
Adjust closure/post-closure cost estimates for
inflation
Obtain annual valuation statements
Independently determine required payments
Contact the trustee to determine if payments
have been made on time
EPA
/2-15
Notes:
Verification is necessary because (1) the owner or operator is not required to submit receipts
for annual payments into the fund; (2) the trustee must notify the state only of the failure of the
owner or operator to make annual payment (i.e., an absence of a payment), not of a payment
that is too small; and (3) the trustee need not report failures to make payments due to increases
in cost estimates after the pay-in period is completed.
Procedures include the following:
- Adjust the current closure and post-closure cost estimates for the facility for inflation;
- Compute the value of each of the variables in the payment formula, (CE-CV)/Y, by
using the plans, the cost estimates, and the most recent trust fund valuation;
- Determine the required payment from the formula; and
- Contact the trustee to determine if the amount the trustee actually received from the
owner or operator was at least as great as the required payment. State personnel
should speak to trust agents in advance to make arrangements for receiving information
to ensure that the trustee is prepared to supply the information in a timely manner.
2-18
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Notes:
Key Implementation Issues for Trust
Funds: Requests for Reimbursement
^State personnel should:
» Request itemized bills
» Ensure activities are in accordance with plans
» Withhold reimbursement if doubts exist about
adequacy of funds for closure
» Reimburse for post-closure expenses, as
appropriate \
EPA
2-16
For reimbursement, the state must insist upon itemized bills (as the regulations provide) and stay
abreast of closure activities and how much remains in the trust fund. For both closure and post-
closure care expenses, the state should only authorize reimbursement when the expenditures are
in accordance with the plan or otherwise justifiable. The regulations permit the state to withhold
reimbursement until closure is completed if there is reason to believe that the cost of closure will
significantly exceed the value of the trust fund. This allows financial assurance to be maintained
until completion of closure and can provide an incentive to the owner or operators to complete
closure.
EPA is aware of situations in which, contrary to existing regulations, banks have reimbursed
facility owners or operators from trust funds for expenses related to closure or post-closure
care without the approval of the authorized agency.
2-79
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Key Implementation Issues for
Trust Funds: Investment Options
for Owners or Operators
Requirements:
» Prohibition on securities or other obligations of
the grantor k
» Funds must be kept separate from trustees or
in "common" trust
» Holding of cash for a reasonable period of time
before investment or distribution is permitted
EPA
2-17
Notes:
EPA has provided three requirements for investments by owners or operators:
- First, the trust agreement forbids the trustee to invest in securities or other
obligations of the grantor, or any other owner or operator of the facilities for which
the trust fund is established, or any of their affiliates as defined in Section 6(i) of the
Trust Agreement. Thus, even if the grantor is owned by a very large, stable corporation
that might be a sound, prudent investment, the trust agreement specifically prohibits the
trustee from investing funds by purchasing an interest in the grantor's parent company.
This prohibition does not apply, however, to securities or other obligations of the
federal government or state governments. Even if the federal government or a state
government owns a facility or the land on which it is situated, the trustee for the
operator may invest in federal or state securities or other obligations.
- The second exception contained in the trust agreement also requires the trustee to keep
trust property segregated from the trustee's own funds. The trustee is allowed to invest
in time or demand deposits of the trustee institution, up to the amount insured by law
(usually $100,000). The trustee is also permitted to put trust fund assets into any
appropriate "common or collective trust fund created by the Trustee," in other words, a
common trust (see text below).
- Finally, the trustee can hold cash for a reasonable period of time while awaiting
investment or distribution and is not liable for paying interest on that cash.
2-20
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Common Trust Funds: Common trust funds pool a number of trust accounts and invest them
for potentially higher yields and at sometimes decreased fees and costs because of the increase
in investment size. Because smaller trusts can often benefit from common trust funds, common
trusts may make the trust fund mechanism more attractive to owners or operators with small
financial assurance needs. Not every financial institution will offer such a trust fund due to the
requirements of federal and state agencies. The trustee need not establish a special common
trust for RCRA trust funds, but any common trust in which RCRA trust funds participate would
have to fulfill all the requirements of the trust agreement.
2-27
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Module 2: RCRA Subtitle C and Subtitle D Trust Funds
Notes:
Summary of This Module
+Trust funds may be paid in over time to meet
closure or post-closure obligations
".. ™ •' >-
^State personnel should:
» Verify qualifications of trustees
» Ensure annual payments are made
EPA ;218
2-22
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TRUST FUND CASE STUDY
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CASE STUDY - TRUST FUND FOR COSTS OF CLOSURE
(15 minutes)
Background
The XYZ Chemical Company (XYZ) operates a large hazardous waste storage facility near Wilmington,
Delaware. The XYZ facility, which opened on May 16, 1995, is a short-term storage area for hazardous
wastes generated by several large manufacturers of pesticides. Wastes eventually are shipped off site for
treatment or disposal. On May 1,1995, the Delaware Department of Natural Resources and Environmental
Control (DNREC) issued a 10-year permit for the facility. Also in 1995, the expected operating life of the
facility was estimated by XYZ to be 18 years (or until 2012). On April 1,1995, to meet requirements under
subtitle C of the Resource Conservation and Recovery Act (RCRA) for financial assurance for closure, XYZ
established a trust fund. In 1995, costs of closure for the facility were estimated at $320,000.
Instructions
Analyze the background information provided above and XYZ's trust agreement to
determine whether XYZ is in compliance with requirements under subtitle C of RCRA for
using the trust fund to demonstrate financial assurance for closure.
From Schedule B of the trust agreement and XYZ's annual trust fund valuation statements,
determine the actual payments made by XYZ into the trust fund from 1995 to 2002.
Calculate XYZ's required trust fund payment amounts for the same years and compare the
required amounts with the amounts actually deposited by XYZ into the trust fund for each
of those years.
For this case study, disregard the potential effects of interest earnings on XYZ's trust fund
payments.
Using the checklist provided, determine whether XYZ's trust fund mechanism meets all
regulatory requirements specified under subtitle C of RCRA.
Identify and note any deficiencies that would render XYZ noncompliant with requirements
under subtitle C of RCRA for financial assurance for closure.
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YES NO
LJ LJ Does the trust agreement use wording identical to that specified in 40 CFR
264.151(a)(l)? (40 CFR 264.143(a)(2)/40 CFR 264.145(a)(2) and 40 CFR
265.143(a)(2)/40 CFR 265.145(a)(2))
LJ LJ Is the trust agreement accompanied by a formal certification of acknowledgement?
(40 CFR 264.143(a)(2)/40 CFR 264.145(a)(2) and 40 CFR 265.143(a)(2)/40 CFR
265.145(a)(2))
LJ LJ Is the trustee an entity that has the authority to act as a trustee and whose trust
operations are regulated and examined by a federal or state agency? (40 CFR
264.143(a)(l)/40 CFR 264.145(a)(l) and 40 CFR 265.143(a)(l)/40 CFR
265.145(a)(l))
LJ I—I Has a signed duplicate of the trust agreement been submitted? (40 CFR
264.143(a)(l)/40 CFR 265.143(a)(l) and 40 CFR 264.145(a)(l) and 40 CFR
265.145(a)(l))
I—I LJ Have all required payments into the trust fund been made in full? (40 CFR
264.143(a)(3)(i) and (ii)/40 CFR 264.145(a)(3)(i) and (ii) and 40 CFR
265.143(a)(3)(i) and (ii)/40 CFR 265.145(a)(3)(i) and (ii))
LJ LJ For permitted facilities, has a receipt from the trustee documenting the initial deposit
into the trust fund been submitted? (40 CFR 264.143(a)(3)(i) and 40 CFR
264.145(a)(3)(i))
Not Applicable
LJ LJ Has the trustee furnished a statement confirming the value of the trust at least 30
days before the anniversary date of the establishment of the fund? (40 CFR
264.151(a)(l))
LJ LJ Did the owner or operator submit an updated Schedule A of the trust agreement
within 60 days after a change in the amount of the current estimates of the costs of
closure or post-closure care covered by the agreement? (40 CFR 264.143(a)(2)/40
CFR 264.145(a)(2) and 40 CFR 265.143(a)(2)/40 CFR 265.145(a)(2))
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XYZ TRUST AGREEMENT
Trust Agreement, the "Agreement," entered into as of April 1, 1995 by and between XYZ Chemical
Company, a Delaware corporation, the "Grantor," and First Fidelity Bank, incorporated in the State of
Delaware, 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 shall provide assurance that funds will be available
when needed for closure and/or post-closure care of the facility,
Whereas, the Grantor has elected to establish a trust to provide all or part of such financial assurance
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 and 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 and Cost Estimates. This Agreement pertains to the
facilities and cost estimates identified on attached Schedule A.
Section 3. Establishment of Fund. The Grantor and the Trustee hereby establish a trust fund, the
"Fund," for the benefit of EPA. The Grantor and the Trustee intend that no third party have access to the
Fund except as herein provided. The Fund is established initially as consisting of the property, which is
acceptable to the Trustee, described in Schedule B attached hereto. Such property 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
Participant Note: This trust fund agreement contains wording identical to the wording specified in 40 CFR 264.151(a)(l)
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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 established by EPA.
Section 4. Payment for Closure and Post-Closure Care. The Trustee shall make payments from
the Fund as the EPA Regional Administrator shall direct, in writing, to provide for the payment of the
costs of closure and/or post-closure care of the facilities covered by this Agreement. The Trustee shall
reimburse the Grantor or other persons as specified by the EPA Regional Administrator from the Fund for
closure and post-closure expenditures in such amounts as the EPA Regional Administrator shall direct in
writing. In addition, the Trustee shall refund to the Grantor such amounts as the EPA Regional
Administrator specifies in writing. Upon refund, such funds shall no longer constitute part of the Fund as
defined herein.
Section 5. Payments Comprising the Fund. Payments made to the Trustee for the Fund shall
consist of cash or securities acceptable to the Trustee.
Section 6. Trustee Management. The Trustee shall invest and reinvest the principal and income of
the Fund and keep the Fund invested as a single fund, without distinction between 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 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 and Investment. The Trustee is expressly authorized in its discretion:
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(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 8. Express 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 held in the Fund in its own name or in the name of a nominee and
to hold any security in bearer form or in book entry, or to combine certificates representing
such securities with certificates of the same issue held by the Trustee in other fiduciary
capacities, or to deposit or arrange for the deposit of such securities in a qualified central
depositary even though, when so deposited, such securities may be merged and held in bulk
in the name of the nominee of such depositary with other securities deposited therein by
another person, or to deposit or arrange for the deposit of any securities issued by the
United States Government, or any agency or instrumentality thereof, with a Federal
Reserve bank, but the books and records of the Trustee shall at all times show that all such
securities are part of the Fund;
(d) To deposit any cash in the Fund in interest-bearing accounts maintained or savings
certificates issued by the Trustee, in its separate corporate capacity, or in any other
banking institution affiliated with the Trustee, to the extent insured by an agency of the
Federal or State government; and
-------
(e) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against or in
respect of the Fund and all brokerage commissions incurred by the Fund shall be paid from the Fund. All
o
other expenses incurred by the Trustee in connection with the administration of this Trust, including fees
for legal services rendered to the Trustee, the compensation of the Trustee to the extent not paid directly
by the Grantor, and all other proper charges and disbursements of the Trustee shall be paid from the
Fund.
Section 10. Annual Valuation. The Trustee shall annually, at least 30 days prior to the anniversary
date of establishment of the Fund, furnish to the Grantor and to the appropriate EPA Regional
Administrator a statement confirming the value of the Trust. Any securities in the Fund shall be valued at
market value as of no more than 60 days prior to the anniversary date of establishment of the Fund. The
failure of the Grantor to object in writing to the Trustee within 90 days after the statement has been
furnished to the Grantor and the EPA Regional Administrator shall constitute a conclusively binding assent
by the Grantor, barring the Grantor from asserting any claim or liability against the Trustee with respect to
matters disclosed in the statement.
Section 11. Advice of Counsel. The Trustee may from time to time consult with counsel, who may
be counsel to the Grantor, with respect to any question arising as to the construction of this Agreement or
any action to be taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in
acting upon the advice of counsel.
Section 12. Trustee Compensation. The Trustee shall be entitled to reasonable compensation for
its services as agreed upon in writing from time to time with the Grantor.
Section 13. 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's 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 or 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 14. Instructions to the Trustee. All orders, requests, and instructions by the Grantor 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 amendment to Exhibit A. The Trustee shall be fully
protected in acting without inquiry in accordance with the Grantor's orders, requests, and instructions. All
orders, requests, and instructions by the EPA Regional Administrator to the Trustee shall be in writing,
signed by the EPA Regional Administrators of the Regions in which the facilities are located, or their
designees, and the Trustee shall act and shall be fully protected in acting in accordance with such 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 EPA 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 15. Notice of Nonpayment. The Trustee shall notify the Grantor and the appropriate EPA
Regional Administrator, by certified mail within 10 days following the expiration of the 30-day period after
the anniversary of the establishment of the Trust, if no payment is received from the Grantor during that
period. After the pay-in period is completed, the Trustee shall not be required to send a notice of
nonpayment.
Section 16. Amendment of Agreement. This Agreement may be amended by an instrument in
writing executed by the Grantor, the Trustee, and the appropriate EPA Regional Administrator, or by the
Trustee and the appropriate EPA Regional Administrator if the Grantor ceases to exist.
Section 17. Irrevocability and Termination. Subject to the right of the parties to amend this
Agreement as provided in Section 16, 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 delivered to the Grantor.
Section 18. 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 or 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 19. Choice of Law. This Agreement shall be administered, construed, and enforced
according to the laws of the State of Delaware.
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Section 20. 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 or 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(a)(l) as such regulations were constituted on the date first above written.
President, XYZ Corporation
Attest:
Attest:
-------
SCHEDULE A
XYZ Chemical Company
Wilmington Plant
123 Industrial Ave.
Wilmington, DE
EPA ID No. DED-123-456-789
Closure Cost Estimate: $320,000
-------
SCHEDULE B
The trust fund initially consists of $35,000 in cash.
-------
EXHIBIT A
Robert Smith President and CEO
John James Vice President in Charge of Operations
Thomas Nigro Treasurer
-------
First Fidelity Bank
1500 Oak Street
Wilmington, DE
April 1,1995
Mr. Robert Smith
XYZ Chemical Company
123 Industrial Ave.
Wilmington, DE
Subject: Formal Receipt of Deposit
Dear Mr. Smith:
This letter acknowledges the receipt of $35,000 in cash for deposit into your trust fund account No.
123456.
Sincerely,
Sherman T. Peabody
Vice President
-------
First Fidelity Farmers Bank
1500 Oak Street
Wilmington, DE
March 31,2002
Ms. Gwen Ruthgart
Delaware Department of Natural Resources and Environmental Control
P.O. Box 1401
89 Kings Highway
Dover, DE 19903
Subject: Annual Trust Fund Valuation Statement - 2002
Dear Ms. Ruthgart:
As of March 31, 2002, the value of trust fund account No. 123456, established on April 1, 1995 by XYZ
Chemical Company, is $280,000.
Sincerely,
Sherman T. Peabody
Vice President
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REQUIRED WORDING FOR TRUST FUNDS
-------
TRUST AGREEMENT
Trust Agreement, the "Agreement," entered into as of [date] by and between [name of the owner
or operator], a [name of State] [insert "corporation," "partnership," "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 shall provide assurance that funds will be available when needed
for closure and/or post-closure care of the facility,
Whereas, the Grantor has elected to establish a trust to provide all or part of such financial assurance
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 and 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 and Cost Estimates. This Agreement pertains to the
facilities and cost estimates identified on attached Schedule A [on Schedule A, for each facility list the EPA
Identification Number, name, address, and the current closure and/or post-closure cost estimates, or portions
thereof, for which financial assurance is demonstrated by this Agreement].
Section 3. Establishment of Fund. The Grantor and the Trustee hereby establish a trust fund, the
"Fund," for the benefit of EPA. The Grantor and the Trustee intend that no third party have access to the
Fund except as herein provided. The Fund is established initially as consisting of the property, which is
acceptable to the Trustee, described in Schedule B attached hereto. Such property 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 established by EPA.
Section 4. Payment for Closure and Post-Closure Care. The Trustee shall make payments from
the Fund as the EPA Regional Administrator shall direct, in writing, to provide for the payment of the costs
of closure and/or post-closure care of the facilities covered by this Agreement. The Trustee shall reimburse
the Grantor or other persons as specified by the EPA Regional Administrator from the Fund for closure and
-------
post-closure expenditures in such amounts as the EPA Regional Administrator shall direct in writing. In
addition, the Trustee shall refund to the Grantor such amounts as the EPA Regional Administrator specifies
in writing. Upon refund, such funds shall no longer constitute part of the Fund as defined herein.
Section 5. Payments Comprising the Fund. Payments made to the Trustee for the Fund shall
consist of cash or securities acceptable to the Trustee.
Section 6. Trustee Management. The Trustee shall invest and reinvest the principal and income
of the Fund and keep the Fund invested as a single fund, without distinction between 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 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 and 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 8. Express 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;
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(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 held in the Fund in its own name or in the name of a nominee and
to hold any security in bearer form or in book entry, or to combine certificates representing such securities
with certificates of the same issue held by the Trustee in other fiduciary capacities, or to deposit or arrange
for the deposit of such securities in a qualified central depositary even though, when so deposited, such
securities may be merged and held in bulk in the name of the nominee of such depositary with other securities
deposited therein by another person, or to deposit or arrange for the deposit of any securities issued by the
United States Government, or any agency or instrumentality thereof, with a Federal Reserve bank, but the
books and records of the Trustee shall at all times show that all such securities are part of the Fund;
(d) To deposit any cash in the Fund in interest-bearing accounts maintained or savings
certificates issued by the Trustee, in its separate corporate capacity, or in any other banking institution
affiliated with the Trustee, to the extent insured by an agency of the Federal or State government; and
(e) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against or
in respect of the Fund and all brokerage commissions incurred by the Fund shall be paid from the Fund. All
other expenses incurred by the Trustee in connection with the administration of this Trust, including fees for
legal services rendered to the Trustee, the compensation of the Trustee to the extent not paid directly by the
Grantor, and all other proper charges and disbursements of the Trustee shall be paid from the Fund.
x
Section 10. Annual Valuation. The Trustee shall annually, at least 30 days prior to the anniversary
date of establishment of the Fund, furnish to the Grantor and to the appropriate EPA Regional Administrator
a statement confirming the value of the Trust. Any securities in the Fund shall be valued at market value as
of no more than 60 days prior to the anniversary date of establishment of the Fund. The failure of the Grantor
to object in writing to the Trustee within 90 days after the statement has been furnished to the Grantor and
the EPA Regional Administrator shall constitute a conclusively binding assent by the Grantor, barring the
Grantor from asserting any claim or liability against the Trustee with respect to matters disclosed in the
statement.
Section 11. Advice of Counsel. The Trustee may from time to time consult with counsel, who may
be counsel to the Grantor, with respect to any question arising as to the construction of this Agreement or any
action to be taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in acting
upon the advice of counsel.
Section 12. Trustee Compensation. The Trustee shall be entitled to reasonable compensation for
its services as agreed upon in writing from time to time with the Grantor.
Section 13. 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's 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 or does not act in the event of the resignation of
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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 14. Instructions to the Trustee. All orders, requests, and instructions by the Grantor 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 amendment to Exhibit A. The Trustee shall be fully protected in
acting without inquiry in accordance with the Grantor's orders, requests, and instructions. All orders, requests,
and instructions by the EPA Regional Administrator to the Trustee shall be in writing, signed by the EPA
Regional Administrators of the Regions in which the facilities are located, or their designees, and the Trustee
shall act and shall be fully protected in acting in accordance with such 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 EPA
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 15. Notice of Nonpayment. The Trustee shall notify the Grantor and the appropriate EPA
Regional Administrator, by certified mail within 10 days following the expiration of the 30-day period after
the anniversary of the establishment of the Trust, if no payment is received from the Grantor during that
period. After the pay-in period is completed, the Trustee shall not be required to send a notice of
nonpayment.
Section 16. Amendment of Agreement. This Agreement may be amended by an instrument in
writing executed by the Grantor, the Trustee, and the appropriate EPA Regional Administrator, or by the
Trustee and the appropriate EPA Regional Administrator if the Grantor ceases to exist.
Section 17. Irrevocability and Termination. Subject to the right of the parties to amend this
Agreement as provided in Section 16, 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 delivered to the Grantor.
Section 18. 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 or 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 19. Choice of Law. This Agreement shall be administered, construed, and enforced
according to the laws of the State of [insert name of State].
Section 20. 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 or the legal efficacy of this Agreement.
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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(a)(l) as such regulations were constituted on the date first above written.
[Signature of Grantor]
[Title]
Attest:
[Title]
[Seal]
[Signature of Trustee]
Attest:
[Title]
[Seal]
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CERTIFICATION OF 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 say that 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]
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TRUST AGREEMENT
Trust Agreement, the "Agreement," entered into as of [date] by and between [name of the owner
or operator] a [name of State] [insert "corporation," "partnership," "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 financial responsibility for
bodily injury and property damage to third parties caused by sudden accidental and/or nonsudden accidental
occurrences arising from operations of the facility or group of facilities.
Whereas, the Grantor has elected to establish a trust 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 and 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 trust fund,
hereinafter the "Fund," for the benefit of any and all third parties injured or damaged by [sudden and/or
nonsudden] accidental 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 $3 million] per occurrence and
[up to $6 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 exclusion does not apply to liability for
damages that [insert Grantor] would be obligated to pay in the absence of the contract or agreement.
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(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 of [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 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 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 these operations.
In the event of combination with another mechanism for liability coverage, the fund shall be
considered [insert "primary" or "excess"] coverage.
The Fund is established initially as consisting of the property, which is acceptable to the Trustee,
described in Schedule B attached hereto. Such property 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 established by EPA.
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Section 4. Payment for Bodily Injury or Property Damage. The Trustee shall satisfy a third party
liability claim by making payments from the Fund only upon receipt of one of the following documents:
(a) Certification from the Grantor 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:
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CERTIFICATION OF VALID CLAIM
The undersigned, as parties [insert Grantor] 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 [Grantor's] hazardous waste treatment, storage, or disposal
facility should be paid in the amount of $ .
[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 cash or securities acceptable to the Trustee.
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, sill, prudence, and diligence under the
circumstance 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 State government; and
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(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 and 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 8. Express 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 held in the Fund in its own name or in the name of a nominee and
to hold any security in bearer form or in book entry, or to combine certificates representing such securities
with certificates of the same issue held by the Trustee in other fiduciary capacities, or to deposit or arrange
for the deposit of such securities in a qualified central depositary even though, when so deposited, such
securities may be merged and held in bulk in the name of the nominee of such depositary with other securities
deposited therein by another person, or to deposit or arrange for the deposit of any securities issued by the
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United States Government, or any agency or instrumentality thereof, with a Federal Reserve bank, but the
books and records of the Trustee shall at all times show that all such securities are part of the Fund;
(d) To deposit any cash in the Fund in interest-bearing accounts maintained or savings
certificates issued by the Trustee, in its separate corporate capacity, or in any other banking institution
affiliated with the Trustee, to the extent insured by an agency of the Federal or State government; and
(e) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against or
in respect of the Fund and all brokerage commissions incurred by the Fund shall be paid from the Fund. All
other expenses incurred by the Trustee in connection with the Administration of this Trust, including fees for
legal services rendered to the Trustee, the compensation of the Trustee to the extent not paid directly by the
Grantor, and all other proper charges and disbursements of the Trustee shall be paid from the Fund.
Section 10. Annual Valuations. The Trustee shall annually, at least 30 days prior to the anniversary
date of establishment of the Fund, furnish to the Grantor and to the appropriate EPA Regional Administrator
a statement confirming the value of the Trust. Any securities in the Fund shall be valued at market value as
of no more than 60 days prior to the anniversary date of establishment of the Fund. The failure of the Grantor
to object in writing to the Trustee within 90 days after the statement has been furnished to the Grantor and
the EPA Regional Administrator shall constitute a conclusively binding assent by the Grantor barring the
Grantor from asserting any claim or liability against the Trustee with respect to matters disclosed in the
statement.
Section 11. Advice of Counsel. The Trustee may from time to time consult with counsel, who may
be counsel to the Grantor, with respect to any question arising as the construction of this Agreement or any
action to be taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in acting
upon the advice of counsel.
Section 12. Trustee Compensation. The Trustee shall be entitled to reasonable compensation for
its services as agreed upon in writing from time to time with the Grantor.
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Section 13. Successor Trustee. The Trustee may resign or the Grantortriay 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's 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 or 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 14. Instructions to the Trustee. All orders, requests, and instructions by the Grantor 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 amendment to Exhibit A. The Trustee shall be fully protected in
acting without inquiry in accordance with the Grantor's orders, requests, and instructions. All orders, requests,
and instructions by the EPA Regional Administrator to the Trustee shall be in writing, signed by the EPA
Regional Administrators of the Regions in which the facilities are located, or their designees, and the Trustee
shall act and shall be fully protected in acting in accordance with such 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 EPA
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 15. Notice of Nonpayment. If a payment for bodily injury or property damage is made
under Section 4 of this Trust, the Trustee shall notify the Grantor of such payment and the amount(s) thereof
within five (5) working days. The Grantor shall, on or before the anniversary date of the establishment of the
Fund following such notice, either make payments to the Trustee in amounts sufficient to cause the trust to
return to its value immediately prior to the payment of claims under Section 4, or shall provide written proof
to the Trustee that other financial assurance for liability coverage has been obtained equalling the amount
necessary to return the trust to its value prior to the payment of claims. If the Grantor doe snot either make
payments to the Trustee or provide the Trustee with such proof, the Trustee shall within 10 working days
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after the anniversary date of the establishment of the Fund provide a written notice of nonpayment to the
EPA Regional Administrator.
Section 16. Amendment of Agreement. This Agreement may be amended by an instrument in
writing executed by the Grantor, the Trustee, and the appropriate EPA Regional Administrator, or by the
Trustee and the appropriate EPA Regional Administrator if the Grantor ceases to exist.
Section 17. Irrevocability and Termination. Subject to the right of the parties to amend this
Agreement as provided in Section 16, 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 delivered to the Grantor.
The Regional Administrator will agree to termination of the Trust when the owner or operator
substitutes alternate financial assurance as specified in this section.
Section 18. 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 or 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 19. Choice of Law. This Agreement shall be administered, construed, and enforced
according to the laws of the State of [insert name of State].
Section 20. 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
be not affect the interpretation or the legal efficacy of this Agreement.
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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(m) as such regulations were constituted on the date first above written.
[Signature of Grantor]
[Title]
Attest:
[Title]
[Seal]
[Signature of Trustee]
[Title]
Attest:
[Title]
[Seal]
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CERTIFICATION OF ACKNOWLEDGEMENT
State of
County of.
On this [date], before me personally came [owner or operator] to me known, who, being by me duly swom,
did depose and say that she/he resides at [address], and 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]
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REQUIRED WORDING FOR STANDBY TRUST FUNDS
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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," "partnership," "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 financial
responsibility for bodily injury and property damage to third parties caused by sudden accidental and/or
nonsudden accidental occurrences 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
and 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 pertain to the facilities identified on
attached schedule A [on schedule A, for each facility list the EPA Identification Number, name, and
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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] accidental 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 $3 million] per
occurrence and [up to $6 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 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 as an employer or in any
other capacity; and
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(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 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 [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 these operations.
In the event of combination with another mechanism for liability coverage, the fund shall be
considered [insert "primary" or "excess"] coverage.
The 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 established by EPA.
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Section 4. Payment for Bodily Injury or Property 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 form the Grantor 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:
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CERTIFICATION OF VALID CLAIM
The undersigned, as parties [insert Grantor] 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 [Grantor's] hazardous waste treatment, storage,
or disposal facility should be paid in the amount of $[ ].
[Signature].
Grantor
[Signature].
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 proceeds from the letter of credit drawn upon by the Trustee in accordance with the
requirements of 40 CFR 264.15 l(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 and 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 8. Express 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;
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(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 held in the Fund in its own name or in the name of a
nominee and to hold any security in bearer form or in book entry, or to combine certificates representing
such securities with certificates of the same issue held by the Trustee in other fiduciary capacities, or to
deposit or arrange for the deposit of such securities in a qualified central depositary even though,, when so
deposited, such securities may be merged and held in bulk in the name of the nominee of such depositary
with other securities deposited therein by another person, or to deposit or arrange for the deposit of any
securities issued by the United States Government, or any agency or instrumentality thereof, with a
Federal Reserve Bank, but the books and records of the Trustee shall at all times show that all such
securities are part of the Fund;
(d) To deposit any cash in the Fund in interest-bearing accounts maintained or
savings certificates issued by the Trustee, in its separate corporate capacity, or in any other banking
institution affiliated with the Trustee, to the extent insured by an agency of the Federal or State
government; and
(e) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied
against or in respect of the Fund and all brokerage commissions incurred by the Fund shall be paid from
the Fund. All other expenses incurred by the Trustee in connection with the administration of this Trust,
including fees for legal services rendered to the Trustee, the compensation of the Trustee to the extent not
paid directly by the Grantor, and all other proper charges and disbursements to the Trustee shall be paid
from the Fund.
Section 10. Advice of Counsel. The Trustee may from time to time consult with counsel,
who may be counsel to the Grantor, with respect to any question arising as to the construction of this
Agreement or any action to be taken hereunder. The Trustee shall be fully protected, to the extent
permitted by law, in acting upon the advice of counsel.
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Section 11. Trustee Compensation. The Trustee shall be entitled to reasonable 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's
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 or 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
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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 the 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 reasonable 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 265.151(n) as such regulations were constituted on the date first above written.
[Signature of Grantor]
[Title]
Attest:
[Title]
[Seal]
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[Signature of Trustee]
Attest:
[Title]
[Seal]
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3-1
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Module 3:
RCRA Subtitle C and Subtitle D
Letters of Credit
EPA
3-1
Notes:
This module describes the financial assurance requirements for using letters of credit under
Subtitle C and Subtitle D of RCRA for TSDFs and MSWLFs, respectively. This section also
describes key implementation issues related to the review of letters of credit provided by
owners or operators.
3-1
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
This Module Includes
+ Overview of regulatory requirements
+ Differences between Subtitle C and D
requirements
* Key implementation issues for letters of credit
» Drawing on the letter of credit
» Qualifications of the issuer
» Requests for reduction in the face value of the
letter of credit
EPA
3-2
Notes:
3-2
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Characteristics of the Letter of
Credit
letter of credit is issued by a bank or other
qualified financial institution
bank charges the owner or operator a fee
and stipulates an interest rate
bank's liability is limited to the face value of
the letter of credit
continued...
EPA
3-3
Notes:
Once the letter of credit is issued by a financial institution, that institution is responsible for
making any payments to the agency, if necessary.
The bank's fee and interest rate are negotiable and are based on a firm's creditworthiness and
the face value of the letter of credit. Interest is charged only when the letter of credit is drawn
upon. The owner or operator is required to repay, with interest, any funds to the issuing
institution drawn from the letter of credit.
Collateral of as much as 100 percent of the face value of the letter of credit may be required.
The use of a letter of credit transfers risk of default on closure and post-closure care obligations
from the owner or operator to the financial institution to the extent that funds are available under
the terms of the letter of credit.
3-3
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Characteristics of the Letter of
Credit
Face value must be at least equal to the sum of the
current cost estimates
Must be:
» Issued irrevocably for at least one year
» Provide for automatic extensions of at least one year's
duration
Under Subtitle C, owners or operators must establish a
standby trust fund
Under Subtitle D, owners or operators are not required to
establish a standby trust fund
EPA 34
Notes:
The face value of the letter of credit must at least equal the sum of the current closure and post-
closure care cost estimates. To accommodate expected increases caused by inflation, the initial
face value of the letter of credit may be greater than the current cost estimates.
The owners or operators costs to obtain financial assurance may include costs for establishing
the line of credit and costs associated with posting of collateral.
Owners or operators of TSDFs must establish standby trust funds in conjunction with the letter
of credit. The standby trust fund may be established with a nominal sum.
The standby trust fund is not a financial assurance mechanism by itself. It serves as a direct
depository for funds extracted from the letter of credit if necessary. The purpose of the standby
trust fund is to prevent funds intended for closure or post-closure care from being deposited
into a general treasury fund, where the money could instead be used for any number of
purposes.
The owner or operator cannot draw upon the letter of credit itself to finance closure or post-
closure care operations.
Although standby trust funds are not required by regulation under Subtitle D, states may wish to
include a requirement for standby trust funds in their regulations.
3-4
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
The Letter of Credit, a Three-Party
Agreement
+ Issuer (bank or other qualified financial
institution)
+ Account party (owner or operator)
* Beneficiary (state director)
EPA
3-5
Notes:
The letter of credit is a three-party agreement.
- Issuer (bank or other qualified financial institution) - Extends a line of credit on behalf of
a second party, called the "account party"
- Account Party (owner or operator) - Has an obligation to a third party, called the
"beneficiary"
- Beneficiary (state director) - May draw funds in accordance with the terms of the letter
of credit
When reviewing the letter of credit, particularly under the Subtitle C program, regulators should
ensure that the beneficiary is listed as the state agency and not the EPA. Some older letters of
credit may have EPA listed as the beneficiary.
The state, if necessary, writes a letter to the bank requesting money be placed in the standby
trust fund for its use.
The bank will pursue the owner or operator for reimbursement should the state withdraw funds.
3-5
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Qualifications of Issuing Institutions
Issuing institutions must have:
»The authority to issue letters of credit
» Letter of credit operations that are regulated
and examined by a federal or state agency
EPA
3-6
Notes:
Qualified issuers include:
- All domestic commercial banks
- Some mutual savings banks
- Some savings and loan institutions
- Some credit unions
3-6
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Standby Trust Fund
Worded per 264.151 (forTSDFs)
• Payments from the standby trust must be
approved by the state director
EPA
3-7
Notes:
As with the trust funds, EPA expects that states will use the required wording under the Subtitle
C regulations as a starting point for development of required language for standby trust funds
under the Subtitle D program.
3-7
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Comparison of Standby Trust Funds
With Other Trust Funds
• For standby trust funds:
» Owners or operators are not required to make
annual payments
» Owners or operators are not required to
update Schedule A
» Trustees are not required to submit annual
valuation statements
» Trustees are not required to submit notices of
nonpayment
igrEPA
3-8
Notes:
The required wording for standby trust funds is found in 264.151 (a)(l). (Minor modifications
of this wording may be required when used for a standby trust fund.)
3-8
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Submittals to the State Director
• Under Subtitle C, owners or operators must
submit: '
»Copy of signed letter of credit worded per
264.151 (d)
» Duplicate of standby trust fund agreement
(with original signature)
» A letter per 264.143(d)(4)
Under Subtitle D, owners or operators must
notify the state that a copy of the letter of credit
has been placed in operating record
EPA
3-9
Notes:
The owner or operator under Subtitle C must submit to the state director:
- A copy of the signed letter of credit, which must be worded exactly as specified in 40
CFR264.151(d)
- A duplicate of the standby trust agreement, with original signatures worded substantially
the same as 40 CFR 264.151(a)(l)
- A letter from the owner or operator, as specified in 40 CFR 264.143(d)(4)
The letter must:
- Refer to the letter of credit by number, the issuing institution, and the date of issuance
- Provide the name, address, and EPA identification number of each facility covered by
the letter of credit
- Specify the amount of funds assured by the letter of credit for each facility
Owner or operators under Subtitle D must notify the state director that copies of letters of
credit have been placed in facilities' operating records.
3-9
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Cancellation of the Letter of Credit
• Issuer may cancel the letter of credit by providing
notice by certified mail 120 days in advance of
cancellation
Upon receipt of notice, owner or operator has 90
days to obtain alternative financial assurance
EPA
3-10
Notes:
The issuer may cancel the letter of credit by sending notice of cancellation by certified mail to
both the owner or operator and the state director 120 days in advance of cancellation.
If the letter of credit is canceled by the issuing institution, the owner or operator must obtain
alternative financial assurance within 90 days of cancellation. This requirement should provide a
30-day overlap between the time the new mechanism is established before the letter of credit is
cancelled. If alternative assurance is not obtained at the end of this 90-day period, the state
director should draw on the letter of credit before it is cancelled.
3-10
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Key Implementation Issues for
Letters of Credit: Drawing on
Letters of Credit
State may draw on letter of credit when:
» The state determines that the owner or operator has
failed to perform closure or post-closure
» The owner or operator fails to provide alternative
financial assurance within 90 days after notification of
cancellation
State personnel should instruct issuing institution in
writing to deposit funds into standby trust
State personnel also should notify trustee (usually the
same institution) of standby trust in advance
EPA 3-11
Notes:
The state is authorized to draw on the letter of credit in two situations:
- Following a final administrative determination pursuant to Section 3008 of RCRA that
the owner or operator has failed to perform closure or post-closure care in accordance
with the approved closure or post-closure care plans and other permit requirements.
- If the owner or operator does not establish alternate financial assurance and obtain
written approval of such alternate assurance from the state within 90 days after receipt
by both the owner or operator and the state of a notice from the issuing institution that it
has decided not to extend the letter of credit beyond the current expiration date. The
state may delay the drawing if the issuing institution grants an extension of the term of
the credit. During the last 30 days of any such extension the state will draw on the letter
of credit if the owner or operator has failed to provide alternate financial assurance and
obtain written approval of such assurance from the state.
State personnel should notify the trustee of the standby trust fund in advance of any transfer of
funds into the standby trust to help ensure that the transfer of funds is accomplished smoothly.
3-11
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Key Implementation Issues for
Letters of Credit: Qualifications of
Issuer
*• State may wish to review the qualifications of
institutions that issue letters of credit
liable below lists entities to contact for
information
*• A letter of credit is not guaranteed by the Federal
Deposit Insurance Corporation in the event of
bank failure
3-12
Notes:
RCRA Letter of Credit: Regulatory Authorities for Financial Institutions
Type of Financial Institution
1 . State-Chartered financial
institutions, including
Commercial Banks, Savings and
Loans, Mutual Savings Banks,
Credit Unions, State Licensed
Foreign Banks
2. Nationally-Chartered
Commercial Banks, Nationally-
Licensed Foreign Banks, All
Washington, D.C. commercial
banks
3. Nationally-Chartered Savings
and Loans
4. Nationally-Chartered Mutual
Savings Banks
5. Nationally-Chartered Credit
Unions
Primary Regulatory
Authority
State Authority
Comptroller of the Currency
Federal Housing Finance Board
Federal Housing Finance Board,
State Authorities
National Credit Union
Administration
Whom to Call
Examples include:
- Superintendent of Banks
- Office of the Comptroller
- Department of Banking and Finance
- Commissioner of Banking
(202) 874-5000
(202) 408-2500
As Number 3, or Number 1
(202)518-6300
3-72
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Key Implementation Issues for
Letters of Credit: Requests for
Reduction in the Letter of Credit
4- Applies if reductions in cost estimates are
approved
4 Should be approved only if funds are "sufficient"
4- State personnel should:
» Review cost estimates for adequacy and
completeness
» Review assumptions made by owner or
operator in recalculating cost estimates
EPA
3-13
Notes:
Owners or operators may apply for a reduction in the letter of credit if reductions in cost
estimates for closure or post-closure are approved by the authorized agency (e.g., as a result of
completing a certain number of years of post-closure care).
In reviewing cost estimates as part of evaluating whether a reduction in a letter of credit is
merited, state personnel should:
- Evaluate contingency costs built into cost estimates to account for unforseen
circumstances (e.g., activities taking longer than expected as a result of bad weather)
- Ensure that unit costs for remaining activities contained in cost estimates are realistic
given historic costs to conduct closure or post-closure care activities at the facility
3-13
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Module 3: RCRA Subtitle C and Subtitle D Letters of Credit
Summary of the Module
+ A letter of credit is a three-party agreement
+ Owners and operators may be required to
establish standby trust funds in conjunction with
letters of credit
owner or operator must repay with interest
any funds drawn by the state through the letter of
credit
EPA
3-14
Notes:
3-14
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LETTERS OF CREDIT CASE STUDY
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CASE STUDY - LETTER OF CREDIT FOR CLOSURE
AND POST-CLOSURE CARE
(20 minutes)
Background
ABC Manufacturing Company (ABC) produces aircraft landing gear for military aircraft at its facility in
Flagstaff, Arizona. The facility generates large volumes of rinsewaters from electroplating operations. The
facility discharges those wastewaters into two hazardous waste surface impoundments on site. The
wastewaters are treated and discharged to a nearby stream under a NPDES permit. In 2000, the facility
obtained a letter of credit from First Fidelity Savings and Loan to provide financial assurance for closure and
post-closure care for the surface impoundments. In 2001, combined costs of closure and post-closure care
for the facility were estimated at $410,000. Of that amount, $300,000 was for closure and $ 110,000 was for
post-closure care.
Instructions for Workshop Participants
Analyze the background information provided above and ABC's letter of credit to determine
whether ABC is in compliance with requirements under Subtitle C of RCRA for using the
letter of credit to demonstrate financial assurance for closure and post-closure care.
Using the proper inflation factor, adjust the cost estimates for closure and post-closure care
for ABC's TSDF.
Year
2001
2002
,.* Cost Estimate for
I Closure ($) >
300,000
~< ^ ' ^ "^ ^
f * * *•• ^ y**/
Cost Estimate for Post-
Closure Care ($)
110,000
;: Inflation,;
Factor
~
Confirm that the face value of the letter of credit is at least equal to the current estimates of
the costs of closure and post-closure care for ABC's TSDF.
Using the checklist provided, determine whether the letter of credit meets all regulatory
requirements specified under Subtitle C of RCRA for ABC's TSDF.
Identify and note any regulatory deficiencies that would render ABC noncompliant with
requirements under Subtitle C of RCRA for financial assurance for closure and post-closure
care.
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YES NO'
Does the issuing-institution have authority to issue letters of credit? Are its letter-of-credit
operations regulated and examined by a federal or state agency? (40 CFR 264.143(d)(l)/40
CFR 264.145(d)(l) and 40 CFR 265.143(c)(l)/40 CFR 265.145(c)(l))
Does the letter of credit use wording identical to that specified in 40 CFR 264.151 (d)? (40
CFR 264.143(d)(2)/40 CFR 264.145(d)(2) and 40 CFR 265.143(c)(2)/40 CFR 265.145(c)(2))
Has the owner or operator established a standby trust fund? (40 CFR 264.143(d)(3)/40 CFR
264.145(d)(3) and 40 CFR 265.143(c)(3)/40 CFR 265.145(c)(3))
Has an originally signed duplicate of the trust agreement been submitted along with the letter
of credit? (40 CFR 264.143(d)(3)(i)/40 CFR 264.145(d)(3)(i) and 40 CFR 265.143(c)(3)(i)/40
CFR265.145(c)(3)(i))
Is the letter of credit properly accompanied by a letter from the owner or operator, as specified
in 40 CFR 264.143(d)(4)/40 CFR 264.145(d)(4) and 40 CFR 265.143(c)(4)/40 CFR
265.145(c)(4)7
Has the letter of credit been issued irrevocably for a period of at least one year, and does it
meet all other requirements as specified in 40 CFR 264.143(d)(5)/40 CFR 264.145(d)(5) and
40 CFR 265.143(c)(5)/40 CFR 265.145(c)(5)7
Has the letter of credit been issued for at least the amount of the current estimates of the costs
of closure and post-closure care? (40 CFR 264.143(d)(6)/40 CFR 264.145(d)(6) and 40 CFR
265.143(c)(6)/40 CFR 265.145(c)(6))
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IRREVOCABLE STANDBY LETTER OF CREDIT
Ms. Evelyn Dean
Arizona Department of Health Services
Division of Environmental Health Services
1740 West Adams Street
Phoenix, AZ 85007
Dear Ms. Dean:
We hereby establish our Irrevocable Standby Letter of Credit No. 12345 in your favor, at the request and for the
account of ABC Manufacturing Company, P.O. Box 110, Flagstaff, Arizona up to the aggregate amount of Four
Hundred Twenty Thousand U.S. dollars $420,000, available upon presentation of
(1) your sight draft, bearing reference to this letter of credit No. 12345, and
(2) your signed statement reading as follows: "I certify that the amount of the draft is payable pursuant to
regulations issued under authority of the Resource Conservation and Recovery Act of 1976 as amended."
This letter of credit is effective as of March 30, 2001 and shall expire on March 30, 2002, but such expiration
date shall be automatically extended for a period of 1 year on March 30, 2002 and on each successive expiration
date, unless, at least 120 days before the current expiration date, we notify both you and ABC Manufacturing
Company by certified mail that we have decided not to extend this letter of credit beyond the current expiration
date. In the event you are so notified, any unused portion of the credit shall be available upon presentation of
your sight draft for 120 days after the date of receipt by both you and ABC Manufacturing Company, as shown
on the signed return receipts.
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, and we shall deposit the amount of draft directly into the standby trust
fund of ABC Manufacturing Company in accordance with your instructions.
We certify that the wording of this letter of credit is identical to the wording specified in 40 CFR 264.151(d) as
such regulations were constituted on the date shown immediately below.
March 30, 2001
Fred Smith
Vice President
First Fidelity Savings and Loan
PARTICIPANT NOTE: THIS IRREVOCABLE STANDBY LETTER OF CREDIT CONTAINS WORDING IDENTICAL TO THAT
SPECIFIED IN 40 CFR264.15KD)
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This credit is subject to the most recent edition of the Uniform Customs and Practice for Documentary Credits,
published by the International Chamber of Commerce.
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TRUST AGREEMENT
Trust Agreement, the "Agreement," entered into as of March 30, 2001 by and between ABC Manufacturing
Company, a Delaware corporation, the "Grantor," and First Fidelity Savings and Loan, 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 shall provide assurance that funds will be available when needed for
closure and/or post-closure care of the facility,
Whereas, the Grantor has elected to establish a trust to provide all or part of such financial assurance 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 and 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 and Cost Estimates. This Agreement pertains to the facilities and cost
estimates identified on attached Schedule A.
Section 3. Establishment of Fund. The Grantor and the Trustee hereby establish a trust fund, the "Fund," for
the benefit of EPA. The Grantor and the Trustee intend that no third party have access to the Fund except as
herein provided. The Fund is established initially as consisting of the property, which is acceptable to the
Trustee, described in Schedule B attached hereto. Such property 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
PARTICIPANT NOTE: THIS TRUST AGREEMENT CONTAINS WORDING IDENTICAL TO THAT SPECIFIED IN 40 CFR
264.15KAX1)
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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 established by EPA.
Section 4. Payment for Closure and Post-Closure Care. The Trustee shall make payments from the Fund as the
EPA Regional Administrator shall direct, in writing, to provide for the payment of the costs of closure and/or
post-closure care of the facilities covered by this Agreement. The Trustee shall reimburse the Grantor or other
persons as specified by the EPA Regional Administrator from the Fund for closure and post-closure expenditures
in such amounts as the EPA Regional Administrator shall direct in writing. In addition, the Trustee shall refund
to the Grantor such amounts as the EPA Regional Administrator specifies in writing. Upon refund, such funds
shall no longer constitute part of the Fund as defined herein.
Section 5. Payments Comprising the Fund. Payments made to the Trustee for the Fund shall consist of cash or
securities acceptable to the Trustee.
Section 6. Trustee Management. The Trustee shall invest and reinvest the principal and income of the Fund
and keep the Fund invested as a single fund, without distinction between 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 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 and Investment. The Trustee is expressly authorized in its discretion:
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(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 8. Express 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 held in the Fund in its own name or in the name of a nominee and to hold any
security in bearer form or in book entry, or to combine certificates representing such securities with certificates
of the same issue held by the Trustee in other fiduciary capacities, or to deposit or arrange for the deposit of such
securities in a qualified central depositary even though, when so deposited, such securities may be merged and
held in bulk in the name of the nominee of such depositary with other securities deposited therein by another
person, or to deposit or arrange for the deposit of any securities issued by the United States Government, or any
agency or instrumentality thereof, with a Federal Reserve bank, but the books and records of the Trustee shall at
all times show that all such securities are part of the Fund;
(d) To deposit any cash in the Fund in interest-bearing accounts maintained or savings certificates issued
by the Trustee, in its separate corporate capacity, or in any other banking institution affiliated with the Trustee, to
the extent insured by an agency of the Federal or State government; and
(e) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against or in respect of the
Fund and all brokerage commissions incurred by the Fund shall be paid from the Fund. All other expenses
incurred by the Trustee in connection with the administration of this Trust, including fees for legal services
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rendered to the Trustee, the compensation of the Trustee to the extent not paid directly by the Grantor, and all
other proper charges and disbursements of the Trustee shall be paid from the Fund.
Section 10. Annual Valuation. The Trustee shall annually, at least 30 days prior to the anniversary date of
establishment of the Fund, furnish to the Grantor and to the appropriate EPA Regional Administrator a statement
confirming the value of the Trust. Any securities in the Fund shall be valued at market value as of no more than
60 days prior to the anniversary date of establishment of the Fund. The failure of the Grantor to object in writing
to the Trustee within 90 days after the statement has been furnished to the Grantor and the EPA Regional
Administrator shall constitute a conclusively binding assent by the Grantor, barring the Grantor from asserting
any claim or liability against the Trustee with respect to matters disclosed in the statement.
Section 11. Advice of Counsel. The Trustee may from time to time consult with counsel, who may be counsel
to the Grantor, with respect to any question arising as to the construction of this Agreement or any action to be
taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in acting upon the advice
of counsel.
Section 12. Trustee Compensation. The Trustee shall be entitled to reasonable compensation for its services as
agreed upon in writing from time to time with the Grantor.
Section 13. 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's 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 or 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 14. Instructions to the Trustee. All orders, requests, and instructions by the Grantor 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 amendment to Exhibit A. The Trustee shall be fully protected in acting without
inquiry in accordance with the Grantor's orders, requests, and instructions. All orders, requests, and instructions
by the EPA Regional Administrator to the Trustee shall be in writing, signed by the EPA Regional
Administrators of the Regions in which the facilities are located, or their designees, and the Trustee shall act and
shall be fully protected in acting in accordance with such orders, requests, and instructions. The Trustee shall
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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 EPA 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 15. Notice of Nonpayment. The Trustee shall notify the Grantor and the appropriate EPA Regional
Administrator, by certified mail within 10 days following the expiration of the 30-day period after the
anniversary of the establishment of the Trust, if no payment is received from the Grantor during that period.
After the pay-in period is completed, the Trustee shall not be required to send a notice of nonpayment.
Section 16. Amendment of Agreement. This Agreement may be amended by an instrument in writing executed
by the Grantor, the Trustee, and the appropriate EPA Regional Administrator, or by the Trustee and the
appropriate EPA Regional Administrator if the Grantor ceases to exist.
Section 17. Irrevocability and Termination. Subject to the right of the parties to amend this Agreement as
provided in Section 16, 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 delivered to the Grantor.
Section 18. 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 or 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 19. Choice of Law. This Agreement shall be administered, construed, and enforced according to the
laws of the State of Arizona.
Section 20. 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 be not affect the
interpretation or the legal efficacy of this Agreement.
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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(a)(l) as such regulations were constituted on the date first above written.
Corporate Counsel, ABC Manufacturing Company
Attest:
Vice President, ABC Manufacturing Company
Attest:
Vice President, First Fidelity Savings and Loan
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CERTIFICATION OF ACKNOWLEDGMENT
State of Arizona
County of Coconino
On this March 30, 2001, before me personally came Krista Capuco to me known, who, being by me duly sworn,
did depose and say that she resides at 14 Reid Street, Flagstaff, Arizona, that she is Corporate Counsel of ABC
Manufacturing Company, the corporation described in and which executed the above instrument; that she 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 signed her name thereto by like order.
PARTICIPANT NOTE: THIS CERTIFICATE OF ACKNOWLEDGEMENT CONTAINS WORDING IDENTICAL TO THAT
SPECIFIED IN 40 CFR 264.15KAX2)
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SCHEDULE A
ABC Aircraft Landing Equipment Plant
P.O. Box 110
Flagstaff, AZ
EPA ID No. AZD-421-543-989
Cost Estimate for Closure: $300,000
Cost Estimate for Post-Closure Care: $110,000
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SCHEDULE B
The trust fund initially consists of $100 in cash.
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EXHIBIT A
Krista Capuco Corporate Counsel
Carrie Holloway Vice President
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REQUIRED WORDING FOR LETTERS OF CREDIT
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IRREVOCABLE STANDBY LETTER OF CREDIT
Regional Administrator(s)
Region(s)
U.S. Environmental Protection Agency
Dear Sir or Madam:
We hereby establish our Irrevocable Standby Letter of Credit No. in your favor, at the request
and for the account of [owner's or operator's name and address] up to the aggregate amount of [in words]
U.S. dollars $ , available upon presentation [insert, if more than one Regional Administrator is a
beneficiary, "by any one of you"] of
(1) your sight draft, bearing reference to this letter of credit No. , and
(2) your signed statement reading as follows: "I certify that the amount of the draft is payable
pursuant to regulations issued under authority of the Resource Conservation and Recovery Act of 1976 as
amended."
This letter of credit is effective as of [date] and shall expire on [date at least 1 year later], but such
expiration date shall be automatically extended for a period of [at least 1 year] on [date] and on each
successive expiration date, unless, at least 120 days before the current expiration date, we notify both you 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. In the event you are so notified, any unused portion of the credit shall be available
upon presentation of your sight draft for 120 days after the date of receipt by both you and [owner's or
operator's name], as shown on the signed return receipts.
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, and we shall deposit the amount of draft directly into the
standby trust fund of [owner's or operator's name] in accordance with your instructions.
We certify that the wording of this letter of credit is identical to the wording specified in 40 CFR
264.151(d) 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"].
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IRREVOCABLE STANDBY LETTER OF CREDIT
Name and Address of Issuing Institution
Regional Administrator(s)
Region(s)
U.S. 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's 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 occurrence and/or for third-party liability
awards or settlements up to the amount of [in words] U.S. dollars $ per occurrence, and the
annual aggregate amount of [in words] U.S. dollars $ , for nonsudden accidental occurrences
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]:
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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 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.
(b) 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).
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(d) Bodily injury or property damage arising out of the ownership, maintenance, use, or
instrument to others of any aircraft, motor vehicle or watercraft.
(e) Property damage to:
(1) Any property owned, rented, or occupied by [insert principal];
(2) Premiss 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.
[Signature]
Principal
[Signature(s)]
Claimant(s)
or (2) a valid final court order establishing a judgment against the principal for bodily injury or property
damage caused by a sudden or nonsudden accidental occurrence arising from operation of the principal'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 such
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.
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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
264.151(k) 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"]
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4-1
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Module 4:
RCRA Subtitle C and Subtitle D
Surety Bonds
EPA
4-1
Notes:
This module describes the requirements for using surety bonds under Subtitle C and Subtitle D
of RCRA for closure and post-closure care and discusses important considerations for the
review of surety bonds provided by owners or operators of TSDFs and MSWLFs.
4-1
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
This Module Includes
Overview of regulatory requirements
Differences between Subtitle C and Subtitle D
requirements
Types of surety bonds
Key implementation issues for surety bonds
» Differences between surety bonds and insurance
» Considerations related to the qualifications of sureties
» "Calling in" surety bonds
4-2
Notes:
4-2
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Characteristics of the Surety
Bond is issued by a surety company for a
premium paid by the owner or operator
Surety's liability is limited to the penal sum of the
bond
Penal sum of the bond must equal the sum of the
current cost estimates
Owner or operator must establish a standby trust
fund
continued...
EPA
4-3
Notes:
The bond may provide for an optional "rider" to permit increases in the penal sum by as much
as 20 percent per year without renegotiation of the bond agreement.
The surety becomes liable under the bond obligation if the owner or operator fails to perform as
guaranteed by the bond.
The standby trust fund is not a financial assurance mechanism by itself. It serves as a direct
depository for funds paid through the bond, when necessary. The purpose of the standby trust
fund is to prevent funds from being disbursed to the general treasury of the state, where the
money could instead be used for any number of purposes (e.g., road construction, welfare
programs).
The standby trust fund may be established with a nominal sum.
4-3
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Characteristics of the Surety
A surety must be listed as acceptable in the
current U.S. Treasury Circular 570
Collateral is required for surety bonds for most
environmental applications
Sureties may request up to 100 percent of the
penal sum to be retained as collateral
EPA
4-4
Notes:
Treasuries listed in U.S. Treasury Circular 570 (the list) have been deemed acceptable by the
U.S. Treasury Office to (1) direct write surety bonds for federal obligations, or (2) reinsure
Federal bonds. The Surety Bond Branch at the U.S. Treasury reviews quarterly and annual
financial information from surety companies on the list to determine their continued eligibility for
inclusion on that list.
The U.S. Treasury Circular 570 is available:
- Through the Internet at http://www.ustreas.gov/pubs.html
- From the U.S. Government Printing Office
telephone (202) 512-1800
Because the surety retains potential liability for an indefinite period of time, collateralized funds
may not be recoverable until the bonded obligation has been fulfilled.
Usually a company is removed from Circular 570 because they no longer meet its minimum
financial requirements or because they are no longer writing surety bonds for federal
obligations.
4-4
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
The Surety Bond is a Three-Party
Contract
*• Principal (owner or operator)
4 Surety (surety company)
* Obligee (state director)
EPA
4-5
Notes:
A surety bond is a contract between three parties.
- Principal (owner or operator) — Purchases a surety bond by paying a premium to a
second party, called the "surety"
- Surety (surety company) — Guarantees payment or performance to a third party,
called the "obligee"
- Obligee (state director) — Is assured that the obligations of the owner or operator to
perform of closure and post-closure care or third-party liability will be fulfilled
The surety has the right to pursue the owner or operator for reimbursement in the event the
owner or operator fails to perform as specified in the bond.
4-5
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Two Types of Surety Bonds
Financial guarantee bonds
• Performance bonds
EPA
4-6
Notes:
• Surety bonds are issued for the life of the obligation (e.g., closure or post-closure care) or until
cancelled and not on annual basis.
4-6
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Financial Guarantee Bonds
May be used to demonstrate financial assurance
for closure and post-closure care (Subtitle C and
Subtitle D)
• Require the surety (in the event of default) to
deposit the penal sum of the bond into the
standby trust fund
Under Subtitle C, must be worded per
264.151 (b)
EPA
4-7
Notes:
Financial guarantee bonds:
- May be used to demonstrate financial assurance for closure and post-closure care for
TSDFs and MSWLFs
- Require the surety, in the event of default, to deposit into the standby trust fund an
amount equal to the penal sum of the bond
- Under Subtitle C, the surety bond must be worded exactly as specified in 40 CFR
264.15 l(b)
There is no required wording for financial guarantee bonds under the Subtitle D regulations.
However, EPA expects that states will use the language in 40 CFR 264.151(b) as a starting
point in developing required language for a given state program.
4-7
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Performance Bonds
Require the surety (in the event of default) to
either:
» Perform closure or post-closure care activities
» Deposit penal sum of the bond into standby
trust fund
• May be used for permitted TSDFs and MSWLFs
May not be used in conjunction with other
mechanisms
EPA
4-8
Notes:
Performance bonds:
Require the surety, in the event of default, either to perform closure and post-closure
care activities or to deposit into the standby trust fund an amount equal to the penal sum
of the bond. In practice, however, surety companies may not want to guarantee
performance of closure or post-closure care activities because such companies may not
be qualified to oversee closure or post-closure care activities at TSDFs or MSWLFs.
May be used for permitted TSDFs and MSWLFs. They may not be used at interim
status facilities because the closure and post-closure care plans may not be approved at
those facilities.
Must be worded exactly as specified in 40 CFR 264.151(c).
May not be used in conjunction with other financial assurance mechanisms. This
provision is designed to ensure that closure and post-closure care obligations are met in
a timely fashion, without protracted negotiations over what aspects of the work will be
completed by the parties involved in providing (partial) financial assurance.
4-8
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Notes:
Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Standby Trust Fund
+ Standby trust funds must be:
» Fully funded before final closure begins
(financial guarantee bond)
» Funded by the surety in the event of default by
the owner or operator (performance bond)
» For Subtitle C, worded exactly as specified in
264.151 (a)(1)
* Payments from the standby trust fund must be
approved by the state director
EPA
4-9
As with other trust funds, EPA expects that states will use the required wording in the Subtitle
C regulations as a starting pont for the development of required language for standby trust funds
under the state's Subtitle D programs.
4-9
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Comparison of Standby Trust Funds
With Other Trust Funds
• For standby trust funds:
» Owners or operators are not required to make
annual payments :
» Owners or operators are not required to
update Schedule A
» Trustees are not required to submit annual
valuation statements
»Trustees are not required to submit notices of
nonpayment
4-10
Notes:
4-10
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Required Documentation
• Under Subtitle C, owner or operator must submit:
» A copy of the surety bond agreement with
original signatures
» A duplicate of the standby trust agreement
(with original signatures)
• Under Subtitle D, the owner or operator must
notify the state that a copy of the bond is in the
operating record of the facility
EPA
4-11
Notes:
Under Subtitle C, the owner or operator must submit to the state director:
- A copy of the surety bond agreement signed by both the surety and the owner or
operator
- A duplicate of the standby trust agreement with original signatures
The owner or operator under Subtitle D must notify the state director that a copy of the bond
and the standby trust agreement has been placed in the facility's operating record.
4-11
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Cancellation of the Surety Bond
* Surety may cancel by notifying the state and the
owner or operator 120 days in advance \
*• Upon cancellation, the owner or operator has 90
days to obtain alternative financial assurance
EPA
4-12
Notes:
The surety may cancel the bond by sending notice of cancellation by certified mail to the owner
or operator and to the state director 120 days in advance of cancellation.
If the surety cancels the bond, the owner or operator must obtain alternative financial assurance
within 90 days of the date notification is received, or the surety must fund the standby trust.
4-12
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Obligations of the Surety
Sureties must fulfill obligations under a bond:
» When the owner or operator defaults on
closure or post-closure obligations
» When the owner or operator fails to fully fund
the standby trust fund before closure (financial
guarantee bonds only)
» Upon an order by the state or a court
» When the surety has sent a cancellation notice
(90-day requirement)
EPA
4-13
Notes:
Sureties must fulfill obligations under a bond when:
- The owner or operator fails to perform closure or post-closure activities
- The owner or operator fails to fund the standby trust fund before final closure begins
(financial guarantee bonds only)
- A state director or a court has ordered that closure begin, and the owner or operator
does not fund the standby trust fund fully within 15 days
- The surety has sent a notice of cancellation, and the owner or operator does not obtain
alternative financial assurance within 90 days of receipt of that notification
State personnel should instruct the surety to pay into the standby trust fund in the above
situations.
4-13
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Key Implementation Issues:
Differences Between Surety Bonds
and Insurance
+ Surety bonds differ from traditional forms of
insurance because: r A
\
» A surety bond is a three-party contract
» Sureties do not expect monetary losses
»In the event of a loss, the surety retains full
rights of recovery against the principal
EPA
4-14
Notes:
The surety will not issue a bond if it believes that losses might occur.
A bond may be more affordable or available to owners and operators where remaining facility
life is relatively brief, the time of closure is highly predictable, and more collateral is provided.
A company can be qualified to issue insurance policies but not be listed as acceptable on
Circular 570.
4-14
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Key Implementation Issues:
Considerations Related to the
Surety Company
+ Sureties listed on Circular 570 are generally well
qualified
^State personnel should:
» Check names carefully
» Ensure underwriting limitation is at least equal
to the bond amount
EPA
4-15
Notes:
The first step that the state must take is to ensure that the surety is qualified to issue the bond.
Circular 570 (published annually on approximately July 1) must be reviewed to check that the
surety is listed.
Because many sureties have similar names, great care should be exercised in consulting Circular
570. The most recent information can be obtained by contacting the Audit Staff of the
Department of the Treasury (telephone number: (202) 634-5010).
State personnel should ensure the underwriting limitation is equal to or greater than the bond
amount. The bond amount can exceed the surety's underwriting limitation if the surety properly
indicates that other sureties are sharing the risk.
If cosureties are being used, the original bond must reflect that fact. In all cases, the state will
want to ensure that the total underwriting limitation of all sureties involved is not exceeded.
The qualifications of the trustee institution for the standby trust fund must also be verified. The
qualifications required are the same as for those discussed in module 2 of this manual (related to
trust funds).
4-15
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Key Implementation Issues for
Surety Bonds: Drawing on the
Surety Bond
+ Subtitle C contains required wording explaining
the procedures required to cause sureties to
deposit funds into the standby trust
estate personnel should:
» Write a letter to the surety
» Notify the trustee in advance of expected
payments
EPA
4-16
Notes:
As part of the process of drawing on a surety bond, state personnel should:
- Write a letter to the surety company to instruct them to place the penal sum of the bond
into the standby trust fund. Such a letter (1) should explain the reason that the surety is
required to pay into the trust, and (2) should be under signature of the state director or
someone who has the power of attorney to sign for the director.
- Notify the trustee in advance of expected payments into the trust from the surety.
A surety also may require that the state complete an affidavit of claim certifying the basis for
requesting money for the standby trust fund.
4-16
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Module 4: RCRA Subtitle C and Subtitle D Surety Bonds
Summary of the Module
types of surety bonds may be used for
TSDFs and MSWLFs:
» Financial guarantee bonds
>> Performance bonds
Sureties must be listed as acceptable in the
current U.S. Treasury Circular 570
EPA
4-17
Notes:
4-17
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SURETY BOND CASE STUDY
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PERFORMANCE BOND
FOR CLOSURE AND POST-CLOSURE CARE
(20 minutes)
Background
The Nigro Liquid Waste Company (Nigro) operates one hazardous waste treatment facility and one
hazardous waste land disposal facility, both of which are located in Newark, New Jersey. Both facilities
handle liquid wastes generated by a number of local commercial manufacturers. A RCRA Part B permit
application for Nigro's land disposal facility recently was denied by the New Jersey Department of
Environmental Protection and Energy (DEPE). That facility currently is operating under interim status. On
June 30, 2000, DEPE granted a RCRA Part B permit for Nigro's treatment facility. Nigro is submitting a
performance bond mechanism to provide financial assurance for closure of its treatment facility and for
closure and post-closure care of its land disposal facility. Nigro obtained the performance bond from Indiana
Lumbermens Mutual Insurance Company in Indianapolis, Indiana. When Nigro opened its treatment facility
in 2000, it was estimated that it would cost $45,000 to close the facility. When Nigro opened its land
disposal facility in 2001, it was estimated that it would cost $135,000 to close that facility and another
$95,500 to provide post-closure care at the facility over a 30-year period.
Instructions for Workshop Participants
Analyze the background information provided above and Nigro's performance bond to
determine whether Nigro is in compliance with requirements under Subtitle C of RCRA for
using the performance bond to demonstrate financial assurance for the costs of closure and
post-closure care.
Using the proper inflation factors, adjust the cost estimate for closure for Nigro's hazardous
waste treatment facility for inflation through 2002
>-• ' ' Year
2000
2001
2002
Cost Estimate for Closure ($) "
45,000
4: /' Inflation Factor ': ^"Blt
j
—
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Using the proper inflation factor, adjust the cost estimates for closure and post-closure care
for Nigro's hazardous waste land disposal facility for inflation through 2000.
Year
2001
2002
Combined Cost Estimates for
Closure and Post-Closure Care ($)
230,500
Inflation Factor '/
' - ,- >:$; '' ' --''. ,/ '
--
Confirm that the penal sum of the performance bond is at least equal to the current cost
estimates for closure and post-closure care for both of Nigro's facilities.
Using the checklist provided, determine whether the surety bond meets all regulatory
requirements specified under Subtitle C of RCRA for both of Nigro's TSDFs.
Identify any regulatory deficiencies that would render Nigro noncompliant with financial
assurance requirements for closure and post-closure care.
YES NO
12£l I—I Does the surety bond use wording identical to that specified in 40 CFR 264.15 l(c)? (40
CFR 264.143(c)(2) and 40 CFR 265.145(c)(2))
I—I I—I Is the surety company listed as "acceptable" in Circular 570 of the U.S. Department of the
Treasury? (40 CFR 264.143(c)(l) and 40 CFR 264.145(c)(l))
I—I I—I In addition to obtaining the surety bond, has the owner or operator established a standby
trust fund? (40 CFR 264.143(c)(3) and 40 CFR 264.145(c)(3))
I—I Has the owner or operator submitted a signed duplicate of the standby trust agreement with
the surety bond? (40 CFR 264.143(c)(3)(i) and 40 CFR 264.145(c)(3)(i))
I—I I—I Is the penal sum of the bond at least equal to sum of all the currentcost estimates for closure
and post-closure care? (40 CFR 264.143(c)(6) and 40 CFR 264.145(c)(6))
If a performance bond is used, are all facilities covered by the bond permitted facilities?
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PERFORMANCE BOND
Date bond executed: June 30, 2000
Effective date: June 30, 2000
Principal: Nigro Liquid Waste Company, 1451 Industrial Ave., Newark, N.J.
Type of Organization: Corporation
State of incorporation: Delaware
Surety(ies): Indiana Lumbermens Mutual Insurance Company, P.O. Box 68600,
Indianapolis, IN 46268-1168
EPA Identification Number, name, address and closure and/or post-closure amount(s) for each facility
guaranteed by this bond:
Nigro Liquid Waste Company
Newark Facility #1
1451 Industrial Ave.
Newark, N.J.
NJD-567-123-456
Cost Estimate for Closure: $45,000
Nigro Liquid Waste Company
Newark Facility #2
123 Waterworks Lane
Newark, N.J.
NJD-432-109-876
Cost Estimate for Closure: $135,000
Cost Estimate for Post-Closure Care: $95,500
Total penal sum of bond: $290,000
Surety's bond number: 987654
PARTICIPANT NOTE: THIS PERFORMANCE BOND CONTAINS WORDING IDENTICAL TO THAT SPECIFIED IN
40 CFR264.15KC)
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Know All Persons By These Presents, That we, the Principal and Surety(ies) hereto are firmly bound
to the New Jersey Department of Environmental Protection and Energy (hereinafter called the department),
in the above penal sum for the payment of which we bind ourselves, our heirs, executors, administrators,
successors, and assigns jointly and severally; provided that, where the Surety(ies) are corporations acting
as co-sureties, we, the Sureties, bind ourselves in such sum "jointly and severally" only for the purpose of
allowing a joint action or actions against any or all of us, and for all other purposes each Surety binds itself,
jointly and severally with the Principal, for the payment of such sum only as is set forth opposite the name
of such Surety, but if no limit of liability is indicated, the limit of liability shall be the full amount of the
penal sum.
Whereas said Principal is required, under the Resource Conservation and Recovery Act as amended
(RCRA), to have a permit in order to own or operate each hazardous waste management facility identified
above, and
Whereas said Principal is required to provide financial assurance for closure, or closure and post-
closure care, as a condition of the permit, and
Whereas said Principal shall establish a standby trust fund as is required when a surety bond is used
to provide such financial assurance;
Now, Therefore, the conditions of this obligation are such that if the Principal shall faithfully
perform closure, whenever required to do so, of each facility for which this bond guarantees closure, in
accordance with the closure plan and other requirements of the permit as such plan and permit may be
amended, pursuant to all applicable laws, statutes, rules, and regulations, as such laws, statutes, rules, and
regulations may be amended,
And, if the Principal shall faithfully perform post-closure care of each facility for which this bond
guarantees post-closure care, in accordance with the post-closure plan and other requirements of the permit,
as such plan and permit may be amended, pursuant to all applicable laws, statutes, rules, and regulations, as
such laws, statutes, rules, and regulations may be amended,
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Or, if the Principal shall provide alternate financial assurance as specified in subpart H of 40 CFR
part 264, and obtain the department's written approval of such assurance, within 90 days after the date notice
of cancellation is received by both the Principal and the department from the Surety(ies), then this obligation
shall be null and void, otherwise it is to remain in full force and effect.
The Surety(ies) shall become liable on this bond obligation only when the Principal has failed to
fulfill the conditions described above.
Upon notification by the department that the Principal has been found in violation of the closure
requirements of 40 CFR part 264 for a facility for which this bond guarantees performance of closure, the
Surety(ies) shall either perform closure in accordance with the closure plan and other permit requirements
or place the closure amount guaranteed for the facility into the standby trust fund as directed by the
department.
Upon notification by the department that the Principal has been found in violation of the post-closure
requirements of 40 CFR part 264 for a facility for which this bond guarantees performance of post-closure
care, the Surety(ies) shall either perform post-closure care in accordance with the post-closure plan and other
permit requirements or place the post-closure amount guaranteed for the facility into the standby trust fund
as directed by the department.
Upon notification by the department that the Principal has failed to provide alternate financial
assurance as specified in subpart H of 40 CFR part 264, and obtain written approval of such assurance from
the department during the 90 days following receipt by both the Principal and the department of a notice of
cancellation of the bond, the Surety (ies) shall place funds in the amount guaranteed for the facility(ies) into
the standby trust fund as directed by the department.
The Surety(ies) hereby waive(s) notification of amendments to closure plans, permits, applicable
laws, statutes, rules, and regulations and agrees that no such amendment shall in any way alleviate its (their)
obligation on this bond.
The liability of the Surety(ies) shall not be discharged by any payment or succession of payments
hereunder, unless and until such payment or payments shall amount in the aggregate to the penal sum of the
bond, but in no event shall the obligation of the Surety(ies) hereunder exceed the amount of said penal sum.
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The Surety(ies) may cancel the bond by sending notice of cancellation by certified mail to the owner
or operator and to the department, provided, however, that cancellation shall not occur during the 120 days
beginning on the date of receipt of the notice of cancellation by both the Principal and the department, as
evidenced by the return receipts.
The principal may terminate this bond by sending written notice to the Surety(ies), provided,
however, that no such notice shall become effective until the Surety(ies) receive(s) written authorization for
termination of the bond by the. department.
Principal and Surety(ies) hereby agree to adjust the penal sum of the bond yearly so that it guarantees
a new closure and/or post-closure amount, provided that the penal sum does not increase by more than 20
percent in any one year, and no decrease in the penal sum takes place without the written permission of the
department.
In Witness Whereof, the Principal and Surety(ies) have executed this Performance Bond and have
affixed their seals on the date set forth above.
The persons whose signatures appear below hereby certify that they are authorized to execute this
surety bond on behalf of the Principal and Surety(ies) and that the wording of this surety bond is identical
to the wording specified in 40 CFR 264.151 (c) as such regulation was constituted on the date this bond was
executed.
PRINCIPAL
Arthur Nigro
President, Nigro Liquid Waste Company
CORPORATE SURETY(IES)
Indiana Lumbermens Mutual Insurance Company
State of incorporation: Indiana
Liability Limit: $2,524,000
Michael Knox
Underwriter, Indiana Lumbermens Mutual Insurance Company
Bond premium: $29,000
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TRUST AGREEMENT
Trust Agreement, the "Agreement," entered into as of June 30, 2000 by and between Nigro Liquid
Waste Company, a Delaware corporation, the "Grantor," and First Fidelity Bank and Trust, incorporated in
the State of Delaware, the "Trustee."
Whereas, the New Jersey Department of Environmental Protection and Energy (DEPE) a department
of the State of New Jersey, has established certain regulations applicable to the Grantor, requiring that an
owner or operator of a hazardous waste management facility shall provide assurance that funds will be
available when needed for closure and/or post-closure care of the facility,
Whereas, the Grantor has elected to establish a trust to provide all or part of such financial assurance
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 and 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 and Cost Estimates. This Agreement pertains to the facilities
and cost estimates identified on attached Schedule A.
PARTICIPANT NOTE: THIS TRUST AGREEMENT CONTAINS WORDING IDENTICAL TO THE WORDING
SPECIFIED IN 40 CFR264.15KAX1)
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Section 3. Establishment of Fund. The Grantor and the Trustee hereby establish a trust fund, the
"Fund," for the benefit of DEPE. The Grantor and the Trustee intend that no third party have access to the
Fund except as herein provided. The Fund is established initially as consisting of the property, which is
acceptable to the Trustee, described in Schedule B attached hereto. Such property 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 established by DEPE.
Section 4. Payment for Closure and Post-Closure Care. The Trustee shall make payments from the
Fund as DEPE shall direct, in writing, to provide for the payment of the costs of closure and/or post-closure
care of the facilities covered by this Agreement. The Trustee shall reimburse the Grantor or other persons
as specified by DEPE from the Fund for closure and post-closure expenditures in such amounts as DEPE
shall direct in writing. In addition, the Trustee shall refund to the Grantor such amounts as DEPE specifies
in writing. Upon refund, such funds shall no longer constitute part of the Fund as defined herein.
Section 5. Payments Comprising the Fund. Payments made to the Trustee for the Fund shall consist
of cash or securities acceptable to the Trustee.
Section 6. Trustee Management. The Trustee shall invest and reinvest the principal and income of
the Fund and keep the Fund invested as a single fund, without distinction between 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;
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(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 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 and 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 8. Express 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 held in the Fund in its own name or in the name of a nominee and
to hold any security in bearer form or in book entry, or to combine certificates representing such securities
with certificates of the same issue held by the Trustee in other fiduciary capacities, or to deposit or arrange
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for the deposit of such securities in a qualified central depositary even though, when so deposited, such
securities may be merged and held in bulk in the name of the nominee of such depositary with other
securities deposited therein by another person, or to deposit or arrange for the deposit of any securities issued
by the United States Government, or any agency or instrumentality thereof, with a Federal Reserve bank,
but the books and records of the Trustee shall at all times show that all such securities are part of the Fund;
(d) To deposit any cash in the Fund in interest-bearing accounts maintained or savings
certificates issued by the Trustee, in its separate corporate capacity, or in any other banking institution
affiliated with the Trustee, to the extent insured by an agency of the Federal or State government; and
(e) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against or in
respect of the Fund and all brokerage commissions incurred by the Fund shall be paid from the Fund. All
other expenses incurred by the Trustee in connection with the administration of this Trust, including fees for
legal services rendered to the Trustee, the compensation of the Trustee to the extent not paid directly by the
Grantor, and all other proper charges and disbursements of the Trustee shall be paid from the Fund.
Section 10. Annual Valuation. The Trustee shall annually, at least 30 days prior to the anniversary
date of establishment of the Fund, furnish to the Grantor and to DEPE a statement confirming the value of
the Trust. Any securities in the Fund shall be valued at market value as of no more than 60 days prior to the
anniversary date of establishment of the Fund. The failure of the Grantor to object in writing to the Trustee
within 90 days after the statement has been furnished to the Grantor and DEPE shall constitute a conclusively
binding assent by the Grantor, barring the Grantor from asserting any claim or liability against the Trustee
with respect to matters disclosed in the statement.
Section 11. Advice of Counsel. The Trustee may from time to time consult with counsel, who may
be counsel to the Grantor, with respect to any question arising as to the construction of this Agreement or
any action to be taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in
acting upon the advice of counsel.
Section 12. Trustee Compensation. The Trustee shall be entitled to reasonable compensation for
its services as agreed upon in writing from time to time with the Grantor.
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Section 13. 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's 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 or 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, DEPE, 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 14. Instructions to the Trustee. All orders, requests, and instructions by the Grantor 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 amendment to Exhibit A. The Trustee shall be fully protected
in acting without inquiry in accordance with the Grantor's orders, requests, and instructions. All orders,
requests, and instructions by DEPE to the Trustee shall be in writing, signed by the state directors of the
States in which the facilities are located, or their designees, and the Trustee shall act and shall be fully
protected in acting in accordance with such 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 DEPE 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 DEPE, except as provided for herein.
Section 15. Notice ofNonpayment. The Trustee shall notify the Grantor and DEPE, by certified mail
within 10 days following the expiration of the 30-day period after the anniversary of the establishment of
the Trust, if no payment is received from the Grantor during that period. After the pay-in period is
completed, the Trustee shall not be required to send a notice of nonpayment.
Section 16. Amendment of Agreement. This Agreement may be amended by an instrument in writing
executed by the Grantor, the Trustee, and DEPE, or by the Trustee and DEPE if the Grantor ceases to exist.
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Section 17. Irrevocability and Termination. Subject to the right of the parties to amend this
Agreement as provided in Section 16, this Trust shall be irrevocable and shall continue until terminated at
the written agreement of the Grantor, the Trustee, and DEPE, or by the Trustee and DEPE, if the Grantor
ceases to exist. Upon termination of the Trust, all remaining trust property, less final trust administration
expenses, shall be delivered to the Grantor.
Section 18. 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 or DEPE 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 19. Choice of Law. This Agreement shall be administered, construed, and enforced
according to the laws of the State of New Jersey.
Section 20. 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
be not affect the interpretation or 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(a)(l) as such regulations were constituted on the date first above written.
President, Nigro Liquid Waste Company
Attest:
Vice President, Nigro Liquid Waste Company
Attest:
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Vice President, First Fidelity Bank and Trust
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CERTIFICATION OF ACKNOWLEDGMENT
State of New Jersey
County of Union
On this June 30,2000, before me personally came Arthur Nigro to me known, who, being by me duly sworn,
did depose and say that he resides at 102 Maple Ave., Newark, New Jersey, that he is President of Nigro
Liquid Waste Company, the corporation described in and which executed the above instrument; that 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 he signed his name thereto by like
order.
PARTICIPANT NOTE: THIS CERTIFICATION OF ACKNOWLEDGMENT CONTAINS WORDING IDENTICAL TO
THAT SPECIFIED IN 40 CFR264.15KAX2)
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SCHEDULE A
Nigro Liquid Waste Company
Newark Facility #1
1451 Industrial Ave.
Newark, N.J.
EPA ID No. NJD-567-123-456
Cost Estimate for Closure: $45,000
Nigro Liquid Waste Company
Newark Facility #2
123 Waterworks Lane
Newark, N.J.
EPA ID No. NJD-432-109-876
Cost Estimate for Closure: $135,000
Cost Estimate for Post-Closure Care: $95,500
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SCHEDULE B
The trust fund initially consists of $ 1 in cash.
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EXHIBIT A
Arthur Nigro President and CEO
Paul Nigro Vice President in Charge of Operations
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REQUIRED WORDING FOR SURETY BONDS
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FINANCIAL GUARANTEE BOND
Date bond executed:
Effective date:
Principal: [legal name and business address of owner or operator]
Type of Organization: [insert "individual," "joint venture," "partnership," or "corporation"]
State of incorporation:
Surety(ies): [name(s) and business address(es)]
EPA Identification Number, name, address and closure and/or post-closure amount(s) for each facility
guaranteed by this bond [indicate closure and post-closure amounts separately]:
Total penal sum of bond: $
Surety's bond number: ^__
Know All Persons By These Presents, That we, the Principal and Surety(ies) hereto are firmly bound
to the U.S. Environmental Protection Agency (hereinafter called EPA), in the above penal sum for the
payment of which we bind ourselves, our heirs, executors, administrators, successors, and assigns jointly and
severally; provided that, where the Surety(ies) are corporations acting as co-sureties, we, the Sureties, bind
ourselves in such sum "jointly and severally" only for the purpose of allowing ajoint action or actions against
any or all of us, and for all other purposes each Surety binds itself, jointly and severally with the Principal, for
the payment of such sum only as is set forth opposite the name of such Surety, but if no limit of liability is
indicated, the limit of liability shall be the full amount of the penal sum.
Whereas said Principal is required, under the Resource Conservation and Recovery Act as amended
(RCRA), to have a permit or interim status in order to own or operate each hazardous waste management
facility identified above, and
Whereas said Principal is required to provide financial assurance for closure, or closure and post-
closure care, as a condition of the permit or interim status, and
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Whereas said Principal shall establish a standby trust fund as is required when a surety bond is used
to provide such financial assurance;
Now, Therefore, the conditions of the obligation are such that if the Principal shall faithfully, before
the beginning of final closure of each facility identified above, fund the standby trust fund in the amount(s)
identified above for the facility,
Or, if the Principal shall fund the standby trust fund in such amount(s) within 15 days after a final
order to begin closure is issued by an EPA Regional Administrator or a U.S. district court or other court of
competent jurisdiction.
Or, if the Principal shall provide alternate financial assurance, as specified in subpart H of 40 CFR
part 264 or 265, as applicable, and obtain the EPA Regional Administrator's written approval of such
assurance, within 90 days after the date notice of cancellation is received by both the Principal and the EPA
Regional Administrator(s) from the Surety(ies), then this obligation shall be null and void; otherwise it is to
remain in full force and effect.
The Surety(ies) shall become liable on this bond obligation only when the Principal has failed to fulfill
the conditions described above. Upon notification by an EPA Regional Administrator that the Principal has
failed to perform as guaranteed by this bond, the Surety(ies) shall place funds in the amount guaranteed for
the facility(ies) into the standby trust fund as directed by the EPA Regional Administrator.
The liability of the Surety(ies) shall not be discharged by any payment or succession of payments
hereunder, unless and until such payment or payments shall amount in the aggregate to the penal sum of the
bond, but in no event shall the obligation of the Surety(ies) hereunder exceed the amount of said penal sum.
The Surety(ies) may cancel the bond by sending notice of cancellation by certified mail to the
Principal and to the EPA Regional Administrator(s) for the Region(s) in which the facility(ies) is (are) located,
provided, however, that cancellation shall not occur during the 120 days beginning on the date of receipt of
the notice of cancellation by both the Principal and the EPA Regional Administrator(s), as evidenced by the
return receipts.
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The Principal may terminate this bond by sending written notice to the Surety(ies), provided, however,
that no such notice shall become effective until the Surety(ies) recei ve(s) written authorization for termination
of the bond by the EPA Regional Administrator(s) of the EPA Region(s) in which the bonded facility(ies) is
(are) located.
[The following paragraph is an optional rider that may be included but is not required.]
Principal and Surety(ies) hereby agree to adjust the penal sum of the bond yearly so that it guarantees
a new closure and/or post-closure amount, provided that the penal sum does not increase by more than 20
percent in any one year, and no decrease in the penal sum takes place without the written permission of the
EPA Regional Administrator(s).
In Witness Whereof, the Principal and Surety(ies) have executed this Financial Guarantee Bond and
have affixed their seals on the date set forth above.
The persons whose signatures appear below hereby certify that they are authorized to execute this
surety bond on behalf of the Principal and Surety(ies) and that the wording of this surety bond is identical to
the wording specified in 40 CFR 264.151 (b) as such regulations were constituted on the date this bond was
executed.
PRINCIPAL
[Signature(s)]
[Name(s)]
[Title(s)]
[Corporate seal]
CORPORATE SURETY(IES)
[Name and address]
State of incorporation:
Liability Limit: $
[Signature(s)]
[Name(s) and title(s)]
[Corporate seal]
[For every co-surety, provide signature(s), corporate seal, and other information in the same manner as for
Surety above.]
Bond premium: $
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PERFORMANCE BOND
Date bond executed:
Effective date:
Principal: [legal name and business address of owner or operator]
Type of Organization: [insert "individual," "joint venture," "partnership," or "corporation"]
State of incorporation:
Surety(ies): [name(s) and business address(es)]
EPA Identification Number, name, address and closure and/or post-closure amount(s) for each facility
guaranteed by this bond [indicate closure and post-closure amounts separately]:
Total penal sum of bond: $
Surety's bond number:
Know All Persons By These Presents, That we, the Principal and Surety(ies) hereto are firmly bound
to the U.S. Environmental Protection Agency (hereinafter called EPA), in the above penal sum for the
payment of which we bind ourselves, our heirs, executors, administrators, successors, and assigns jointly and
severally; provided that, where the Surety(ies) are corporations acting as co-sureties, we, the Sureties, bind
ourselves in such sum "jointly and severally" only for the purpose of allowing a joint action or actions against
any or all of us, and for all other purposes each Surety binds itself, jointly and severally with the Principal, for
the payment of such sum only as is set forth opposite the name of such Surety, but if no limit of liability is
indicated, the limit of liability shall be the full amount of the penal sum.
Whereas said Principal is required, under the Resource Conservation and Recovery Act as amended
(RCRA), to have a permit in order to own or operate each hazardous waste management facility identified
above, and
Whereas said Principal is required to provide financial assurance for closure, or closure and post-
closure care, as a condition of the permit, and
-------
Whereas said Principal shall establish a standby trust fund as is required when a surety bond is used
to provide such financial assurance;
Now, Therefore, the conditions of this obligation are such that if the Principal shall faithfully perform
closure, whenever required to do so, of each facility for which this bond guarantees closure, in accordance
with the closure plan and other requirements of the permit as such plan and permit may be amended, pursuant
to all applicable laws, statutes, rules, and regulations, as such laws, statutes, rules, and regulations may be
amended,
And, if the Principal shall faithfully perform post-closure care of each facility for which this bond
guarantees post-closure care, in accordance with the post-closure plan and other requirements of the permit,
as such plan and permit may be amended, pursuant to all applicable laws, statutes, rules, and regulations, as
such laws, statutes, rules, and regulations may be amended,
Or, if the Principal shall provide alternate financial assurance as specified in subpart H of 40 CFR
part 264, and obtain the EPA Regional Administrator's written approval of such assurance, within 90 days
after the date notice of cancellation is received by both the Principal and the EPA Regional Administrator(s)
from the Surety(ies), then this obligation shall be null and void, otherwise it is to remain in full force and effect.
The Surety(ies) shall become liable on this bond obligation only when the Principal has failed to fulfill
the conditions described above.
Upon notification by an EPA Regional Administrator that the Principal has been found in violation
of the closure requirements of 40 CFR part 264 for a facility for which this bond guarantees performance of
closure, the Surety(ies) shall either perform closure in accordance with the closure plan and other permit
requirements or place the closure amount guaranteed for the facility into the standby trust fund as directed
by the EPA Regional Administrator.
Upon notification by an EPA Regional Administrator that the Principal has been found in violation
of the post-closure requirements of 40 CFR part 264 for a facility for which this bond guarantees performance
of post-closure care, the Surety(ies) shall either perform post-closure care in accordance with the post-closure
-------
plan and other permit requirements or place the post-closure amount guaranteed for the facility into the
standby trust fund as directed by the EPA Regional Administrator.
Upon notification by an EPA Regional Administrator that the Principal has failed to provide alternate
financial assurance as specified in subpart H of 40 CFR part 264, and obtain written approval of such
assurance from the EPA Regional Administrator(s) during the 90 days following receipt by both the Principal
and the EPA Regional Administrator(s) of a notice of cancellation of the bond, the Surety(ies) shall place
funds in the amount guaranteed for the facility(ies) into the standby trust fund as directed by the EPA
Regional Administrator.
The Surety(ies) hereby waive(s) notification of amendments to closure plans, permits, applicable laws,
statutes, rules, and regulations and agrees that no such amendment shall in any way alleviate its (their)
obligation on this bond.
The liability of the Surety(ies) shall not be discharged by any payment or succession of payments
hereunder, unless and until such payment or payments shall amount in the aggregate to the penal sum of the
bond, but in no event shall the obligation of the Surety(ies) hereunder exceed the amount of said penal sum.
The Surety(ies) may cancel the bond by sending notice of cancellation by certified mail to the owner
or operator and to the EPA Regional Administrator(s) for the Region(s) in which the facility(ies) is (are)
located, provided, however, that cancellation shall not occur during the 120 days beginning on the date of
receipt of the notice of cancellation by both the Principal and the EPA Regional Administrator(s), as
evidenced by the return receipts.
The principal may terminate this bond by sending written notice to the Surety(ies), provided, however,
that no such notice shall become effective until the Surety(ies) recei ve(s) written authorization for termination
of the bond by the EPA Regional Administrator(s) of the EPA Region(s) in which the bonded facility(ies) is
(are) located.
[The following paragraph is an optional rider that may be included but is not required.]
-------
Principal and Surety(ies) hereby agree to adjust the penal sum of the bond yearly so that it guarantees
a new closure and/or post-closure amount, provided that the penal sum does not increase by more than 20
percent in any one year, and no decrease in the penal sum takes place without the written permission of the
EPA Regional Administrator(s).
In Witness Whereof, the Principal and Surety(ies) have executed this Performance Bond and have
affixed their seals on the date set forth above.
The persons whose signatures appear below hereby certify that they are authorized to execute this
surety bond on behalf of the Principal and Surety(ies) and that the wording of this surety bond is identical to
the wording specified in 40 CFR 264.151(c) as such regulation was constituted on the date this bond was
executed.
PRINCIPAL
[Signature(s)]
[Name(s)]
[Title(s)]
[Corporate seal]
CORPORATE SURETY(ffiS)
[Name and address]
State of incorporation:
Liability Limit: $
[Signature(s)]
[Name(s) and title(s)]
[Corporate seal]
[For every co-surety, provide signature(s), corporate seal, and other information in the same manner as for
Surety above.]
Bond premium: $
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PAYMENT BOND
Surety Bond No. [Insert number]
Parties [Insert name and address of owner or operator], Principal, incorporated in [Insert State of
incorporation] of [Insert city and State of principal place of business] and [Insert name and address of surety
company(ies)], Surety Company(ies), of [Insert surety(ies) place of business].
EPA Identification Number, name, and address for each facility guaranteed by this bond:
Penal Sum Per Occurrence
Annual Aggregate
Sudden accidental
occurrences
[insert amount]
[insert amount]
Nonsudden accidental
occurrences
[insert amount]
[insert amount]
Purpose: This is an agreement between the Surety(ies) and the Principal under which the Surety(ies),
its(their) successors and assignees, agree to be responsible for the payment of claims against the Principal
for bodily injury and/or property damage to third parties caused by ["sudden" and/or "nonsudden"] accidental
occurrences arising from operations of the facility or group of facilities in the sums prescribed herein; subject
to the governing provisions and the following conditions:
Governing Provisions:
(1) Section 3004 of the Resource Conservation and Recovery Act of 1976, as amended.
(2) Rules and regulations of the U.S. Environmental Protection Agency (EPA), particularly 40 CFR ["§
264.147" or "§ 265.147"] (if applicable).
(3) Rules and regulations of the governing State agency (if applicable) [insert citation].
Conditions:
(1) The Principal is subject to the applicable governing provisions that require the Principal to have and
maintain liability coverage for bodily injury and property damage to third parties caused by ["sudden"
-------
and/or "nonsudden"] accidental occurrences arising from operations of the facility or group of
facilities. Such obligation 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.
(b) Any obligation of [insert principal] under a workers' compensation, disability benefits, or
unemployment compensation law or 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.
(2) This bond assures that the Principal will satisfy valid third party liability claims, as described in
condition 1.
-------
(3) If the Principal fails to satisfy a valid third party liability claim, as described above, the Surety(ies)
becomes liable on this bond obligation.
(4) The Surety(ies) shall satisfy a third party liability claim only upon the 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 name of 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 $[ ].
[Signature]
Principal
[Notary] Date
[Signature(s)]
Claimant(s)
[Notary] Date
or (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.
(5) In the event of combination of this bond with another mechanism for liability coverage, this bond
will be considered [insert "primary" or "excess"] coverage.
(6) the liability of the Surety(ies) shall not be discharge by any payment or succession of payments
hereunder, unless and until such payment or payments shall amount in the aggregate to the penal sum of the
bond. In no event shall the obligation of the Surety(ies) hereunder exceed the amount of said annual
-------
aggregate penal sum, provided that the Surety(ies) fumish(es) notice to the Regional Administrator forthwith
of all claims filled and payments made by the Surety(ies) under this bond.
(7) The Surety(ies) may cancel the bond by sending notice of cancellation by certified mail to the
Principal and the USEPA Regional Administrator for Region [Region #], provided, however, that cancellation
shall not occur during the 120 days beginning on the date of receipt of the notice of cancellation by the
Principal and the Regional Administrator, as evidenced by the return receipt.
(8) The Principal may terminate this bond by sending written notice to the Surety(ies) and to the EPA
Regional Administrator(s) of the EPA Region(s) in which the bonded facility(ies) is (are) located.
(9) The Surety(ies) hereby waive(s) notification of amendments to applicable laws, statutes, rules
and regulations and agree(s) that no such amendment shall in any way alleviate its (their) obligation on this
bond.
(10) This bond is effective from [insert date] (12:01 a.m., standard time, at the address of the
Principal as stated herein) and shall continue in force until terminated as described above.
In Witness Whereof, the Principal and Surety(ies) have executed this bond and have affixed their
seals on the date set forth above.
The persons whose signatures appear below hereby certify that they are authorized to execute this
surety bond on behalf of the Principal and Surety(ies) and that the wording of this surety bond is identical to
the wording specified in 40 CFR 264.151 (1), as such regulations were constituted on the date this bond was
executed.
PRINCIPAL
[Signature(s)]
[Name(s)]
[Title(s)]
[Corporate Seal]
CORPORATE SURETY(IES)
-------
[Name and address]
State of incorporation:
Liability Limit: $
[Signature(s)]
[Name(s) and title(s)]
[Corporate seal]
[For every co-surety, provide signature(s), corporate seal, and other information in the same manner as for
Surety above.]
Bond premium: $
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5-1
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Module 5:
RCRA Subtitle C and Subtitle D
Insurance f
EPA
5-1
Notes:
This module describes the requirements for using insurance to demonstrate financial assurance
under Subtitle C and Subtitle D of RCRA. This module also includes key issues related to the
review of insurance submissions obtained from owners or operators.
5-7
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Module 5: RCRA Subtitle C and Subtitle D Insurance
This Module Includes
4 Overview of regulatory requirements
* Comparison of Subtitle C and Subtitle D
requirements
+ Characteristics of insurance policies
+ Key Implementation Issues
» Review of insurance policies
» Use of captive insurance
EPA
5-2
Notes:
5-2
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Module 5: RCRA Subtitle C and Subtitle D Insurance
Characteristics of Insurance for
Closure and Post-Closure Care
4 Insurance is a contractual arrangement under
which the insurer agrees to compensate the
policyholder for losses
* The insurer agrees to reimburse providers of
closure and post-closure care
+The owner or operator pays premiums to the
insurer
insurer's liability is limited to the face value
of the policy
continued...
EPA
5-3
Notes:
The purchase of insurance transfers financial risk from the policyholder to the insurer.
The policy ensures payment of the costs of closure and post-closure care, regardless of
whether the owner or operator is able to pay such costs.
The face value of the insurance policy must be at least equal to the sum of the current estimates
of the costs of closure and post-closure care.
5-5
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Module 5: RCRA Subtitle C and Subtitle D Insurance
Characteristics of Insurance for
Closure and Post-Closure Care
Insurance policies for closure and post-closure
care must:
» Provide an option for automatic renewal at the
face amount of the expiring policy
» Ensure that the insurer may not cancel the
policy, except for failure to pay the premium
» Contain a provision that allows assignment of
the policy to a successor owner or operator
EPA
5-4
Notes:
Insurance policies for closure and post-closure care must:
- Ensure that funds will be made available to conduct activities necessary for closure or
post-closure care when final closure occurs or the period of post-closure care begins
- Ensure that the insurer will pay out funds, up to the face value of the policy, to the
owner or operator or to other persons authorized to conduct closure or post-closure
care
State regulators must ensure that policies are legal and enforceable in the state for the facilities
covered in the policy.
5-4
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Insurance, a Three-Party Agreement
• Insurer (insurance company)
• Insured (owner or operator)
Beneficiary (state director)
5-5
Notes:
Insurer (insurance company) — Promises payment of the costs of closure and post-closure
care on behalf of a second party, called the "insured".
Insured (owner or operator) — Must perform closure and post-closure care as directed by a
third party, called the "beneficiary".
Beneficiary (state director) — If the owner or operator fails to perform closure or post-closure
care as required, may request that payments under the insurance policy be made to specified
parties to complete the necessary activities.
5-5
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Requirements of the Insurer
insurer must meet either of the following
requirements: r
» Licensed to transact the business of insurance
in one or more states .
» Eligible to provide insurance as an excess or
surplus lines insurer in one or more states
EPA
5-6
Notes:
Insurers may review owners or operators financial statements or insist on an on-site engineering
assessment prior to issuing insurance.
An insurance company does not have to be licensed in the state that the facility is located to
underwrite insurance for that facility provided that: (1) they are eligible to write insurance in that
state as an excess or surplus lines basis, and (2) due diligence is performed to ensure that no
insurer licensed in the state can be found that is willing to underwrite the coverage.
5-6
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Module 5: RCRA Subtitle C and Subtitle D Insurance
Required Documentation
owner or operator under Subtitle C must
submit a certificate of insurance to the state
director ;
owner or operator under Sutitle D must
notify the state director that a copy of the
insurance policy has been placed in the facility's
operating record
EPA
5-7
Notes:
Under Subtitle C, the certificate must be worded exactly as specified in 40 CFR 264.151(e).
The certificate is separate from the policy and is used as evidence that an insurance contract has
been arranged.
Under both Subtitle C and Subtitle D regulations, the owner or operator must submit a
duplicate original of the policy, including all endorsements, whenever requested by the state
director (photocopy with original signatures).
Although there is no required wording for the certificate of insurance under the Subtitle D
program, EPA expects that states will use the Subtitle C required wording as a starting point to
develop state-specific required wording.
5-7
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Module 5: RCRA Subtitle C and Subtitle D Insurance
Reimbursement for Expenditures
+ Owners or operators may request and receive
reimbursement for closure or post-closure care
expenditures
+Actual payments do not change the face value of
the policy, but do reduce the insurer's overall
liability ?
EPA
5-8
Notes:
An owner or operator, or any other person authorized to conduct closure or post-closure care,
may receive reimbursement for expenditures by submitting itemized bills to the state director.
Actual payments made by the insurer will not change the face value of the policy, although the
insurer's future liability will be decreased by the amount of the payments.
Under Subtitle C, requests for reimbursement will be granted within 60 days if the remaining
value of the policy is sufficient to cover the remaining costs of closure and post-closure care.
Under Subtitle D, the owner or operator must notify the state director that documentation
justifying the reimbursement has been placed in the facility's operating record and that the
reimbursement has been received.
Under Subtitle D, requests for reimbursements will be granted by the insurer if justification and
documentation of the cost are placed in the facility's operating record.
5-8
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Maintenance of Coverage During
Post-Closure Care
*• During post-closure, the insurer must annually
increase the policy's face value \
: • ' "V •',
+ Annual increase must be:
» Face value less any payments x 85' percent of
investment rate or equivalent coupon-issue
yield for 26-week Treasury securities
* Reductions in the face value of the policy are not
permitted during post-closure
EPA
5-9
Notes:
During the post-closure care period, the insurer must increase the face value of the policy
annually.
The annual increase must be equal to the face value of the policy, less any payments by the
insurer for expenses for post-closure care, multiplied by an amount equal to 85 percent of the
most recent investment rate or the equivalent coupon-issue yield announced by the U.S.
Treasury for 26-week Treasury securities. Under Subtitle D, post-closure care cost estimates
also must be adjusted for inflation during the post-closure care period. Under Subtitle D, the
method for adjusting the cost estimate that generates the highest cost estimate should be used.
Reductions in the face value of the insurance policy during the post-closure care period are not
allowed, even if the face value exceeds the estimate of the cost of post-closure care.
The most recent investment rate for 26-week U.S. Treasury securities can be found in:
- The "Money and Investing" section of the Wall Street Journal
- The business sections of most major newspapers
The most recent investment rate or equivalent coupon-issue yield for 26-week U.S. Treasury
securities also may be obtained by contacting the U.S. Treasury Department:
Bureau of the Public Debt, (202) 874-4000
Office of Finance, (202) 219-3350
5-9
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Cancellation of Insurance Coverage
The insurer may cancel the policy only if the premium is
not paid
The policy may not be canceled when, on or before the
date of expiration:
» The state director deems the facility abandoned
» The state director terminates interim status under
Subtitle C
» The state director or the courts order closure
» The owner or operator is named as a debtor in a Title
1 1 bankruptcy proceeding
EPA
5-10
Notes:
If the premium is not paid, the insurer may cancel the policy by sending notice of cancellation by
certified mail to the owner or operator and to the state director 120 days in advance of
cancellation.
5-70
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Module 5: RCRA Subtitle C and Subtitle D Insurance
Notes:
Key Implementation Issues: Review
of Insurance Policies
• Regulators should always request a copy of the
policy
\
Insurance policies should be reviewed for
irregularities, including: ,
» Excessively large deductibles
» Scope of exclusions
» Filing requirements
» Presence of "claims-made" policy
EPA
5-11
Each insurance policy is crafted using specific language for each type of coverage. There is no
specific wording for insurance policies (wording is only provided for the certificate of
insurance). Insurance policies should be reviewed by competent personnel who are familiar
with the terminology and practices of the insurance business.
5-77
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Key Implementation Issues:
Captive Insurance
T*"^^
4Captive insurance companies ofteaafe wholly f
owned subsidiaries, formed exclusively tbjnsure/,
the exposures of their parent organizations'
<\
4The use of captive insurance is not prohibited^ t,,f
under RCRA
- /**> - •>
Captive insurance policies may not allow ;{
assignment of the policy to a successor owner or
operator V .
\ -
continued...
5-12
Notes:
By using captive insurance to fulfill requirements for financial assurance, owners and operators:
- Avoid the substantial costs of obtaining alternative third-party mechanisms
- Establish "self-assurance" without meeting the requirements of the financial test
Although captive insurance is not prohibited under RCRA, some states have made decisions to
deny captive insurance policies on a case-by-case basis. In addition, the Commonwealth of
Virginia recently passed legislation that disallows captive insurance policies to be used to
demonstrate RCRA financial assurance.
5-72
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Module 5: RCRA Subtitle C and Subtitle D Insurance
Key Implementation Issues:
Captive Insurance
use of captive insurance to emonstrate
financial assurance may be inappropriate
because: f
•X.
» Captive insurance companies are held within
the same corporate family as the owner or
operator : V ^"''-'x, *'"•:•• ' ;'; , '''•', . . '
» Captives may be undercapitalized or have
insufficient reserves
»The financial soundness of a captive can be
only as good as that of its parent corporation
EPA '• •'"•••••/ -'^-.' ^.. •'.' •'•'
513
Notes:
Captive insurance companies may have relatively small amounts of cash or collateral on hand as
compared with their environmental obligations such as closure or post-closure care.
Under Subtitle C, regulators may use their omnibus authority to require permit conditions as
necessary to project human health and the environment, including permit conditions to address
captive insurance.
Under Subtitle D, states may wish to change their regulations to prohibit captive insurance.
5-73
-------
Module 5: RCRA Subtitle C and Subtitle D Insurance
Summary of the Module
Insurance ensures payment of closure and post-
closure care costs, regardless of whether the
owner or operator is able to pay
insurer may not cancel an insurance policy
for closure and post-closure care, except for :
failure to pay the premium
+ Owners and operators of Subtitle C and Subtitle D
facilities have begun to submit certificates of
insurance from captive insurance companies
EPA
5-14
Notes:
5-14
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INSURANCE CASE STUDY
-------
CASE STUDY - INSURANCE FOR CLOSURE
AND POST-CLOSURE CARE
(15 minutes)
Background
PDQ Industries, Inc. (PDQ) operates a small hazardous waste treatment facility in Great Bend, Kansas. The
PDQ facility, which opened in 2000, treats different types of hazardous wastes generated during the
manufacture of industrial laundering equipment. To fulfill requirements under Subtitle C of RCRA for
financial assurance for closure, PDQ purchased an insurance policy from Maple Insurance Co. (Maple) in
2000. PDQ's financial assurance file was last reviewed by the Kansas Department of Health and Environment
in 2001. In 2000, the facility's closure cost estimate was $30,195. Maple, which is headquartered in
Hartford, Connecticut, recently was licensed to transact the business of insurance in the states of Georgia,
Ohio, and Rhode Island.
Instructions for Workshop Participants
Analyze the background information provided above and PDQ's certificate of insurance for
closure and post-closure care to determine whether PDQ is in compliance with requirements
under Subtitle C of RCRA for using insurance to demonstrate financial assurance for closure
and post-closure care.
Using the proper inflation factors, adjust the cost estimate for closure for PDQ's TSDF.
$ - '
Year' -
2000
2001
2002
Closure Cost Estiiriate<($) ,
30,195
,•"//: Inflation Factors
—
Confirm that the current level of insurance coverage is at least equal to the current estimate
of the cost of closure of PDQ's TSDF.
Using the checklist provided, determine whether the insurance coverage meets all regulatory
requirements specified under Subtitle C of RCRA for PDQ's TSDF.
Identify and note any deficiencies that would render PDQ noncompliant with requirements
under Subtitle C of RCRA for financial assurance for closure.
-------
YES NO
I—I LJ Has a certificate of insurance been submitted, as specified in 40 CFR
264.143(e)(l)/40 CFR 264.145(e)(l) and 40 CFR 265.143(d)(l)/40 CFR
265.145(d)(l)?
LJ I—I Does the certificate of insurance use wording identical to that specified in 40 CFR
264.151(e)?' (40 CFR264.143(e)(2)/40 CFR264.145(e)(2) and 40 CFR
265.143(d)(2)/40 CFR 265.145(d)(2))
5^ LJ Is the insurance policy issued by an insurer that is licensed to transact the business
of insurance or that is eligible to provide insurance as an excess or surplus lines
insurer in one or more states? (40 CFR 264.143(e)(l)/40 CFR 264.145(e)(l) and 40
CFR 265.143(d)(l)/40 CFR 265.145(d)(l))
LJ LJ Has the policy been issued for a face amount at least equal to the current estimates
of the costs of closure and post-closure care? (40 CFR 264.143(e)(3)/40 CFR
264.145(e)(3) and 40 CFR 265.143(d)(3)/40 CFR 265.145(d)(3))
-------
CERTIFICATE OF INSURANCE FOR CLOSURE
OR POST-CLOSURE CARE
Name and Address of Insurer
(herein called the "Insurer"): Maple Insurance Company
100 Corporate Plaza Drive
Hartford, CT
Name and Address of Insured
(herein called the "Insured"): PDQ Industries, Inc.
1200 Laundromat Court
Great Bend, KS
Facilities Covered: PDQ Industries, Inc. - Great Bend Facility
1200 Laundromat Court
Great Bend, KS
KSD-123-456-789
Amount of insurance for closure: $38,000
Face Amount: $38,000
Policy Number: 5678910-01
Effective Date: January 1, 2002
The Insurer hereby certifies that it has issued to the Insured the policy of insurance identified above
to provide financial assurance for closure for the facilities identified above. The Insurer further warrants
that such policy conforms in all respects with the requirements of 40 CFR 264.143(e), 264.145(e),
265.143(d), and 265.145(d), as applicable and as such regulations were constituted on the date shown
immediately below. It is agreed that any provision of the policy inconsistent with such regulations is
hereby amended to eliminate such inconsistency.
I hereby certify that the wording of this certificate is identical to the wording specified in 40 CFR
264.15 l(e) as such regulations were constituted on the date shown immediately below.
Mark Chan
President, Maple Insurance Company
Signature of witness or notary:
January 12, 2002
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6-1
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Module 6:
RCRA Subtitle C and Subtitle D
Financial Tests
EPA
6-1
Notes:
This module describes the structure of various financial tests and their use in complying with
requirements under Subtitle C and Subtitle D of RCRA for financial assurance for closure and
post-closure care. This section also discusses important implementation issues associated with
the use of financial tests by owners or operators of TSDFs and MSWLFs.
6-1
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
This Module Includes
Requirements for:
» Subtitle C financial test
» Subtitle D corporate financial test
» Subtitle D local government financial test
Implementation issues related to use of the financial test
» Evaluation of qualifications arid opinions of
accountants 7 V •
»"Negative assurance" requirement
» Potential pitfalls of allowing use of financial tests
EPA
6-2
Notes:
6-2
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Characteristics of the RCRA
Subtitle C and Subtitle D Financial
Tests
+ Provide "self-assurance"; no third-party
mechanism \
+ Must be updated annually \
+ Costs of closure and post-closure care are not
automatically covered by a third party
* Owner or operator pays no fees or premiums
(except for work performed by CPAs)
+ Typically may be used in conjunction with other
mechanisms
EPA
6-3
Notes:
The financial test provides assurance that an owner or operator can cover the costs of closure
and post-closure care without using a third-party mechanism.
The financial test may be used in combination with other financial mechanisms to cover a
position of an owner's or operator's total financial assurance obligation.
Costs of closure and post-closure care are not covered automatically by a third party.
Although some owners or operators may set aside funds to cover closure or post-closure care
obligations, no funds are required by this mechanism to set aside in anticipation of the costs of
closure or post-closure care.
The owner or operator pays no fees or premiums. However, as discussed later in this module,
the owner or operator will be required as a condition of passing the financial tests to pay for the
development of reports prepared by independent CPAs.
6-3
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Requirements for Subtitle C
Financial Test
4 Owners or operators must meet requirements of:
» Financial component
» Recordkeeping and reporting component
EPA
6-4
Notes:
Under Subtitle C of RCRA, the financial test has two components:
- Financial component
- Recordkeeping and reporting component
To pass the financial test, owners and operators annually must meet the requirements of each
component.
6-4
-------
Notes:
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Financial Component
+ Owners or operators of TSDFs must meet:
»One of two sets of financial criteria ,\
(Alternatives 1 and 2)
»Tangible net worth requirements
» Domestic assets requirement
EPA
6-5
The two sets of financial criteria are referred to as Alternatives 1 and 2.
— For Alternative 1, the owner or operator must (1) meet 2 of 3 financial ratios and (2)
have net working capital at least six times the sum of the current estimates of the costs
of closure and post-closure care.
- For Alternative 2, the owner or operator must demonstrate financial soundness through
investment-grade bond ratings.
6-5
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Financial Component:
Alternative 1
owner or operator must meet two of three
ratios:
»Total liabilities/net worth < 2.0
» Current assets/current liabilities > 1.5
»Net income plus depreciation, depletion, and
amortization/total liabilities > 0.1
continued...
EPA
6-6
Notes:
The ratio of total liabilities to net worth:
— Measures the leverage position of the owner or operator
- Indicates the extent of debt present in the owner's or operator's capital structure
- Must be less than 2.0 to pass the test
The ratio of current assets to current liabilities:
- Measures the liquidity position of the owner or operator
- Evaluates the ability of a firm to meet short-term expenses and other financial
obligations, using such current assets as cash
- Must be greater than 1.5 to pass the test
The ratio of the sum of net income plus depreciation, depletion, and amortization to total
liabilities:
- Measures the solvency position of the owner or operator
- Evaluates a firm's ability to cover its financing charges and debt exposures
- Must be greater than 0.1 to pass the test
6-6
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Financial Component:
Alternative 1
*• Owner or operator also must have net.working
capital of 6 x cost estimates for closure and post-
closure care
*• Net working capital = current assets - current
liabilities
EPA
6-7
Notes:
The net working capital of the owner or operator must be at least six times the sum of the
current cost estimates for closure and post-closure care.
Net working capital is the difference between a firm's current assets and its current liabilities.
The requirement is intended to ensure that the costs of closure and post-closure care will not
force a firm into bankruptcy.
6-7
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Financial Component:
Alternative 2
owner or operator must have a current
investment-grade bond rating of either:
» AAA, AA, A, or BBB, as issued by Standard
and Poor's
or
» Aaa, Aa, A, or Baa, as issued by Moody's
EPA
6-8
Notes:
To verify bond ratings, contact:
Moody's Investment Service (Moody's) at (212) 553-0300
Standard and Poor's Bond Rating Service (S&P's) at (212) 438-2000
Moody's issues bond ratings with a "1", "2", or "3" suffix, and S&P issues bond ratings with a
"+" or "- " suffix. These bond rating suffixes indicate the relative standing of bonds within a
major rating category (e.g., a bond rated as BBB - by S&P has a relatively lower standing than
a BBB or BBB + bond). EPA has determined that all bonds within a given rating category are
considered acceptable (e.g., any bond rated BBB - or higher will meet the requirements for
Alternative 2).
6-8
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Tangible Net Worth
Requirement
* Tangible net worth must be:
ȣ $10 million
» At least 6 x current estimates for closure and
post-closure care
+Tangible net worth = total tangible assets - total
liabilities
EPA
6-9
Notes:
The tangible net worth of the owner or operator must be:
- At least $10 million
- At least six times the sum of the current estimates of the costs of closure and post-
closure care
Tangible net worth is the difference between total assets (minus all intangible assets) and total
liabilities. Intangible assets may include things such as corporate goodwill and rights to patents
and royalties.
6-9
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Domestic Assets
Requirements
4-Owner or operator must have domestic assets of
either:
» 90% of total assets
» Six times the current estimates for closure and
post-closure
EPA
6-10
Notes:
The owner or operator must have assets located in the U.S. equal to either:
- 90 percent of total assets
- Six times the sum of the current estimates of the costs of closure and post-closure care
The requirement is intended to ensure that, in the event of bankruptcy, assets within the United
States can be attached to pay for closure and post-closure care activities.
6-10
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle C Recordkeeping and
Reporting Component
Requires annual submission by owner or /
operator
»CFO's letter
» Report from an independent CPA
» Special report from an independent CPA
EPA
6-11
Notes:
The owner or operator must submit to the state director annually within 90 days after the close
of the firm's fiscal year the following documents:
Chief financial officer's (CFO) letter
- A copy of the independent CPA's report on examination of the owner's or operator's
financial statements for the latest completed fiscal year
- A special report from the owner's or operator's independent CPA
The CFO's letter must:
- Be worded exactly as specified in 40 CFR 264.151 (f) (for closure and post-closure
care) or 264.151(g) (for closure and post-closure care and third-party liability)
- Demonstrate that the owner or operator has complied fully with the financial component
of the test
- List cost estimates for all facilities covered by the financial test
6-77
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Recordkeeping and Reporting
Component: Report from
Independent CPA
Ensures that data in financial statements
correctly represent the owner or operator's
financial condition
Generally, the CPA's opinion must be
"unqualified"
States may choose to allow "qualified" opinions
on a case-by-case basis
EPA
6-12
Notes:
An unqualified opinion is an opinion that does not express any doubts about the information
contained in the entity's financial statements as such information relates to the entity's ability to
pass the financial test.
Qualified opinions may be reported:
- When the CPA believes the financial statements, except for certain qualifications, fairly
represent financial condition
- When the CPA believes the financial statements present a fair representation of financial
condition, subject to the outcome of certain unforeseeable events
6-72
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Special Report from Independent
CPA
4 Special Report must: : "
» Confirm that the data in CFO's letter were
taken or can be derived from latest financial
statements of owner or operator
» State that "no matters came to the attention" of
the CPA to make the CPA believe that the
content of the CFO's letter should be adjusted
"negative assurance" requirement is now
thought to be outdated
EPA
6-13
Notes:
The special report is a requirement that has been developed to minimize the amount of technical
knowledge required by regulators to properly review the use of the financial test (i.e., requiring
much of necessary verification to be conducted by an accountant). The special report from the
independent CPA must:
- Confirm that the data in the CFO's letter were taken directly from or can be derived
from the year-end financial statements of the owner or operator for the latest completed
fiscal year
- State that no matters came to the attention of the accountant that caused the accountant
to believe that the information contained in the CFO's letter should be adjusted
The regulatory requirement that the CPA provide "negative assurance" (i.e., that "no matters
came to the attention of the accountant which caused him to believe that the specified data
should be adjusted") is thought to be inconsistent with current professional auditing standards.
6-13
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Cessation of Use of the Subtitle C
Financial Test
• If an owner or operator no longer qualifies to use
the financial test, he or she must: \
!;.'„'.';.- .,'.-' ._ ;.',;>,. .,.•;
» Submit to state a notice of intent to establish
alternative financial assurance x - '
» Establish alternative financial assurance K>
EPA
6-14
Notes:
If the owner or operator no longer qualifies to use the financial test to demonstrate financial
assurance for closure and post-closure care, the owner or operator must:
- Within 90 days after the close of the fiscal year, submit to the state directory, by
certified mail, a notice of intent to establish alternative financial assurance
Within 120 days after the close of the fiscal year, establish such alternative financial
assurance
Based upon the schedules imposed by these requirements, a four-month gap may develop
where no financial assurance for a facility exists. If bankruptcy or default occurs during this
timeframe, the authorized agency would be left without funds to pay for closure or post-closure
care obligations.
6-14
-------
Notes:
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Proposed Revisions in the Subtitle C
Financial Test
July 1, 1991, and again on October 12,1994,
EPA proposed to revise the criteria for the
financial test ;
c\
• EPA has elected to revise the financial test to ~
make the test more readily available to certain
large, financially strong firms r
EPA to issue a NODA in June 2003
Final rule expected in September 2004
continued...
igrEPA
6-15
6-15
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Proposed Revisions in the Subtitle C
Financial Test
pass Alternative 1 of the financial test, the
owner or operator would be required to meet one
of the following two ratios:
» Total liabilities divided by net worth < 1 .5 ,
or
»Cash flow (the sum of net income plus
depreciation, depletion, and amortization)
minus $1 0 million, divided by total liabilities
EPA
6-16,
Notes:
6-16
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle D Financial Test for
Corporations
components:
» Financial component
» Recordkeeping and reporting component
Corporations must annually meet requirements
Usually may not be used with other mechanisms
EPA
6-17
Notes:
The proposed financial test has two components:
- Financial component
- Recordkeeping and reporting component
To pass the financial test, corporations annually must meet the requirements of each
component.
The financial test for corporations usually may not be used in combination with other financial
mechanisms to cover a portion of a firm's total financial assurance obligation.
6-77
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Components
* Investment-grade bond ratings or financial ratios
4-Minimum tangible net worth requirement
*• Domestic asset requirement
EPA
6-18
Notes:
6-18
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Investment-Grade Bond Ratings of
Financial Ratios
Alternative 1: Investment-grade bond ratings
Alternative 2: Total liabilities/tangible net worth
<1.5
Alternative 3: (Net income + depreciation,
depletion, and amortization - $10 million)/tota]
liabilities > 0.1
l&EPA
6-19
Notes:
To pass Alternative 1 of the financial test, the owner or operator must have a current
investment-grade bond rating of either:
or
AAA, AA, A, or BBB, as issued by Standard and Poor's
Aaa, Aa, A, or Baa, as issued by Moody's
To pass Alternative 2 of the financial test, the owner or operator must meet a ratio of total
liabilities divided by tangible net worth.
The Alternative 2 ratio:
- Indicates the degree to which a firm is leveraged
- Is designed to ensure that owners and operators are not overburdened by payments for
debt service and therefore unable to obtain funds to meet long-term obligations
- Must be less than 1.5 to pass the test
To pass Alternative 3 of the financial test, the owner or operator must meet a ratio of the sum of
net income plus depreciation, depletion, and amortization, minus $10 million, to total liabilities.
6-19
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
• The Alternative 3 ratio:
- Indicates a firm's solvency position
- Attempts to show cash flow from operations relative to the firm's total liabilities
- Must be greater than 0.1 to pass the test
6-20
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Tangible Net Worth Requirement
+Tangible Net Worth > closure/post-closure/
corrective action cost estimates•+ other 1
obligations + $10 million
f\
+ Designed to ensure "assured costs" do not force
firm into bankruptcy ^t \ ;
EPA
6-20
Notes:
The tangible net worth of the owner or operator must be greater than the sum of the current
estimates of the costs of closure and post-closure care and corrective action, plus any other
obligations covered by a financial test, plus $10 million.
This requirement is designed to ensure that the costs of closure and post-closure care and
corrective action will not force a firm into bankruptcy.
Assured costs include environmental obligations for MSWLFs, TSDFs, petroleum USTs,
underground injection wells, and commercial storage facilities for PCBs that are covered by
financial tests.
If costs for facilities are covered by other mechanisms, these costs do not count against the
facility's "assured costs."
6-21
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Domestic Assets Requirement
U.S. assets = all "assured costs"
Designed to ensure funds available in the U.S. in
case of bankruptcy
EPA
6-21
Notes:
The owner or operator must have assets located in the U.S. at least equal to the sum of the
current estimates of the costs of closure and post-closure care and corrective action, plus any
other obligations covered by a financial test.
This requirement is intended to ensure that funds in the U.S. will be available in the event of
bankruptcy.
6-22
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Recordkeeping and Reporting
Component
+ CFO's letter
+ Accountant's opinion
+ Special report
EPA
6-22
Notes:
Items that must be placed each year in the operating record of the facility include:
CFO's letter
- Reports from independent CPAs
Accountant's opinion
Special report from an independent CPA
6-23
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Annual Review of Financial Test
must update within 90 days of close of fiscal
year •:' -u •-••'• ;V. -:'
If a firm cannot meet test requirements:
» Obtain alternative financial assurance"
» Place documents in operating record
>> Notify state director
EPA
6-23
Notes:
A firm is required to update all documentation related to the financial test within 90 days of the
close of its fiscal year.
If the firm can no longer meet the terms of the financial test, the owner or operator must, within
120 days after the end of its fiscal year:
- Obtain alternative financial assurance
- Place the required documents in the operating record of the facility
- Notify the state director
6-24
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle D Financial Test for Local
Governments
Has three components:
» Financial component
» Public notice component
» Recordkeeping and reporting component
Must be updated annually
Can be used in combination with other
mechanisms
EPA
6-24
Notes:
To pass the financial test, local governments annually must meet the requirements of each of the
three components.
May be used in combination with other financial mechanisms to cover a portion of a local
government's total obligation for financial assurance.
Based on an analysis of 2,700 publicly-owned MSWLFs, EPA estimates that:
- 91 percent of all local governments that own or operate a MSWLF would be able to
use the financial test to demonstrate financial assurance for at least a portion of their
total obligations
- 54 percent of all local governments would be able to use the financial test to
demonstrate financial assurance for the entirety of their obligations
6-25
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Subtitle D Local Government
Financial Test: Financial
Component
satisfy the financial component of the test, a
local government must: >'
» Meet one of two sets of financial criteria
(Alternatives 1 and 2) .......--v>,.....
» Pass a relative financial strength ratio (
» Meet an operating deficit requirement
EPA
6-25,
Notes:
The financial component of the financial test:
- Reflects a local government's financial health and strength
- Serves as a measure of a local government's financial capability to meet its obligations
for financial assurance
6-26
-------
Notes:
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Component: General
Requirements
A local government must: /
» Not be in default on any outstanding general
obligation debt s
» Not have outstanding general obligation bonds
that are rated less than investment grade
• Local government must meet Alternative 1 (bond
ratings) or Alternative 2 (financial ratios)
EPA
6-26
Alternative 1:
The local government demonstrates financial soundness through investment-grade bond
ratings
Alternative 2:
The local government must meet two financial ratios
6-27
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Component: Alternative 1
pass Alternative 1 of the financial test, the
jocal government must have a current
investment-grade bond rating of either:
» AAA, AA, A, or BBB, as issued by Standard
and Poor's
or
» Aaa, Aa, A, or Baa, as issued by Moody's
*Only ratings on general obligation bonds may be
used to satisfy this requirement
EPA
6-27
Notes:
To obtain bond ratings, contact:
- Moody's Investment Service
(212) 553-0300
- Standard and Poor's Bond Rating Service
(212)438-2000
General obligation bonds used to pass Alternative 1 of the financial test may not be secured by:
- Insurance
- Letters of credit
Collateral
- Guarantees
6-28
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Component: Alternative 2
pass Alternative 2, owners or operators must
show that:
»(Cash + marketable securities)/total
expenditures > 0.05 ,
» Annual debt service/total expenditures < 0.20
EPA
6-28
Notes:
To pass Alternative 2 of the financial test, the local government must meet the following two
ratios:
- Cash plus marketable securities (excluding funds designated to satisfy past obligations
such as pensions) divided by total expenditures ^ 0.05
- Annual debt service divided by total expenditures < 0.20
The ratio of cash plus marketable securities (investments) to total expenditures:
- Indicates the extent of a local government's liquidity
- Measures the degree to which an entity has cash or other assets that can be converted
quickly to cash
- Must be greater than or equal to 0.05 to pass the test
The ratio of annual debt service to total expenditures:
- Measures a local government's debt service as a percentage of total expenditures
6-29
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
- Is designed to ensure that local governments are not overburdened by payments on
debt service and therefore are unable to obtain funds to meet long-term obligations
- Must be less than or equal to 0.20 to pass the test
6-30
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Component: Relative
Financial Strength Ratio
ratio of assured costs to total revenues:
» Ensures that a local government's financial
assurance obligations are reasonable, relative
to its size - >„, >
» Determines the amount that a local V
government can assure through the financial
test ^ . >... '-'. ""•;.
» Must be less than or equal to 0.43 (43 percent
of total annual revenues)
EPA
6-29
Notes:
"Assured costs" include environmental obligations for MSWLFs, TSDFs, petroleum USTs,
underground injection wells, and commercial storage facilities for PCBs that are covered by
financial tests.
The same assets may not be used to assure different obligations under different programs.
6-37
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Component: Operating
Deficit Requirement
Local governments must not have an operating
deficit > 5 percent for the past two years
Negative budget imbalances may indicate
financial hardship
"Deficit" = total annual revenues - total annual
expenditures
6-30
Notes:
Local governments may not have run an operating deficit of 5 percent or more of its total annual
revenues in both of the past two consecutive years.
EPA believes that negative budget imbalances in two or more consecutive years may indicate
financial hardship.
For this mechanism, "deficit" is defined as total annual revenues minus total annual expenditures.
"Total revenues" include revenues from all taxes and fees but do not include proceeds derived
from borrowing or from the sale of assets.
All revenues derived from funds that are managed by a local government on behalf of specific
third parties (fiduciary funds) may be included in the calculation of total revenues.
"Total expenditures" do not include expenditures for capital outlays and for debt service.
6-32
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Financial Component: General
Obligation Debt Requirement
+• Local governments must not: •:•"/
» Be in default on general obligation debt r
»Have general obligation bond ratings lower
than Baa (Moody's) or BBB (S&P) ;
*Lack of or nonrated general obligation bonds do
not disqualify owners or operators from using
Alternative 2 "'•'..
EPA
6-31
Notes:
Local governments must not:
- Be in default on any outstanding general obligation debt
- Have a rating on any outstanding general obligation bonds lower than Baa, as issued by
Moody's, or BBB, as issued by S&P's
Local governments that do not have any outstanding general obligation bonds, or only have
general obligation bonds that are not rated, may still qualify to use Alternative 2 of the financial
test.
6-33
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Public Notice Component
• In each year in which the financial test is used,
local governments must identify the assured
costs in one of two documents: ',;
»Budget I; , -
» Comprehensive annual financial report (CAFR)
Specific information must be placed in the
budget or CAFR
continued...
EPA
6-32
Notes:
The public notice component is intended to ensure that:
- Local governments publicly acknowledge that financial assurance is provided through a
financial test
- Community decision makers are aware of the commitment of future local government
funds for environmental obligations
Costs for closure or post-closure care that will be incurred during a local government's current
budget period must be included as line items in that budget.
Costs that will be incurred in future budget periods need only be disclosed in a supplemental
section to the local government's budget or CAFR.
Information placed in the budget or CAFR must include the:
- Nature and source of requirements for closure and post-closure care
- Reported total liabilities at the balance sheet date
- Estimated total costs for environmental obligations that remain to be recognized
- Percentage of landfill capacity used to date
- Estimated landfill life in years
6-34
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Public Notice Component
+ For the first year an owner or operator uses the
test, a letter containing required information may
be placed in the operating record
^Conformance with GASB Statement 18 is
considered compliant
EPA
6-33
Notes:
For the first year the financial test is used, a letter containing the required information may be
placed in the operating record of the facility until the next available budget or CAFR is issued.
For costs assured for closure and post-closure care, conformance with the requirements of
Government Accounting Standards Board (GASB) Statement 18 ensures compliance with the
public notice requirements.
6-35
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Notes:
Recordkeeping and Reporting
Component
Local governments must:
» Prepare annual financial reports in compliance
withGAAP \
» Document use of test in operating record
continued...
EPA
6-34
To satisfy the requirements of the recordkeeping and reporting component of the test, the local
government must:
- Prepare an annual financial report in compliance with GAAPs for governments
- Document its use of the test in the operating record of the facility
6-36
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Recordkeeping and Reporting
Component
• Local governments must place in the operating
record:
»CFO's letter
»Copy of the budget or CAFR (or GASB
certification)
» Reports from independent CPAs (or state
agencies)
EPA
6-35
Notes:
Items the local government each year must place in the operating record of the facility include:
CFO's letter
- A copy of the budget or CAFR, or certification that the requirements of GASB
Statement 18 have been met
- Reports from independent CPAs or state agencies
The CFO's letter:
- Must be signed by the local government's CFO
- Must demonstrate that the local government has complied with the financial component
of the test
- Must list cost estimates for all facilities covered by the test
6-37
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
CFO's Letter
Must certify that the local government meets
requirements of financial test v
» GAAPs for governments
/
» Operating deficit requirements
» General obligation bond requirements
» Public notice component >
» Obligations are "reasonable" per financial
strength ratio
EPA
6-36
Notes:
The CFO's letter must certify that the local government:
- Prepared its financial statements in conformity with GAAPs for governments
- Has not had an operating deficit of five percent or more in both of the past two
consecutive fiscal years
- Is not in default on any outstanding general obligation bonds
- Does not have outstanding general obligation bonds that are rated less than investment
grade
- Has complied with the public notice component of the test
- Has demonstrated, through the use of the relative financial strength ratio, that its
financial assurance obligations are reasonable, relative to its size
6-38
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Year-End Financial Statements
• Must be for latest fiscal year
Must be audited by:
»Independent CPA
» Appropriate state agency
yy EPA
6-37 v
Notes:
Year-end financial statements:
- Must be for the latest completed fiscal year
- Must be audited by one of two entities:
An independent CPA
An appropriate state agency that conducts equivalent comprehensive audits
6-39
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Accountant's Opinion
* Opinion of independent CPA ensures accuracy
of financial data
* Opinion generally must be unqualified
EPA
6-38
Notes:
The written opinion of an independent CPA ensures that the data in the financial statements
correctly represent the financial condition of the local government.
In cases when the financial statements of a local government are required to be audited every
two years, unaudited statements may be used during those years in which an audit is not
required.
Generally, the CPA's opinion must be "unqualified" to pass the test.
States may choose to allow "qualified" opinions on a case-by-case basis.
An appropriate state agency may provide opinions instead of an independent CPA.
6-40
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Special Report
• Must confirm that data can be obtained from
year-end financial statements
• Must state that the accountant does not believe
CFO's letter should be adjusted (outdated
requirement)
May be provided by state agency
EPA
6-39
Notes:
The special report:
Must confirm that the data in the CFO's letter were taken directly from or can be
derived from the local government's year-end financial statements
Must state that no matters came to the attention of the accountant that caused the
accountant to believe that the information in the CFO's letter should be adjusted (as
discussed later in this section, this requirement is thought to be inconsistent with current
auditing standards)
May be provided by an appropriate state agency
6-41
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Cessation of Use of the Financial
Test
• Local government must update within 180 days
of end of fiscal year
If local government cannot meet test
requirements:
» Submit notice of intent for alternative financial
assurance (180 days)
» Provide alternative financial assurance (210
days)
6-40
Notes:
A local government is required to update all documentation related to the financial test within
180 days of the close of its fiscal year.
If the local government no longer can meet the terms of the financial test, the local government
must:
- Submit a notice of intent to establish alternative assurance within 180 days after the end
of the fiscal year for which the year-end financial data show that the local government
no longer passes the test
- Provide alternative financial assurance within 210 days after the end of that fiscal year
6-42
-------
Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Key Implementation Issues:
Qualifications and Opinions of
Accountants
^State personnel should: /
» Ensure that accountants preparing
independent report and special report are
certified (contact state boards of accountancy)
» Determine whether opinions are unqualified,; (•
qualified, or adverse '•
EPA
6-41
Notes:
When evaluating accountants' opinions, regulators should:
- "Pass" an owner or operator if it has received an Unqualified Opinion and meets all the
other requirements. Most owners or operators will probably have unqualified opinions.
- Disqualify an owner or operator from the financial test if he has received either (1) an
Adverse Opinion, (2) a Disclaimer of Opinion. The regulations explicitly disqualify
owners or operators from using the financial test if they have either of first two types of
opinions. In addition, although not specifically addressed in the regulations, a "subject
to" type of Qualified Opinion based on a "ongoing concern" issue is generally
considered serious to the extent that any firm receiving one may be disqualified from
using the financial test.
- Conduct further investigations if an owner or operator received any other type of
Qualified Opinion (either an "except for" or a "subject to"). Most of the review effort
may need to be directed toward owners or operators falling into this category.
Regulators should undertake the following four steps whenever an owner or operator has a
Qualified Opinion (either an "except for" or "subject to," excluding those rendered on the basis
of a "ongoing concern" issue).
6-43
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Module 6: RCRA Subtitle C and Subtitle D Financial Tests
- The owner, operator, or corporate parent should be asked to submit a copy of the
financial statements for the latest completed fiscal year. Alternatively, a copy of the
latest Form 10-K could be obtained from the SEC.
- The opinion rendered by the accountant should be thoroughly understood in the context
of the financial statements:
If it is an "except for" opinion, regulators should determine if the part of the
statements which give rise to the "except for" qualification have any bearing on
the firm's overall financial stability of ability to pass the financial test.
If it is a "subject to" opinion, regulators should determine the likelihood of the
occurrence of the event that the financial statements are "subject to," and the
importance of the unforeseeable event's occurrence or nonoccurrence on the
firm's ability to pass the financial test.
- If not enough information is available in the opinion or the financial statements to make a
satisfactory decision, the firm should be required to submit a written explanation as to
why the qualification should not be grounds for disqualification from the financial test.
• If the matter is still unresolved, contact the EPA regional office may be conducted to obtain
additional assistance.
6-44
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Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Key Implementation Issues:
"Negative Assurance" Requirement
is requirement is not consistent with current
auditing standards
• Regulators should accept a report based upon
"agreed upon procedures engagement"
EPA
6-42
Notes:
In performing audits and other types of work, CPAs must follow certain professional standards.
The American Institute of Certified Public Accounts, Inc.'s (AICPA) Statement on Auditing
Standards no longer permits independent auditors to express negative assurance (i.e., "no
matter came to his or her attention which caused him or her to believe that the specified data
should be adjusted.") The new standards require the auditor to present the results of
procedures performed in the form of findings, and explicitly disallow issuing "negative
assurance."
EPA intends to change the regulations so that they conform to the new professional auditing
standards. Until that rulemaking is completed, in addition to, or in lieu of, a CPA report stating
that "no matter came to his attention," EPA will accept a CPA's report describing the
procedures performed and related findings, including whether or not there were discrepancies
found in the comparison, based on an agreed-upon procedures engagement performed in
accordance with AICPA's Statement on Auditing Standards No. 75. Engagements to Apply
Agreed-Upon Procedures to Specified Elements. Accounts or Items of a Financial Statement.
(In an agreed-upon procedures engagement an accountant is engaged by a client to issue a
report of findings based on specific procedures performed on the specific items of a financial
statement.) The Agency will regard this report as satisfying the requirements of the financial test
or corporate guarantee for a special report by an independent CPA on the CFO's letter.
6-45
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Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Key Implementation Issues:
Potential Pitfalls of Allowing the
Use of the Financial Test
Facilities may go up to 120 or 210 days without
financial assurance
Bond ratings may not always reflect the financial
condition of the owner or operator
EPA
6-43
Notes:
In many cases, acceptable bond ratings may be maintained through means that do not
necessarily indicate the financial standing of an owner or operator, such instances include bonds
that are:
- Defeased: These bonds are placed in a fully-funded trust fund
- Insured: These bonds are insured against loss
6-46
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Module 6: RCRA Subtitle C and Subtitle D Financial Tests
Summary of the Module
+ Subtitle C and Subtitle D regulations have three
financial tests:
» For corporations (Subtitle C)
» For local governments (Subtitle D)
» For corporations (Subtitle D)
+ Financial test is "self-assurance" demonstrated
through the use of bond ratings financial ratios,
or other financial criteria
EPA
6-44
Notes:
6-47
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FINANCIAL TEST CASE STUDY
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CASE STUDY - FINANCIAL TEST FOR CLOSURE
(30 minutes)
Background
Sinski Enterprises (Sinski) owns and operates a small hazardous waste treatment and storage facility. The
facility, which is located in Valdosta, Georgia, treats hazardous waste sludges generated from a number of
local electroplating operations. In previous years, Sinski has used a trust fund mechanism to satisfy
requirements under Subtitle C of RCRA for financial assurance for closure. However, Sinski now wants to
cancel its trust fund agreement and submit the financial test as its alternative form of assurance. In 2001,
an adjusted estimate of the cost of closure of $78,910 was calculated for the facility.
Instructions for Workshop Participants
Analyze the background information provided above and Sinski's financial test to determine
whether Sinski is in compliance with requirements under Subtitle C of RCRA for using the
financial test to demonstrate financial assurance for closure.
Using the proper inflation factor, adjust the cost estimate for closure for Sinski's TSDF.
Year' ' ^
2001
2002
Cost Estimate for Closure ($) /
78,910
\, Inflation Factor '':,' ,
'
—
Using the checklist provided, determine whether Sinski's financial test meets all regulatory
requirements specified under Subtitle C of RCRA.
Identify and note any regulatory deficiencies that would render Sinski noncompliant with
requirements under Subtitle C of RCRA for financial assurance for closure.
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FINANCIAL TEST ALTERNATIVE 1 (as specified in 40 CFR 264. 143(f)(l)(i)/40 CFR 264. 145(f)(l)(i)
and 40 CFR 265.143(e)(l)(i)/40 CFR 265.145(e)(l)(i) and 40 CFR 264.147(f)(l)(i)/40 CFR
LJ The owner or operator meets at least two of the three following ratios.
LJ The owner or operator fails to meet at least two of the three following ratios.
(Indicate the results of the calculations in the blank spaces provided.)
total liabilities <2.0
net worth
net income and depreciation and depletion and amortization > 0. 1
total liabilities
current assets > 1.5 _
current liabilities
Tangible net worth is at least $10 million.
LJ Net working capital and tangible net worth are each at least six times the sum of the current estimates of
the costs of closure and post-closure care and the annual aggregate amount of third-party liability
coverage to be demonstrated.
LJ The owner's or operator's U.S. assets are equal to at least 90 percent of total assets or six times the sum
of the current estimate of the costs of closure and post-closure care and the annual aggregate amount of
third-party liability coverage to be demonstrated.
-------
YES
a
NO
a
a a
a a
Has a letter, properly executed and signed by the owner's or operator's CFO and worded as
specified in 40 CFR 264.15l(f) or 40 CFR 264.15l(g), been submitted? (40 CFR
264.143(f)(3)(i)/40 CFR 264.145(f)(3)(i) and 40 CFR 265.143(e)(3)(i)/40 CFR 265.145(e)(3)(i)
and 40 CFR 264.147(f)(3)(i)/40 CFR 265.147(f)(3)(i))
Has a copy of the independent CPA's report on examination of the owner's or operator's financial
statements for the latest completed fiscal year been submitted? (40 CFR 264.143(f)(3)(ii)/40
CFR 264.145(f)(3)(ii) and 40 CFR 265.143(e)(3)(ii)/40 CFR 265.145(e)(3)(ii) and 40 CFR
264.147(f)(3)(ii)/40 CFR 265.147(f)(3)(ii))
L
L
Unqualified Opinion
Disclaimer of Opinion or Adverse Opinion
Qualified Opinion
Has a special report from the owner's or operator's independent CPA been submitted, as specified
in 40 CFR 264.143(f)(3)(iii)/40 CFR 264.145(f)(3)(iii) and 40 CFR 265.143(e)(3)(iii)/40 CFR
265.145(e)(3)(iii) and 40 CFR 264.147(f)(3)(iii)/40 CFR 265.147(f)(3)(iii)?
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LETTER FROM CHIEF FINANCIAL OFFICER
Mr. John Doe
Georgia Department of Natural Resources
4244 International Parkway
Atlanta, GA 30354
I am the chief financial officer of Sinski Enterprises, 123 Fifth Street, Valdosta, Georgia. 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.
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:
Sinski Enterprises
123 Fifth Street
Valdosta, GA
GAD-111-222-333
Closure Cost Estimate: $78,910
2. This firm guarantees, through the guarantee specified in subpart H of 40 CFR parts 264 and 265, 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:
None.
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:
None.
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:
None.
5. This firm is the owner or operator of the following UIC facilities for which financial assurance for
plugging and abandonment is required under part 144. The current closure cost estimates as required by 40 CFR
144.62 are shown for each facility:
None.
This firm is 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 December 31. 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 December 31, 2001.
Participant Note: This letter from chief financial officer contains wording identical to that specified in 40 CFR 264.15 l(f)
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ALTERNATIVE I
$78,910
1. Sum of current closure and post-closure cost
estimates [total of all cost estimates shown in the
five paragraphs above]
*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 that portion from this
line and add that amount to lines 3 and 4] I $ 11,363,000
*3. Tangible net worth $10,306,600
*4. Net worth $10.722,600
*5. Current assets $ 9,902,500
*6. Current liabilities $ 3,416,700
7. Net working capital [line 5 minus line 6] $ 6,485,800
*8. The sum of net income plus depreciation, depletion,
and amortization I $ 1,992,600
*9. Total assets in U.S. (required only if less than 90%
of firm's assets are located in the U.S.)
Yes
10. Is line 3 at least $10 million? X
11. Is line 3 at least 6 times line 1 ? X
12. Is line 7 at least 6 times line 1? X_
*13. Are at least 90% of firm's assets located in the U.S.? If
not, complete line 14 X
14. Is line 9 at least 6 times line 1? N/A
15. Is line 2 divided by line 4 less than 2.0? X
16. Is line 8 divided by line 2 greater than 0.1? X
17. Is line 5 divided by line 6 greater than 1.5? X
N/A
No
I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR 264.15(f) as such
regulations were constituted on the date shown immediately below.
Kenneth Sinski
President, Sinski Enterprises
March 31, 2002
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Independent Accountant's Opinion
Buescher Accounting Group
1400 Beancounter Street
Atlanta, GA
The Board of Directors and Stockholders
Sinski Enterprises
We have examined the consolidated balance sheets of Sinski Enterprises as of December 31, 2000 and 1999 and the
related statements of consolidated earnings and changes in consolidated financial position for each of the years in the
three-year period ended December 31, 2001. Our examinations were made in accordance with generally accepted
auditing standards and, accordingly, included such tests and accounting records and such other auditing procedures as
we considered necessary in the circumstances.
In our opinion, the aforementioned consolidated financial statements present fairly the financial position of Sinski
Enterprises at December 31, 2001 and 2000 and the results of its operations and changes in its financial position for
each of the years in the three-year period ended December 31, 2001, in conformity with generally accepted
accounting principles applied on a consistent basis.
February 13, 2002
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Buescher Accounting Group
1400 Beancounter Street
Atlanta, GA
February 28, 2002
Mr. Kenneth Sinski
President
Sinski Enterprises
123 Fifth Street
Valdosta, GA
Dear Mr. Sinski:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of
Sinski Enterprises (Sinski) as of December 31, 2001 and have issued our report thereon, dated February 10, 2002. We
have not audited any of Sinski's financial statements as of any date or for any period subsequent to December 31,
2001, and we have not applied any other procedures except for that described in this letter. For the purpose of this
letter, we have applied the agreed-upon procedure described below to certain amounts appearing in a letter from your
chief financial officer (CFO's letter) submitted to comply with U.S. Environmental Protection Agency regulations
under 40 CFR parts 264 and 265 or equivalent state regulations.
Our procedure consisted of comparing the amounts designated in the CFO's letter as having been derived from Sinski's
independently audited consolidated financial statements for the fiscal year ended December 31, 2001 with such
financial statements.
Because the above procedure does not constitute an audit in accordance with generally accepted auditing standards,
we do not express an opinion on any of the amounts referred to above. However, in connection with the procedure
referred to above, no matters came to our attention that caused us to believe that the amounts referred to above should
be adjusted.
Yours very truly,
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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 five paragraphs regarding facilities and associated cost estimates. 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 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 265,
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:
. 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].
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:
5. This firm is the owner or operator of the following UIC facilities for which financial assurance
for plugging and abandonment is required under part 144. The current closure cost estimates as required by
40 CFR 144.62 are 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, 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 § 265.143 or § 265.145 of this chapter are used. Fill in Alternative n if the criteria of paragraph (f)(l)(ii)
of § 264.143 or § 264.145, or of paragraph (e)(l)(ii) of § 265.143 or § 265.145 of this chapter are used.]
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ALTERNATIVE I
1.
*2
*3
*4.
*5.
*6.
7.
*8.
*9.
Sum of current closure and post-closure cost
estimates [total of all cost estimates shown in the
five paragraphs above]
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 3 and 4]
Tangible net worth
Net worth
Current assets
Current liabilities
Net working capital [line 5 minus line 6]
The sum of net income plus depreciation, depletion,
and amortization
Total assets in U.S. (required only if less than 90%
of firm's assets are located in the U.S.')
$
$
10.
11.
12.
*13.
14.
15.
16.
17.
Is line 3 at least $ 10 million?
Is line 3 at least 6 times line 1 ?
Is line 7 at least 6 times line 1 ?
Are at least 90% of firm's assets located in the U.S.? If
not, complete line 14
Is line 9 at least 6 times line 1 ^
Is line 2 divided by line 4 less than 2.0?
Is line 8 divided by line 2 greater than 0.1?
Is line 5 divided bv line 6 sreater than 1.5?
Yes
No
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ALTERNATIVE II
1.
2.
3.
4.
*5.
*6.
Sum of current closure and post-closure cost
estimates [total of all cost estimates shown in the
five paragraphs above]
Current bond rating of most recent issuance of this
firm and name of rating service
Date of issuance of bond
Date of maturity of bond '. . . . .
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] . . .
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 at least $10 million?
8. Is line 5 at least 6 times line 1 ?
*9. Are at least 90% of firm's assets located in the U.S.? If not,
complete line 10
10. Is line 6 at least 6 times line 1 ?
Yes
No
I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR
264.15 l(f) as such regulations were constituted on the date shown immediately below.
[Signature]
[Name]
[Title]
[Date]
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REQUIRED WORDING FOR SUBTITLE C FINANCIAL TEST FOR CORPORATIONS
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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 265.
[Fill out the following paragraphs regarding facilities and liability coverage. If there are 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.]
The 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 265:
The firm identified above guarantees, through the guarantee specified in subpart H or 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 five 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 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.]
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1. 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 265. The current closure and/or post-closure cost estimates covered by
the test are shown for each facility: .
I
2. The firm identified above guarantees, through the guarantee specified in subpart H of 40 CFR
parts 264 and 265, the closure or post-closure care or liability coverage 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 parts
264 or 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 of 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: .
5. This firm is the owner or operator of the following UIC facilities for which financial assurance
for plugging and abandonment is required under 40 CFR part 144. The current closure cost estimates as
required by 40 CFR 144.62 are 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.
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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 part A if you are using the financial test to demonstrate coverage only for the liability
requirements.]
Part A. Liability Coverage for Accidental Occurrences
[Fill in alternative I if the criteria of paragraph (f)(l)(i) of § 264.147 or § 265.147 are used. Fill in
Alternative II if the criteria of paragraph (f)(l)(ii) of § 264.147 or § 265.147 are used.]
ALTERNATIVE I
1.
*2.
*3
4
*5.
*6.
Amount of annual aggregate liability coverage to
be demonstrated
Current assets
Current liabilities
Net working capital (line 2 minus line 3)
Tangible net worth
If less than 90% of assets are located in the U.S.,
eive total U.S. assets
$
$
$
$
$
$
7.
. 8.
9.
*10.
11.
Is line 5 at least $10 million?
Is line 4 at least 6 times line 1?
Is line 5 at least 6 times line 1?
Are at least 90% of assets located in the U.S.? If not,
complete line 11
Is line 6 at least 6 times line 1?
Yes
No
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ALTERNATIVE II
1.
2.
3.
4.
*5.
*6.
Amount of annual aggregate liability coverage to
be demonstrated
Current bond rating of most recent issuance and
name of rating service
Date of issuance of bond
Date of maturity of bond
Tangible net worth
Total assets in U.S. (required only less than 90%
of assets are located in the US.)
$
$
$
7.
8.
9.
10.
Is line 5 at least $10 million?
Is line 5 at least 6 times line 1 ?
Are at least 90% of assets located in the U.S.? If not,
complete line 10
Is line 6 at least 6 times line 1 ?
Yes
No
[Fill in part B if you are using the financial test to demonstrate assurance of both liability coverage
and closure or post-closure care.]
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 §265.145 and (f)(l)(i) of §
265.147 are used. Fill in Alternative H if the criteria of paragraphs (f)(l)(ii) of § 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)
of §265.147 are used.]
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ALTERNATIVE I
1.
2.
3.
*4.
*5.
*6
*7.
*8.
9.
*10.
*11.
Sum of current closure and post-closure cost
estimates (total of all cost estimates listed above) .
Amount of annual aggregate liability coverage to be
demonstrated
Sum of lines 1 and 2
Total liabilities (if any portion of your closure or
post-closure cost estimates is included in your total
liabilities, you may deduct that portion from this line
and add that amount to lines 5 and 6)
Tangible net worth
Net worth
Current assets
Current liabilities
Net working capital (line 7 minus line 8)
The sum of net income plus depreciation, depletion,
and amortization
Total assets in U.S. (required only if less than 90%
of assets are located in the U.S
$
$
$
$
$
$
$
$
$
$
$
12.
13.
14.
*15.
16.
17.
18.
19.
Is line 5 at least $10 million?
Is line 5 at least 6 times line 3?
Is line 9 at least 6 times line 3?
Are at least 90% of assets located in the U.S.? If not,
complete line 16
Is line 1 1 at least 6 times line 3?
Is line 4 divided by line 6 less than 2.0?
Is line 10 divided by line 4 greater than 0.1?
Is line 7 divided by line 8 greater than 1 .5?
Yes
No
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ALTERNATIVE H
1.
2.
3.
4.
5.
6.
*7.
*8.
Sum of current closure and post-closure cost
estimates (total of all cost estimates shown in the
five paragraphs above)
Amount of annual aggregate liability coverage to
be demonstrated
Sum of lines 1 and 2
Current bond rating of most recent issuance and
name of rating service
Date of issuance of bond
Date of maturity of bond
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)
Total assets in U.S. (required only if less than 90%
of assets are located in the U.S.)
$
$
$
$
$
9.
10.
*11.
12.
Is line 7 at least $10 million?
Is line 7 at least 6 times line 3?
Are at least 90% of assets located in the U.S.? If not,
complete line 12
Is line 8 at least 6 times line 3?
Yes
No
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]
-------
CASE STUDY - INSURANCE FOR CLOSURE
AND POST-CLOSURE CARE
(15 minutes)
Background
PDQ Industries, Inc. (PDQ) operates a small hazardous waste treatment facility in Great Bend, Kansas. The
PDQ facility, which opened in 2000, treats different types of hazardous wastes generated during the
manufacture of industrial laundering equipment. To fulfill requirements under Subtitle C of RCRA for
financial assurance for closure, PDQ purchased an insurance policy from Maple Insurance Co. (Maple) in
2000. PDQ's financial assurance file was last reviewed by the Kansas Department of Health and Environment
in 2001. In 2000, the facility's closure cost estimate was $30,195. Maple, which is headquartered in
Hartford, Connecticut, recently was licensed to transact the business of insurance in the states of Georgia,
Ohio, and Rhode Island.
Instructions for Workshop Participants
Analyze the background information provided above and PDQ's certificate of insurance for
closure and post-closure care to determine whether PDQ is in compliance with requirements
under Subtitle C of RCRA for using insurance to demonstrate financial assurance for closure
and post-closure care.
Using the proper inflation factors, adjust the cost estimate for closure for PDQ's TSDF.
Year ,
2000
2001
2002
Closure Cost Estimate ($)
30,195
Inflation Factors
—
© Confirm that the current level of insurance coverage is at least equal to the current estimate
of the cost of closure of PDQ's TSDF.
© Using the checklist provided, determine whether the insurance coverage meets all regulatory
requirements specified under Subtitle C of RCRA for PDQ's TSDF.
© Identify and note any deficiencies that would render PDQ noncompliant with requirements
under Subtitle C of RCRA for financial assurance for closure.
-------
YES NO
I—I I—I Has a certificate of insurance been submitted, as specified in 40 CFR
264.143(e)(l)/40 CFR264.145(e)(l) and 40 CFR 265.143(d)(l)/40 CFR
265.145(d)(l)?
I—I I—I Does the certificate of insurance use wording identical to that specified in 40 CFR
264.151(e)? (40 CFR 264.143(e)(2)/40 CFR 264.145(e)(2) and 40 CFR
265.143(d)(2)/40 CFR 265.145(d)(2))
yQ U Is the insurance policy issued by an insurer that is licensed to transact the business
of insurance or that is eligible to provide insurance as an excess or surplus lines
insurer in one or more states? (40 CFR 264.143(e)(l)/40 CFR 264.145(e)(l) and 40
CFR 265.143(d)(l)/40 CFR 265.145(d)(l))
I—I L_l Has the policy been issued for a face amount at least equal to the current estimates
of the costs of closure and post-closure care? (40 CFR 264.143(e)(3)/40 CFR
264.145(e)(3) and 40 CFR 265.143(d)(3)/40 CFR 265.145(d)(3))
-------
CERTIFICATE OF INSURANCE FOR CLOSURE
OR POST-CLOSURE CARE
Name and Address of Insurer
(herein called the "Insurer"): Maple Insurance Company
100 Corporate Plaza Drive
Name and Address of Insured
(herein called the "Insured"):
Facilities Covered:
Hartford, CT
PDQ Industries, Inc.
1200 Laundromat Court
Great Bend, KS
PDQ Industries, Inc. - Great Bend Facility
1200 Laundromat Court
Great Bend, KS
KSD-123-456-789
Amount of insurance for closure: $38,000
Face Amount: $38,000
Policy Number: 5678910-01
Effective Date: January 1,2002
The Insurer hereby certifies that it has issued to the Insured the policy of insurance identified above
to provide financial assurance for closure for the facilities identified above. The Insurer further warrants
that such policy conforms in all respects with the requirements of 40 CFR 264.143(e), 264.145(e),
265.143(d), and 265.145(d), as applicable and as such regulations were constituted on the date shown
immediately below. It is agreed that any provision of the policy inconsistent with such regulations is
hereby amended to eliminate such inconsistency.
I hereby certify that the wording of this certificate is identical to the wording specified in 40 CFR
264.151(e) as such regulations were constituted on the date shown immediately below.
Mark Chan
President, Maple Insurance Company
Signature of witness or notary:
January 12, 2002
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7-1
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Module 7:
Corporate Guarantee and
Guarantee for Local
Governments
EPA
Notes:
This module describes the financial assurance requirements for using the corporate guarantee
under Subtitle C and Subtitle D of RCRA and the guarantee for local governments (Subtitle D).
This module also includes key implementation issues related to the definition of "parent
corporation" and "substantial business relationship".
7-1
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
This Module Includes
+ Overview of regulatory requirements
*• Discussion of the corporate guarantee for
Subtitle C and Subtitle D facilities
•* Discussion of the guarantee for local governments
4 Benefits for use of the guarantee for local
governments
*• Key Implementation Issues:
» Definition of "parent corporation" and
substantial business relationship"
EPA
7-2
Notes:
7-2
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Characteristics of the Corporate
Guarantee
Contract between the guarantor and the owner
or operator
Provides assurance that the guarantor can cover
the costs of closure or post-closure care
Guarantor must annually meet all requirements
of the financial test
continued...
EPA
7-3
Notes:
The guarantor must:
- Enter into a contract to fulfill the financial obligations of the owner or operator, if the
owner or operator fails to do so
- Annually meet all requirements of the financial test
- Under Subtitle C, the owner or operator must submit to the state director a corporate
guarantee agreement that is worded exactly as specified in 40 CFR 264.151(h)(l)
The guarantee provides assurance that a firm can cover the costs of closure and post-closure
care on behalf of an owner or operator, without the use of a third-party instrument.
7-3
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Characteristics of the Corporate
Guarantee
* Traditionally has been used by parent
corporations to demonstrate financial assurance
for subsidiary companies
*• May be used by a corporation to provide financial
assurance for another corporation
*• Usually may be used in combination with other
mechanisms
EPA
7-4
Notes:
The guarantor must be one of the following three entities:
- The direct or higher-tier parent corporation of the owner or operator
- A firm whose parent corporation also is the parent corporation of the owner or
operator
- A firm with a "substantial business relationship" with the owner or operator
The guarantee may be used in combination with another mechanism to cover a portion of an
owner or operator's total financial assurance obligation.
7-4
-------
Notes:
Module 7: Corporate Guarantee and Guarantee for Local Governments
Documents Submitted to the State
Director
* Corporate guarantee agreement
+ CFO's letter : \
* Report from independent CPA
+ Special report from independent CPA
+ Under Subtitle D, these documents must be
placed in the operating record of the facility
EPA
7-5
If the guarantor's parent corporation also is the parent corporation of the owner or operator,
the CFO's 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,
the CFO's letter must reveal the nature of the "substantial business relationship" and describe
the value received in consideration of the guarantee.
7-5
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Terms of the Agreement
• Requires the guarantor, in the event of default by
the owner or operator, to:
» Perform closure or post-closure care
» Deposit into a trust fund the amount for closure
or post-closure care
EPA
7-6
Notes:
The terms of the guarantee agreement must specify that, if the owner or operator fails to fulfill its
financial obligations, the guarantor will take one of two actions:
- Perform closure or post-closure care activities itself
- Establish and fund a trust fund in the name of the owner or operator to pay for the
necessary activities
7-6
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Cancellation of the Corporate
Guarantee
Guarantor may cancel by providing notice by
certified mail within 120 days of cancellation
• Upon cancellation, owner or operator has 90
days to obtain alternative financial assurance
EPA
7-7
Notes:
The corporate guarantee:
- Remains in force until the guarantor sends a notice of cancellation to the owner or
operator and to the state director
- May not be canceled until 120 days after the owner or operator and the state director
receive the notice of cancellation
If the owner or operator fails to provide alternative financial assurance within 90 days of receipt
of the notices of cancellation, the guarantor must provide such alternative financial assurance in
the name of the owner or operator.
7-7
-------
Module 7: Corporate Guarantee and Guarantee lor Local Governments
Notes:
Key Implementation Issues:
Definitions of Parent Corporation and
Substantial Business Relationship
Parent corporation:
» Must be a direct or higher-tier parent
»If parent files with SEC, regulators should
check 10-K
"Substantial business relationship": this
definition is unenforceable
7-8
In addition to verifying financial data from parent corporations, regulators should determine
whether the corporation qualifies as a direct or higher-tier parent corporation. If the parent files
with the SEC, verification may be made by checking the form 10-K filed with the SEC. If not,
the independently audited financial statements of the firm must be requested from the firm. Both
the 10-K and the independently audited statements will list the subsidiaries of the corporation in
addition to other financial information.
7-8
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Guarantee for Local Governments
• Used for Subtitle D facilities
A local government can guarantee another local
government
• A local government can guarantee a private
party
• Must annually meet all requirements of the
financial test for local governments
continued...
EPA
7-9
Notes:
Under this mechanism, a local government guarantees the cost of closure or post-closure care
for a Subtitle D facility owned by another local government or by a private business.
The guarantee provides assurance that a municipality can cover the costs of closure and post-
closure care on behalf of an owner or operator, without the use of a third-party instrument.
The guarantee may be used in combination with another mechanism to cover a portion of an
owner or operator's total financial assurance obligation.
7-9
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Notes:
Guarantee for Local Governments
• Documents that must be placed in the operating
record of the facility include:
»The guarantee contract
» The CFO's letter
» Year-end financial statements
» Reports from an independent CPA or state
agency
EPA 7-10
The owner or operator must place a certified copy of the guarantee along with the items
required under the reporting requirements for the local government financial test into the
facility's operating record.
7-70
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Notes:
Why Would Local Governments
Guarantee the Obligations of Others?
• Local governments might choose to guarantee
the obligations of other owners or operators to: ,
» Preserve options for the management of
municipal waste - :
» Negotiate lower tipping fees
» Accommodate a special relationship with the
owner or operator • ; ; ^:
» Support local business enterprise arid maintain
the infrastructure of the community
EPA 7
7-77
-------
Module 7: Corporate Guarantee and Guarantee for Local Governments
Summary of the Module
guarantee for corporations could be used to
fulfill requirements for financial assurance for
closure and post-closure care
* Corporations could use a guarantee to
demonstrate financial assurance for other
corporations
*• Local governments could use a guarantee to
demonstrate financial assurance for other local
governments or for private parties
guarantor is required annually to meet all
requirements of the applicable financial test
EPA
7-12
Notes:
7-72
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CORPORATE GUARANTEE CASE STUDY
-------
CORPORATE GUARANTEE FOR CLOSURE
AND POST-CLOSURE CARE AND THIRD-PARTY LIABILITY
(20 minutes)
Background
International Sludges, Inc. (ISI) is the parent corporation of Evans Industries, Ltd. (Evans). Evans operates
two hazardous waste treatment and storage facilities and one hazardous waste land disposal facility. One
treatment and storage facility is located in Springfield, Missouri. The other treatment and storage facility
is located approximately 10 miles northwest of York, Pennsylvania. Evans'land disposal facility is located
approximately 20 miles southwest of York. A pioneer in the development of innovative technologies for the
treatment of hazardous waste, Evans accepts wastes generated by numerous chemical manufacturers. ISI,
which purchased Evans in 1985, is incorporated in Alberta, Canada. ISI's principal place of business in the
United States is in Buffalo, New York. Both of Evans'treatment and storage facilities have received RCRA
Part B permits. Evans' land disposal facility currently is being operated under interim status. ISI is
submitting the corporate guarantee to provide financial assurance for closure and post-closure care and third-
party liability at all three of Evans' facilities. In 2001, the cost estimate for closure for Evans' Springfield
facility was $179,562. In 2001, the cost estimate for closure for Evans'York treatment and storage facility
was $203,125. Also in 2001, the estimates of the costs of closure and post-closure care for Evans'York land
disposal facility were $411,788 and $197,496, respectively. All funds are expressed in U.S. Dollars.
Instructions for Workshop Participants
Analyze the background information provided above and ISI's corporate guarantee to
determine whether ISI and Evans are in compliance with requirements under Subtitle C of
RCRA governing the use of the corporate guarantee to demonstrate financial assurance for
closure and post-closure care and third-party liability.
Using the proper inflation factor, adjust the cost estimates for closure and post-closure care
for all of Evans' facilities.
2001 Closure and
Post-Closure Care
Cost Estimates ($)
179,562
203,125
411,788
197,496
i
Inflation Factor
Total
Adjusted 2002 Closure
and Post-Closure Care
Cost Estimates ($)
-------
Using the checklist provided, determine whether ISI's corporate guarantee meets all
regulatory requirements specified under Subtitle C of RCRA.
Identify and note any regulatory deficiencies that would render ISI and Evans noncompliant
with requirements under Subtitle C of RCRA for financial assurance for closure and post-
closure care and third-party liability.
FINANCIAL TEST ALTERNATIVE 2 (as specified in40 CFR264.143(f)(l)(ii)/40 CFR264.145(f)(l)(ii)
and 40 CFR 265.143(e)(l)(ii)/40 CFR 265.145(e)(l)(ii) and 40 CFR 264.147(g)(l)/40 CFR 265.147(g)(l)):
The current bond rating is adequate:
(Indicate appropriate bond rating(s) and source(s))
LJ Standard and Poor's LJ
Moody's
AAA D Aaa
AA Q Aa
Q A DA
BBB IX) Baa
LJ
Tangible net worth is at least $10 million.
I — I Tangible net worth is at least six times the sum of the current estimates of the costs of closure and
post-closure care and the annual aggregate amount of third-party liability coverage to be demonstrated.
LJ The owner's and operator's U.S. assets are equal to at least 90 percent of total assets or six times the
sum of the current estimates of the costs of closure and post-closure care and the annual aggregate
amount of third-party liability coverage to be demonstrated.
YES NO
I — I L J Has a letter, properly executed and signed by the CFO of the guarantor and worded as
specified in 40 CFR 264.151(f) or 40 CFR 264.151(g), been submitted? (40 CFR
264.143(f)(3)(i)/40 CFR 264.145(f)(3)(i) and 40 CFR 265.143(e)(3)(i)/40 CFR
265.145(e)(3)(i) and 40 CFR 264.147(f)(3)(i)/40 CFR 265.147(f)(3)(i))
-------
LJ I—I Has a copy of the independent CPA's report on examination of the financial statements
of the guarantor for the latest completed fiscal year been submitted? (40 CFR
264.143(f)(3)(ii)/40 CFR 264.145(f)(3)(ii) and 40 CFR 265.143(e)(3)(ii)/40 CFR
265.145(e)(3)(ii) and 40 CFR264.147(f)(3)(ii)/40 CFR265.147(f)(3)(ii))
LJ Unqualified Opinion
LJ Disclaimer of Opinion or Adverse Opinion
at-t-
Qualified Opinion
LJ LJ If employed to satisfy requirements for financial assurance for closure and post-closure
care, has a corporate guarantee that uses wording identical to that specified in 40 CFR
264.151(h)(l) been submitted? (40 CFR 264.143(f)(10)/40 CFR 264.145(f)(l 1) and
40 CFR265.143(e)(10)/40 CFR265.145(e)(ll))
Not Applicable
I—I LJ If employed to satisfy requirements for financial assurance for third-party liability, has
a certified copy of a corporate guarantee that uses wording identical to that specified
in 40 CFR 264.151(h)(2) been submitted? (40 CFR 264.147(g)(l) and 40 CFR
265.147(g)(l))
Not Applicable
I—I LJ Has a special report from the independent certified public accountant of the guarantor
been submitted, as required by 40 CFR264.143(f)(3)(iii)/40 CFR264.145(f)(3)(iii) and
40 CFR 265.143(e)(3)(iii)/40 CFR 265.145(e)(3)(iii) and 40 CFR 264.147(f)(3)(iii)/40
CFR265.147(f)(3)(iii)?
LJ LJ If the corporate guarantee has been submitted by a corporation incorporated in the
United States to satisfy requirements for financial assurance for third-party liability,
have written statements been submitted, as specified in 40 CFR 264.147(g)(2)(i) and
40 CFR 265.147(g)(2)(i)? If yes, indicate the appropriate sources of the statements.
LJ Attorneys General
LJ Insurance Commissioners
Not Applicable
-------
LJ LJ If the corporate guarantee has been submitted by a corporation incorporated outside the
United States to satisfy requirements for financial assurance for third-party liability, has
the foreign corporation identified registered agents, as specified in 40 CFR
264.147(g)(2)(ii) and 40 CFR 265.147(g)(2)(ii)?
Not Applicable
LJ LJ If the corporate guarantee has been submitted by a corporation incorporated outside the
United States to satisfy requirements for financial assurance for third-party liability,
have written statements been submitted, as specified in 40 CFR 264.147(g)(2)(ii) and
40 CFR 265.147(g)(2)(ii)? If yes, indicate the appropriate sources of the statements.
I—I Attorneys General
I—I Insurance Commissioners
Not Applicable
-------
LETTER FROM CHIEF FINANCIAL OFFICER
Ms. Alison Walton
Missouri Department of Natural Resources
Jefferson Building
P.O. Box 176
205 Jefferson Street
Jefferson City, MO 65102
Ms. Julie Cassidy
Pennsylvania Department of Environmental Regulation
P.O. Box 2063
Harrisburg, PA 17105
I am the chief financial officer of International Sludges, Inc., 4100 International Drive, Edmonton, Alberta,
Canada. This letter is in support of the use of the financial test to demonstrate financial responsibility for liability
coverage and closure and post-closure care, as specified in subpart H of 40 CFR parts 264 and 265.
The 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 265:
None.
The firm identified above guarantees, through the guarantee specified in subpart H of 40 CFR parts 264 and
265, liability coverage for both sudden and nonsudden accidental occurrences at the following facilities owned or operated
by the following: Evans Industries, Ltd. The firm identified above is the direct or higher-tier parent corporation of the
owner or operator:
Evans Industries, Ltd. - Springfield Plant
125 Evans Ct.
Springfield, MO
MOD-999-999-999
Evans Industries, Ltd. - York Plant #1
146 Industrial Park Drive
York, PA
PAD-543-210-987
Evans Industries, Ltd. - York Plant #2
200 Technology Avenue
York, PA
PAD-210-543-987
-------
1. 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 265. The current closure and/or post-closure cost estimates covered by the test are shown for each facility:
None.
2. The firm identified above guarantees, through the guarantee specified in subpart H of 40 CFR parts 264 and
265, the closure or post-closure care or liability coverage 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:
Evans Industries, Ltd. - Springfield Plant
125 Evans Ct.
Springfield, MO
MOD-999-999-999
Closure Cost Estimate: $182,255
Evans Industries, Ltd. - York Plant #1
146 Industrial Park Drive
York, PA
PAD-543-210-987
Closure Cost Estimate: $206,172
Evans Industries, Ltd. - York Plant #2
200 Technology Avenue
York, PA
PAD-2100-543-987
Cost Estimate for Closure: $417,965
Cost Estimate for Post-Closure Care: $200,458
3. In States where EPA is not administering the financial requirements of subpart H of 40 CFR parts 264 or
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 of 40 CFR parts 264 and
265. The current closure or post-closure cost estimates covered by such a test are shown for each facility:
None.
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:
-------
None.
5. This firm is the owner or operator of the following UIC facilities for which financial assurance for plugging
and abandonment is required under 40 CFR part 144. The current closure cost estimates as required by 40 CFR 144.62
are shown for each facility:
None.
This firm is 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 December 31. 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
December 31,2001.
-------
Part B. Closure or Post-Closure Care and Liability Coverage
ALTERNATIVE II
Sum of current closure and post-closure cost
estimates (total of all cost estimates listed above)
$1,016,190
2. Amount of annual aggregate liability coverage to
be demonstrated $8,000,000
3. Sum of lines 1 and 2 I $9,016,190
4. Current bond rating of most recent issuance and
name of rating service Baa - Moody's
5. Date of issuance of bond 06/24/92
6. Date of maturity of bond 06/15/02
*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) | $549,000,000
*8. Total assets in U.S. (required only if less than 90%
of assets are located in the U.S.) | $53,000,000
Yes
9. Is line 7 at least $10 million? X
10. Is line 7 at least 6 times line 3? X
*11. Are at least 90% of assets located in the U.S.? If not,
complete line 12
12. Is line 8 at least 6 times line 3? X
No
X
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.
Jonathan P. Rockefeller
Chief Financial Officer, International Sludges, Inc.
March 31,2002
-------
GUARANTEE FOR LIABILITY COVERAGE
Guarantee made this March 31, 2002 by International Sludges, Inc., a business corporation organized under the
laws of Canada, with its principal place of business in the United States in Buffalo, New York, herein referred to' as
guarantor. This guarantee is made on behalf of Evans Industries, Ltd. of 125 Evans Ct., Springfield, Missouri, which is
our subsidiary, to any and all third parties who have sustained or may sustain bodily injury or property damage caused
by sudden and nonsudden accidental occurrences arising from operation of the facilities covered by this guarantee.
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 264.147(g) and 265.147(g).
2. Evans Industries, Ltd. owns or operates the following hazardous waste management facilities covered by this
guarantee:
Evans Industries, Ltd. - Springfield Plant
125 Evans Ct.
Springfield, MO
MOD-999-999-999
Registered Agent (Missouri):
Mr. Mark Dougherty
P.O. Box 414
Springfield, MO
Evans Industries, Ltd. - York Plant #1
146 Industrial Park Drive
York, PA
PAD-543-210-987
Evans Industries, Ltd.-York Plant #2
200 Technology Avenue
York, PA
PAD-210-543-987
PARTICIPANT NOTE: THIS GUARANTEE FORLIABILITY COVERAGE CONTAINS WORDING IDENTICAL TO THAT SPECIFIED
IN 40 CFR264.15HHX2)
-------
This corporate guarantee satisfies RCRA third-party liability requirements for both sudden and nonsudden accidental
occurrences in above-named owner or operator facilities for coverage in the amount of $4 million for each occurrence
and $8 million annual aggregate.
3. For value received from Evans Industries, Ltd., guarantor guarantees to any and all third parties who have
sustained or may sustain bodily injury or property damage caused by sudden and nonsudden accidental occurrences arising
from operations of the facilities covered by this guarantee that in the event that Evans Industries, Ltd. fails to satisfy a
judgment or award based on a determination of liability for bodily injury or property damage to third parties caused by
sudden and nonsudden accidental occurrences, arising from the operation of the above-named facilities, or fails 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 which Evans Industries, Ltd. 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 Evans Industries, Ltd. would be obligated to pay in the absence of the contract or
agreement.
(b) Any obligation of Evans Industries, Ltd. under a workers' compensation, disability benefits, or
unemployment compensation law or any similar law.
(c) Bodily injury to:
(1) An employee of Evans Industries, Ltd, arising from, and in the course of, employment by Evans
Industries, Ltd.
(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 Evans Industries, Ltd. This exclusion applies:
(A) Whether Evans Industries, Ltd. 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 properly 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 Evans Industries, Ltd.
(2) Premises that are sold, given away or abandoned by Evans Industries, Ltd. if the property damage
arises out of any part of those premises;
(3) Property loaned to Evans Industries, Ltd.;
(4) Personal property in the care; custody or control of Evans Industries, Ltd.;
(5) That particular part of real property on which Evans Industries, Ltd. or any contractors or
subcontractors working directly or indirectly on behalf of Evans Industries, Ltd. 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
Administrator(s) for the Region(s) in which the facility(ies) is (are) located and to Evans Industries, Ltd. that he intends
to provide alternate liability coverage as specified in 40 CFR 264.147 and 265.147, as applicable, in the name of Evans
Industries, Ltd. Within 120 days after the end of such fiscal year, the guarantor shall establish such liability coverage
unless Evans Industries, Ltd. 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 Evans Industries, Ltd.,
unless Evans Industries, Ltd. 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 Evans Industries, Ltd. 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.
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10. 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) are located and to Evans Industries, Ltd., provided that this
guarantee may not be terminated unless and until Evans Industries, Ltd. obtains, and the EPA Regional Administrator(s)
approve(s), alternate liability coverage complying with 40 CFR 264.147 and/or 265.147.
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:
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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 primary 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: March 31,2002
International Sludges, Inc.
Jonathan P. Rockefeller
Chief Financial Officer, International Sludges, Inc.
Signature of Witness or Notary:
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State of Missouri
Office of the Attorney General
State Office Building
1400 Government Street
Jefferson City, MO
October 11, 2001
Mr. Jonathan P. Rockefeller
Chief Financial Officer
International Sludges, Inc.
4100 International Drive
Edmonton, Alberta
Canada
Dear Mr. Rockefeller:
Per your request, this office has reviewed a guarantee mechanism for third-party liabilities promulgated under the
Resource Conservation and Recovery Act (RCRA) and intended for the use of owners and operators of hazardous waste
management facilities. It is our opinion that a guarantee executed as described in 40 CFR 264.147(g) and 40 CFR
264.151(h)(2) is legally valid and an enforceable obligation in the state of Missouri.
Sincerely,
Clark Kent
Attorney General
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State of Pennsylvania
Office of the Attorney General
Box 4000 State Office Complex
Harrisburg, PA
December 22,2001
Mr. Jonathan P. Rockefeller
Chief Financial Officer
International Sludges, Inc.
4100 International Drive
Edmonton, Alberta
Canada
Dear Mr. Rockefeller:
Per your request, this office has reviewed a guarantee mechanism for third-party liabilities promulgated under the
Resource Conservation and Recovery Act (RCRA) and intended for the use of owners and operators of hazardous waste
management facilities. It is our opinion that a guarantee executed as described in 40 CFR 264.147(g) and 40 CFR
264.151 (h)(2) is legally valid and enforceable obligation in the state of Pennsylvania.
Sincerely,
John Smith
Attorney General
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CORPORATE GUARANTEE FOR CLOSURE
OR POST-CLOSURE CARE
Guarantee made this March 31, 2002 by International Sludges, Inc., a business corporation organized under the
laws of Canada, herein referred to as guarantor. This guarantee is made on behalf of Evans Industries, Ltd. of 125 Evans
Ct, Springfield, Missouri, which is our subsidiary, to the United States Environmental Protection Agency (EPA).
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. Evans Industries, Ltd. owns or operates the following hazardous waste management facility(ies) covered by
this guarantee:
Evans Industries, Ltd. - Springfield Plant
125 Evans Court
Springfield, MO
MOD-999-999-999
Closure
Evans Industries, Ltd. - York Plant #1
146 Industrial Park Drive
York, PA
PAD-543-210-987
Closure
Evans Industries, Ltd. - York Plant #2
200 Technology Avenue
York, PA
PAD-210-543-987
Closure and Post-Closure Care
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.
PARTICIPANT NOTE: THIS CORPORATE GUARANTEE FOR CLOSURE OR POST-CLOSURE CARE CONTAINS WORDING
IDENTICAL TO THAT SPECIFIED IN 40 CFR264.15KHX1)
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4. For value received from Evans Industries, Ltd., guarantor guarantees to EPA that in the event that Evans
Industries, Ltd. fails to perform 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 Evans
Industries, Ltd. 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 Evans Industries, Ltd. 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 Evans Industries, Ltd. Within 120 days after the end of such fiscal year, the guarantor shall establish such financial
assurance unless Evans Industries, Ltd. 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 Evans Industries, Ltd. unless Evans Industries, Ltd. 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 so long as Evans Industries, Ltd. 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 10 of this agreement.
10. 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 Evans Industries, Ltd., provided that
this guarantee may not be terminated unless and until Evans Industries, Ltd. obtains, and the EPA Regional
Administrator(s) approve(s), alternate liability coverage complying with 40 CFR 264.147 and/or 265.147.
11. Guarantor agrees that if Evans Industries, Ltd. 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
Adrninistrator(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 Evans Industries,
Ltd.
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12. Guarantor expressly waives notice of acceptance of this guarantee by the EPA or by Evans Industries, Ltd.
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 264.15 l(h) as
such regulations were constituted on the date first above written.
Effective date: March 31, 2002
International Sludges, Inc.
Jonathan P. Rockefeller
Chief Financial Officer, International Sludges, Inc.
Signature of witness or notary:
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AUDITOR'S REPORT
Pete Marlick Accountants
To the shareholders of International Sludges, Inc.:
We have audited the consolidated financial statements and explanatory sections of International Sludges, Inc. 's (ISI) 2001
Annual Report. The consolidated financial statements are the responsibility of ISI's management. Our responsibility is
to express an opinion on these consolidated financial statements, based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statement.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of ISI
on December 31, 1999, 2000, and 2001 and the results of its operations and its cash flows for the years then ended, in
accordance with generally accepted accounting principles, as established in Canada.
Toronto, Ontario
New York, New York
February 10, 2002
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Pete Marlick Accountants
February 28, 2002
Mr. Jonathan P. Rockefeller
Chief Financial Officer
International Sludges, Inc.
4100 International Drive
Edmonton, Alberta
Canada
Dear Mr. Rockefeller:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of
International Sludges, Inc. (ISI), as of December 31,2001, and have issued our report thereon, dated February 10,2002.
We have not audited any of ISI's financial statements as of any date subsequent to December 31, 2001 and we have not
applied any other procedures except for the one described in this letter. For the purpose of this letter, we have applied
the agreed-upon procedure described below to certain dollar amounts appearing in a letter from your Chief Financial
Officer (CFO's letter) submitted to comply with the U.S. Environmental Protection Agency's regulations set forth in 40
CFR Parts 264 and 265, or equivalent state regulations.
Our procedure consisted of comparing the dollar amounts designated in the CFO's letter as having been derived from ISI's
independently audited consolidated financial statements for the fiscal year ended December 31,2001 with the designated
financial statements.
Because the above procedure does not constitute an audit in accordance with generally accepted auditing standards, we
do not express an opinion on any of the dollar amounts referred to above. However, in connection with the procedure
referred to above, no matters came to our attention that caused us to believe that the amounts referred to above should be
adjusted.
Yours very truly,
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REQUIRED WORDING FOR SUBTITLE C CORPORATE GUARANTEE
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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. This guarantee is made on
behalf of the [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)]" to the United States Environmental Protection Agency (EPA).
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.
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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 so 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 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 of 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],
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provided that this guarantee may not be terminated 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 terminate 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].
11. 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].
12. 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
264.15l(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:
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GUARANTEE FOR LIABILITY COVERAGE
Guarantee made this [date] by [name of guaranteeing entity], abusiness 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 Stats 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 [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)]", 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 facility(ies) covered by this
guarantee.
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 264.147(g) and 265.147(g).
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; 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 liability 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 amount] 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 guarantee 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 parties caused by [sudden and/or nonsudden] accidental occurrences,
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arising from the operation of the above-named facilities, or fails 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 which [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 be 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:
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(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 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 liability coverage as specified in 40 CFR 264.147
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
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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 9 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 and 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 [the 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:
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(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:
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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
264.15l(h)(2) as such regulations were constituted on the date shown immediately below.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness or notary:
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8-1
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Module 8: Third-Party Liability Requirements
Module 8:
Subtitle C Third-Party Liability
Requirements
EPA
8-1
Notes:
This module includes requirements to be met by owners or operators of TSFS in demonstrating
compliance with third-party liability requirements. This section also includes key
implementation issues that regulators should consider when reviewing financial assurance
documentation from owners or operators of hazardous waste TSDFs.
8-1
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Module 8: Third-Party Liability Requirements
Notes:
Overview
module includes:
» Requirements for allowable mechanisms
» Differences between third-party liability and
closure/post-closure requirements
» Key implementation issues:
—Scope of insurance coverage
—Adjustments in coverage amounts
EPA
8-2
Many of the mechanisms that can be used to demonstrate financial assurance for closure and
post-closure care also can be used to meet requirements for third-party liability coverage.
8-2
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Module 8: Third-Party Liability Requirements
What Is Third-Party Liability?
Coverage for damages resulting in bodily injury or
property damage
Third-party claimants are beneficiaries (not the state)
Sudden accidental occurrences
» $1 million per occurrence
» $2 million annual aggregate
Nonsudden accidental occurrences
» $3 million per occurrence
» $6 million annual aggregate
EPA
8-3
Notes:
8-3
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Module 8: Third-Party Liability Requirements
What Is Third-Party Liability?
Owners or operators must notify the state when
notification requirements:
»A claim results in the reduction in the amount
of liability coverage
» A certificate of valid claim is entered into
between the owner or operator and the third-
party claimant
» A final court order establishing a judgment is
issued against the owner or operator
EPA
8-4
Notes:
The purpose of the notification requirement is to provide EPA and the states with early warning
of potential instrument failure due to pending claims and to provide EPA and the states with
data concerning the incidence of valid third-party claims. To achieve these goals, EPA requires
that owners or operators TSDF report to the states whenever:
- A claim results in a reduction in the amount of financial assurance for liability coverage
provided by an authorized financial instrument, or
- A certificate of a valid claim for bodily injury or property damages caused by a sudden
or nonsudden accidental occurrence arising from the operation of a TSDF is entered
into between the owner or operator and a third-party claimant, or
- A final court order establishing a judgment for bodily injury or property damage caused
by a sudden or nonsudden accidental occurrence arising from the operation of a TSDF
is issued against the owner or operator or an instrument providing financial assurance
for liability coverage.
8-4
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Module 8: Third-Party Liability Requirements
Notes:
Characteristics of Insurance fpr
Third-Party Liability
*• Ensures that funds will be available to pay the
costs associated with liability arising from bodily
injuries and property damage to third parties
*• Insurance policies for third-party liability must be
either:
» Evidenced by a certificate of liability insurance
» Amended by attachment of a hazardous waste
facility liability endorsement
EPA
8-5
The definitions "bodily injuries" and "property damage" are governed by state law.
8-5
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Module 8: Third-Party Liability Requirements
Required Wording
If a certificate of liability insurance is used, it
must be worded exactly as specified in 40 CFR
264.151(j)
lf a hazardous waste facility liability endorsement
is used, it must be worded exactly as specified in
40 CFR 264.151(i)
EPA
8-6
Notes:
Money is available for compensation of individuals.
Legal costs are not included.
First dollar coverage is required (i.e., deductible must be covered by insurer).
8-6
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Module 8: Third-Party Liability Requirements
Documents to Be Submitted to the
State Director
owner or operator must submit to the state
director:
» A copy of either of the following documents
with original signatures:
—The certificate of liability insurance
or
—The hazardous waste facility liability
endorsement
>> A copy of the insurance policy with original
signatures (if requested)
EPA
8'7
Notes:
8-7
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Module 8: Third-Party Liability Requirements
Qualifications of the Insurer
insurer must meet one of the two following
requirements:
» Licensed to transact the business of insurance
in one or more states
» Eligible to provide insurance as an excess or
surplus lines insurer in one or more states
EPA
8-8
Notes:
8-8'
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Module 8: Third-Party Liability Requirements
Period of Coverage for Third-Party
Liability Insurance
Owners or operators of new facilities must submit to the
state director at least 60 days before receipt of
hazardous waste at the facility either of the two
documents listed below:
» A certificate of liability insurance
or
» A hazardous waste facility liability endorsement
The insurance coverage must be effective before the
initial receipt of hazardous waste at the facility
Financial assurance for third-party liability must be
maintained until the facility has been certified closed
EPA
8-9
Notes:
8-9
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Module 8: Third-Party Liability Requirements
Financial Assurance for Third-Party
Liability vs. Closure/Post-Closure
Care
• Corporations with multiple facilities
• Active life vs. through post-closure
• Potentially less certainty for third-party liability
EPA
8-10
Notes:
The coverage amounts for third-party liability take into account the risk of multiple occurrences
in the same year among facilities belonging to one owner or operator. In contrast, a
corporation that owns or operates multiple facilities must provide financial assurance for an
amount equal to the sum of current closure and post-closure care estimates for all facilities
owned or operated by that corporation.
No third-party coverage is required after certification of closure. In contrast, owners or
operators are still responsible for maintaining financial assurance to cover costs of post-closure
care.
Closure/post-closure care cost estimates typically include detailed, "line-by line" estimates of
costs, including contingency factors. In contrast, third-party liability costs are much less
predictable, particularly in instances where a firm owns or operates more than one facility.
8-10
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Module 8: Third-Party Liability Requirements
Trust Funds for Third-Party Liability
«• No pay-in period is allowed
4- Must be worded per 264.151 (m)(1)
EPA
8-11
Notes:
Trust funds may be used to provide financial assurance for third-party liability for both sudden
and nonsudden accidental occurrences.
Trust funds must be funded fully when they are established for the total annual aggregate
amount of liability coverage to be provided. The reason for this requirement is that a third-
party could potentially file a claim (e.g., a lawsuit) at any time during the facility's active life.
The requirement is designed to prevent such claims from forcing owners or operators into
bankruptcy.
The trust agreement for third-party liability coverage must be worded exactly as specified in 40
CFR264.151(m)(l).
8-11
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Module 8: Third-Party Liability Requirements
Surety Bonds for Third-Party
Liability
financial guarantee bonds may be used
+ Must be worded per 264.151 (I)
*• Owner or operators must provide written
statements:
» From the surety's state of incorporation
>> From each state in which a facility is covered
by a surety bond
+ Statements must confirm that surety bonds are
legally valid and enforceable
EPA
8-12
Notes:
Financial guarantee bonds may be used to fulfill requirements for financial assurance for third-
party liability for both sudden and nonsudden accidental occurrences. Performance bonds are
not allowed, because, unlike closure and post-closure, there is no clearly-defined scope of
work to complete.
The bonds must be worded exactly as specified in 40 CFR 264.151(1).
If surety bonds are used to fulfill requirements for financial assurance for third-party liability, the
owner or operator must submit to the state director written statements from the attorney(s)
general or the insurance commissioner(s) of:
- The state in which the surety is incorporated
- Each state in which a facility covered by the surety bond is located
Each statement must confirm that the surety bond is a legally valid and enforceable obligation in
that state.
8-12
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Module 8: Third-Party Liability Requirements
Letters of Credit for Third-Party
Liability
+ Must be worded per 264.151 (k)
+ Owners of operators must:
» Designate third-party claimants as
beneficiaries, or
» Establish a standby trust fund
EPA
8-13
Notes:
Letters of credit may be used to fulfill requirements for financial assurance for third-party
liability for both sudden and nonsudden accidental occurrences.
The letter of credit must be worded exactly as specified in 40 CFR 264.151(k).
Owners and operators that elect to use a letter of credit to demonstrate financial assurance for
third-party liability must either:
- Designate third-party claimants as beneficiaries in the event of a valid claim
- Establish a standby trust fund and designate an independent trustee as the beneficiary
The standby trust fund, if used, must be worded exactly as specified in 40 CFR 264.151(n).
8-13
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Module 8: Third-Party Liability Requirements
Financial Test for Third-Party
Liability
requirements (except financial component)
are identical to closure/post-closure standards
+ CFO's letter must be worded per 264.151 (g)
+ Owners or operators that no longer qualify must
establish alternative financial assurance within
120 days of close of fiscal year
EPA
8-14
Notes:
The financial test may be used to provide assurance that an owner or operator can pay costs
for third-party liability without the use of insurance or another alternative mechanism.
Most of the financial test requirements for third-party liability are the same as those for
demonstrating financial assurance for closure and post-closure care. (One exception is that the
owner or operator is not required to meet any financial ratios to pass Alternative 1.) Examples
of these requirements include:
CFO's letter
- Accountant's letter
- Special report
When the financial test is used to demonstrate financial assurance for third-party liability, the
CFO's letter must be worded exactly as specified in 40 CFR 264.151 (g).
If the owner or operator no longer qualifies to use the financial test to demonstrate financial
assurance for third-party liability, the owner or operator must, within 120 days after the close of
the fiscal year, establish alternative financial assurance.
8-14
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Module 8: Third-Party Liability Requirements
Financial Test for Third-Party
Liability: Alternative 1
Net working capital = 6 x annual aggregate
Tangible net worth = 6 x annual aggregate
• Domestic assets = 90% of total assets or 6 x
annual aggregate
EPA
8-15
Notes:
To pass alternative 1 of the financial test for third-party liability, the owner or operator must:
- Have net working capital at least six times the annual aggregate amount of coverage
required for third-party liability
- Have tangible net worth at least six times the annual aggregate amount of coverage
required for third-party liability
- Have assets located in the U.S. equal to either:
or
90 percent of total assets
Six times the annual aggregate amount of coverage required for third-party
liability
8-75
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Module 8: Third-Party Liability Requirements
Financial Test for Third-Party
Liability: Alternative 2
+ Investment-grade bond ratings per S&P or
Moody's
+Tangible net worth = 6 x annual aggregate
*• Domestic assets = 90% of total assets or 6 x
annual aggregate
EPA
8-16
Notes:
To pass alternative 2 of the financial test for third-party liability, the owner or operator must
have:
- A current investment-grade bond rating of either:
or
AAA, AA, A, or BBB, as issued by Standard and Poor's
Aaa, A, A, or Baa, as issued by Moody's
Tangible net worth at least six times the annual aggregate amount of coverage required
for third-party liability
Assets located in the U.S. equal to either:
or
90 percent of total assets
Six times the annual aggregate amount of coverage required for third-party
liability
8-16
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Module 8: Third-Party Liability Requirements
Corporate Guarantee for Third-Party
Liability
Guarantee must be worded per 264.151 (h)(2)
Guarantor must submit a certified copy of guarantee
agreement
U.S. corporations must submit written statements:
» From the guarantor's state
» From each state in which a facility is covered by a
guarantee
Statements must confirm that guarantee is legally valid
and enforceable
EPA
8-17
Notes:
The corporate guarantee provides assurance that the guarantor can pay for third-party liability
on behalf of the owner or operator.
The guarantee agreement must be worded exactly as specified in 40 CFR 264.151(h)(2).
The guarantor must submit to the state director a certified copy of the guarantee agreement.
The guarantee agreement must ensure that, if the owner or operator fails to satisfy a valid claim
of third-party liability, the guarantor will do so up to the limits of coverage.
U.S. corporations must submit to the state director written statements from the attorneys
general or the insurance commissioners of:
- The state in which the guarantor is incorporated
- Each state in which a facility covered by the corporate guarantee is located
Each written statement must confirm that the corporate guarantee is legally valid and an
enforceable obligation in that state.
8-17
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Module 8: Third-Party Liability Requirements
Foreign corporations must submit to the state director written statements from the attorneys
general or the insurance commissioners of:
- The state in which the guarantor has its principal place of business
- Each state in which a facility covered by the corporate guarantee is located
Each written statement must confirm that the corporate guarantee is legally valid and an
enforceable obligation in that state.
Foreign corporations must identify a registered agent for service of process in:
- The state in which the guarantor maintains its principal place of business
- Each state in which a facility covered by the guarantee is located
8-18
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Module 8: Third-Party Liability Requirements
Third-Party Liability: Key
Implementation Issues - Scope of
Insurance Coverage
Regulators should have qualified personnel
review all insurance policies
Regulators should review policies for:
» Content of exclusions (pre-existing conditions)
» Deductibles
» Filing procedures
8-18
Notes:
Third-party liability regulations require compensation for bodily injuries and property damage
caused by accidental occurrences from TSDF operations. Such damages should be neither
"expected nor intended" by the owner or operator (40 CFR 264.141(g) and 265.141(g)).
While the regulations define accidental occurrence and other key terms, they also provide that
these definitions "are not intended to limit their meanings in a way that conflicts with general
insurance industry usage," but rather are intended to "be consistent with their common meanings
within the insurance industry." Also, the definitions of bodily injury and property damage do
"not include those liabilities which, consistent with standard industry practices, are excluded
from coverage" (40 CFR 264.141(g) and 265.141(g)).
The range of pre-existing conditions exclusions can be divided into broad and narrow
exclusions. Broad exclusions usually are part of the basic policy language used by an insurer,
while narrow exclusions are added to specific policies as endorsements to limit the scope of the
basic policy for a particular insured.
Broad pre-existing condition exclusions are "generic" exclusions applicable to all facilities
covered by a particular type of policy. Such exclusions generally apply to a specific type of
occurrence (e.g., a pollution incident known or expected by the insured or a release occurring
prior to the policy's effective date) or a particular type of damage (e.g., contamination of
ground water).
8-19
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Module 8: Third-Party Liability Requirements
Permissible broad exclusions may allow the insurer to limit its liability for current and certain
damages present at the start of the policy. Policies that make clear that pre-existing conditions
(releases likely to result in damages) must be known or reasonably foreseeable to the owner or
operator would be acceptable.
The Agency has determined that the following provide examples of acceptable broad pre-
existing conditions exclusions:
- "Insurance does not apply where the insured knew or could have reasonably foreseen
that claims would result." "Insurance will pay on behalf of the insured ... provided
always that the claim is made during the policy period and that the insured as of the
'First Coverage Date' did not know or might not have reasonably foreseen that such a
claim would result."
- "The policy will pay on behalf of the insured for damages caused by an occurrence ..,"
with occurrence defined as "a happening resulting in bodily injury or property damage
neither expected nor intended from the standpoint of the insured."
- "The insurance does not apply to damages arising from any environmental impairment
that was known or should have been known to the insured prior to the original policy
inception date."
- "This insurance does not apply to 'bodily injury,' 'property damage' or 'environmental
damage' expected or intended from the standpoint of the insured."
- "Insurance does not apply to damages from a release that the insured knew or could
reasonably have known had occurred."
The language in these examples is specific enough to provide guidance to insurers and is
consistent with the intent of the definition of accidental occurrence in, its focus on whether
damage, rather than a release, was expected or intended, or on whether the impairment was
known or should have been known. These exclusions are also consistent with industry practice
since they are now used by some insurers.
Narrow exclusions are coverage exclusions for damages related to a specific problem at a
specific facility. Such exclusions may be written for a particular area of contamination (e.g.,
contamination from waste unit X) or for a particular type of damage at a specific facility (e.g.,
groundwater contamination at facility A). Narrow exclusions are generally added, in an
accompanying endorsement, to the basic policy's broad exclusions and are intended to tailor
the policy to a specific facility.
8-20
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Module 8: Third-Party Liability Requirements
Narrow exclusions should be specific enough to prevent excessive limitations of policy
coverage. A narrow should be described so that there appears to be a basis for the exclusion
(i.e., damage must be expected from a known, actual release). To ensure that such a basis
exists, narrow exclusions should refer to a facility assessment that identifies the threatening
contamination. An acceptable exclusion should include a description of the media, type of
contamination, and specific location involved. Thus, such exclusions should specifically indicate
a current and reasonable belief that damage has occurred or is likely to occur.
Given this need for specificity, the Agency has identified the following sample language as
representative of acceptable narrow exclusions: All claims and costs resulting from:
- Groundwater contamination as identified in the facility assessment dated
- Groundwater contamination by light and gross hydrocarbons as identified in the facility
assessment dated
- Contamination arising from a release at unit A and identified in the facility assessment
dated ... at a facility XYZ in Smalltown, Any State, are not covered by this policy.
These types of exclusions specifically and clearly identify particular known existing problems
constituting current and certain - i.e., known or expected - damages that an insurer should not
be required to cover.
Less specific language, or language excluding certain damages from coverage due to facility
conditions causing insurers to expect, rather than know, there has been or will be a release, are
unacceptable. There should be clear evidence that a pre-existing condition in fact exists that
has a reasonable likelihood of resulting in damage. The Agency reviewed, and found
The following language is acceptable:
All claims and costs resulting from ...
a) Groundwater contaminations
b) Groundwater contamination by light and gross hydrocarbons ... at facility XYZ
in Smalltown, Any State, are not covered by this policy.
These exclusions are insufficiently narrow to justify an exclusion of a pre-existing condition.
They could be interpreted to exclude all groundwater damage, even that initially occurring
during the policy period. The coverage provided would thus be too limited to meet the
264.141(g) and 265.141(g) definition of accidental occurrence.
8-21
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Module 8: Third-Party Liability Requirements
Third-Party Liability: Key
Implementation Issues -
Adjustments in Coverage Amounts
+ Request for variances
+ Request for reduction in coverage
*Need for additional coverage
EPA
8-19
Notes:
Factors to consider when evaluating requests for variances include:
- Engineering design of the hazardous waste management unit(s)
- History of releases at the facility
- Volume of waste managed in the unit(s)
- Toxicity/mobility of wastes managed in the unit(s)
Reductions in coverage should be given only in instances where the state is certain that the
reduced amount of coverage will be sufficient.
Additional coverage should be considered, in certain circumstances, but generally should be
secondary to other permit conditions, such as additional engineering controls, or restrictions on
the types of and volumes of wastes be handled in the unit(s).
8-22
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Module 8: Third-Party Liability Requirements
Summary of the Module
* Third-party claimants are beneficiaries, not the
state
of the same mechanisms can be used for
third-party liability as can for closure or post-
closure
+ Coverage limits apply to all facilities owned by a
corporation
EPA
8-20
Notes:
8-23
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ATTACHMENTS
Glossary of Terms
Bibliography
Check Lists
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GLOSSARY OF TERMS
Account party
One who purchases or arranges for a letter of credit from a financial
institution.
Accountants opinion
Acknowledge,
acknowledgment
(of an instrument)
Adjusted cost estimate
Adverse opinion
Amortization
Asset
Assignment
Assured costs
Audit
See Report on Examination
Formal declaration before an authorized official such as a notary, by the
person who executed the instrument, that it is his or her free act and deed.
A cost estimate that has been updated using the appropriate inflation factor
within 30 days of the anniversary date on which the first cost estimate was
prepared.
Statement by an accountant that the financial statements of the firm or
municipality do not present fairly the financial condition of the firm in
conformity with generally accepted accounting principles.
Gradually reducing the accounting or "book" value of a fixed asset by
allocating part of the cost of the asset over time to individual accounting
periods. The term is used to refer to assets whose life is limited but which
do not physically wear out (intangible assets). Examples include
copyrights, patents, and leases. See Depreciation.
All existing and all probable future economic benefits obtained or controlled
by a particular entity. Any right or physical property that is owned and has
a monetary value.
A transfer by one party to a contract of some or all of the rights of the
contract to a third party.
The sum of costs assured by a financial test or corporate guarantee for all
EPA-implemented environment programs that require financial assurance.
For the purposes of meeting RCRA Subtitle D financial assurance
requirements, "assured costs" include costs for closure, post-closure care,
and corrective action that are assured through a financial test or corporate
guarantee for TSDF operations (40 CFR parts 264 and 265), MSWLF
operations (40 CFR part 258), underground storage tanks holding petroleum
(40 CFR part 280), underground injection control wells under the Safe
Drinking Water Act (40 CFR part 144), and commercial PCB storage
facilities under the Toxic Substances Control Act (40 CFR part 761).
Systematic inspection of accounting records involving analyses, tests, and
confirmations.
Automatic extension,
automatic renewal
Continuation of an insurance policy or letter of credit without the need
for renegotiation.
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Beneficiary
Bond rating
Captive insurer
Cash flow
Certified Public Accountant
(CPA)
Chief financial officer
Circular 570
Collateral
Common trust fund
Corporate guarantee
Cosurety
Closure or post-closure
insurance
One for whose benefit a trust or letter or credit is established, usually the
authorized state agency (the beneficiary for third-party liability claims is the
valid third-party claimant).
An assessment of the credit-worthiness of an obligor with respect to a
specific debt obligation (bond). Ratings take the form of letters — e.g., AA,
A, B, etc. For purposes of these regulations, Moody's and Standard &
Poor's are the only two acceptable bond-rating corporations. See also
Investment Grade.
An insurance company set up by a company or group of companies to
insure their own risks, or risks common to the group.
In accounting, a company's net income (sales minus operating expenses)
plus allowances for depreciation, depletion, and amortization. Represents
the funds available as working capital and for expansion.
An accountant with a special statement license indicating that he or she
meets certain requirements for the public practice of accounting. Although
requirements vary from state to state, all must pass a rigorous examination
administered by the American Institute of Certified Public Accountants.
The principal financial officer required to sign SEC Form 10-K's or the
equivalent.
Circular of the U.S. Department of the Treasury, published annually in the
Federal Register on July 1. The surety company issuing the surety bond
must be among those listed as acceptable sureties on federal bonds in
Circular 570.
A tangible security or property, usually readily convertible into cash, that is
deposited with a creditor to guarantee payment of an obligation. Either the
property itself or a document or title to it is held by the creditor until the
loan is repaid.
A trust fund into which funds from several individual trusts may be placed.
A guarantee by a direct or higher-tier parent corporation of the owner or
operator, or a firm that shares the same parent corporation as the owner or
operator, that it will meet all financial assurance obligations specified in the
regulations.
Two or more sureties who share one surety bond obligation.
A type of insurance coverage that provides funds for final closure or
post-closure care whenever required.
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Current assets
Current cost estimate
Current liabilities
Debt service
Depletion
Depreciation
Disclaimer of opinion
Discounting
Domestic assets
Excess or surplus lines
Face amount of policy
Cash or other assets or resources commonly identified as those which are
reasonably expected to be realized in cash or sold or consumed during the
normal operating cycle of the business or within one year if the operating
cycle is less than one year.
The most recent cost estimate which includes any revisions due to changes
in plan or inflation adjustments.
Obligations whose liquidation is reasonably expected to require the use of
existing resources properly classifiable as current assets or the creation of
other current liabilities or those expected to be satisfied within a relatively
short period of time, usually one year.
For a municipality evaluating its qualifications for the Subtitle D financial
test, the term "debt service" is the amount of principal and interest due on a
loan(s) in a given period, typically the current year.
In accounting, an allowance made for the shrinkage or exhaustion of a
natural resource.
In accounting, the method of allocating part of the cost of an asset that will
be used up over time to several accounting periods.
Statement that the auditor does not express an opinion on the financial
statements of the firm.
The procedure, under Subtitle D regulations at 40 CFR 258.75, that allows
an owner or operator to adjust (reduce) the value of cost estimates for
closure and post-closure care and to obtain financial assurance for an
amount less than the aggregate of the closure and post-closure care
estimates. Discounting allows an owner or operator of a MSWLF to
establish financial assurance for the present value of aggregated closure
and post-closure care costs, and thereby take advantage of the time value
of money.
The sum of all assets held by a corporation or a municipality that are
located within the boundaries of the United States of America.
The designation that a state gives to insurance companies which are not
licensed to transact business in that state. Because such companies, also
known as "non-admitted insurers," cannot be regulated, states include
specific regulations for agents and broker or agent's license.
Face value of an insurance policy; the total amount the insurer is obligated
to pay under the policy.
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Face value
Fiduciary
Financial guarantee bonds
The value of a security, insurance policy, or letter of credit, expressed as a
specific sum of money, which is printed, stamped, or otherwise marked on
its face. The face value of a bond is usually the amount the issuer
promises to pay at maturity.
A person whose duty is to act on behalf of another or to protect the
interests of another. A trustee is a fiduciary.
A type of surety bond under which the surety agrees to pay the penal sum
of the bond if the owner or operator fails to fulfill his closure and/or post-
closure obligations.
Financial ratings of insurers Similar to a bond rating, an assessment of the credit-worthiness of an
insurance company with respect to its future obligations.
Financial statements
Financial test
Form 10-K, form 10-Q
General obligation bonds
General obligation debt
Government guarantee
GNP deflator
Formal reports of the status of accounts at a particular time, prepared to
show the operating results and financial condition of the firm. The
statements include the balance sheet, income statement, and statement of
changes in financial position.
Criteria specified in regulations which an owner, operator, or corporate or
local government guarantor must pass to establish financial assurance.
A type of report that U.S. corporations file with the Securities and
Exchange Commission. The 10-K is submitted annually; the 10-Q
quarterly.
Bonds that are issued by municipalities typically to raise money to purchase
long-term assets, such as an automobile fleet. The obligations under these
bonds may be repayed from a sinking fund developed using tax revenues.
The debt incurred by a municipality as a result of issuing general obligation
bonds.
A process in which a municipality (the guarantor) guarantees the
performance of closure or post-closure care on behalf of another
municipality (the guarantee). The guarantor must meet all the
requirements applicable to the financial test for the guarantee.
Weighted price index that may be used to reflect the rates of inflation. It is
derived by dividing current-dollar Gross National Product (GNP) by
constant-dollar GNP. See also Inflation factor.
Grantor
Guarantor
One who creates a trust. Also called a trustor.
A corporation or local government that provides a corporate or local
government guarantee.
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Inflation factor
Insurance
Insured
Insurer
Interim status facilities
Investment grade
Irrevocable
Issuer
Jointly and severally
responsible
The price index used to update cost estimates for closure and post-closure
care, in order to account for inflation. The indices used are the GNP or
GDP deflators.
A contractual agreement under which an insurer agrees to compensate an
insured against a loss. With respect to RCRA Subtitle C and D financial
assurance requirements, insurance is an agreement, evidenced by a
certificate of insurance and an insurance policy, that guarantees that funds
will be available for the performance of closure or post-closure care
activities for owners or operators of TSDFs or MSWLFs, or payment of
costs associated with valid claims arising from third-party liability for
TSDFs.
A corporation or municipality that must perform closure and post-closure
care as directed by a third party (the beneficiary). For the purposes of
RCRA Subtitle C and Subtitle D financial assurance requirements, the
"insured" are owners or operators of TDSFs or MSWLFs.
An entity that promises payment of the costs of closure or post-closure
care or the costs associated with third-party liability. In the case of Subtitle
C and Subtitle D financial assurance requirements, the insurer is an
insurance company that meets applicable requirements to issue insurance
in the state in question.
Existing hazardous waste management facilities for which notification
under RCRA Section 3010 has been provided and Part A of the RCRA
permit application have been submitted. Facility owners and operators with
interim status are treated as having been issued a permit until the
authorized agency makes a final determination on the permit application.
Facility owners and operators with interim status are not relieved from
complying with other state requirements.
A bond or other debt instrument with a rating from Moody's of Aaa, Aa,
A, or Baa; or a rating from Standard & Poor's fo AAA, AA, A, or BBB.
That which cannot be revoked or recalled. All RCRA Subtitle C trusts
must be irrevocable. A Subtitle C irrevocable letter of credit cannot be
cancelled unless alternate assurance is substituted or the account party is
released from financial assurance requirements.
The party who issues an insurance policy, letter of credit, or surety bond.
A liability is said to be joint and several when the creditor may sue one or
more of the parties to such liability separately, or all of them together at his
or her option. Any one of these parties may be liable for the entire
amount.
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Letter of credit
Liabilities
Marketable securities
Moody's
Net income
Net working capital
Net worth
Nominal sum
Obligee
Operating deficit
Originally signed duplicate
Pay-in period
Penal sum
Performance bonds
A letter or instrument authorizing that credit up to a particular amount be
extended to the person named therein.
Probable future sacrifices of economic benefits arising from present
obligations to transfer assets or provide services to other entities in the
future as a result of past transactions or events.
Instruments representing actual ownership interest, or the rights to buy or
sell such interests, and which are actively traded or listed on a national
securities exchange. Marketable securities include stock, and the right to
buy or sell stock through stock options.
One of the two bond-rating agencies acceptable for purposes of these
regulations.
The difference between total sales and total costs of goods sold plus
expenses over the fiscal year.
Current assets minus current liabilities.
Total assets minus total liabilities; is equivalent to owner's equity.
A small amount of money with which a standby trust fund is often started.
One in favor of whom the surety is obliged in a surety bond. In RCRA
surety bonds, the authorized state agency typically is the obligee.
For a municipality, the difference between total annual revenues and total
annual expenditures.
A copy of a document with an original signature.
Period of time during which the owner or operator must make payments
into the trust fund. For TSDFs with interim status, the pay-in period is 20
years or the remaining operating life of the facility as estimated in the
closure plan, whichever is shorter. For permitted TSDFs and MSWLFs,
the pay-in period is the term of the permit or the remaining operating life of
the facility, whichever is shorter.
An amount agreed upon in a bond, to be forfeited if the condition of the
bond is not fulfilled. It represents the maximum liability of the surety.
A type of surety bond under which the surety agrees to either pay the
penal sum of the bond or perform the required actions if the owner or
operator fails to fulfill his obligation. Performance bonds may only be used
for permitted facilities.
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Permitted facilities
Power of attorney
Premium payments
Principal
Qualified opinion
Reinsurance
Report on examination
Rider
Securities or other
obligations
Share the risk
Facilities which have received hazardous waste permits or permits for
MSWLF operations.
A written authorization authorizing another to act as one's agent or
attorney.
The periodic payments of money that the policy holder agrees to pay the
insurer for an insurance policy.
One who establishes a surety bond. For RCRA Subtitle C and Subtitle D
surety bonds, the owner or operator is the principal.
Statement by an accountant that the financial statements of a firm present
fairly the financial condition of the firm, subject to certain conditions, or
except for certain limitations.
A contract between and insurer or surety and another party, called the
reinsurer, in which the reinsurer agrees to protect (reinsure) the insurer or
surety against loss on some of its insurance. Reinsurance allows an insurer
or surety to share the risk among more parties and issue more policies or
bonds within its allowable limits.
The independent certified public accountant's report on the financial
statements, support schedules, and footnotes. Often referred to as the
accountant's report or the auditor's opinion. The report on examination
usually contains two paragraphs - a scope paragraph and an opinion
paragraph. The scope paragraph indicates the financial presentations
covered by the opinion and affirms that generally accepted auditing
standards and practices have been followed by the auditors. The opinion
paragraph contains the accountant's opinion of the financial statements,
schedules and footnotes. The opinion can be unqualified, qualified, or
adverse; or there can be a disclaimer of opinion. See qualified opinion,
unqualified opinion, adverse opinion, and disclaimer of opinion.
In insurance, a form adding special provisions to a policy. For RCRA
Subtitle C bonds, an optional rider allows the owner or operator to increase
the penal sum by up to 20 percent per year without renegotiating the bond.
Written instruments showing evidence of indebtedness of a business or
government or equity ownership of a business. Bonds are securities that
bear interest.
An action in which a surety company or insurance company enters into an
agreement with other companies to share a potential obligation. Also
called a cosurety agreement, coinsurance, or reinsurance.
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Special report
Standard & Poor's
Standby trust fund
Surety or surety company
Surety bond
Tangible net worth
Third-party liability
Total expenditures
Trust
Trust agreement
Trust fund
Trustee
The independent certified public accountant's confirmation that states that
the financial data in the letter from the Chief Financial Officer were
derived from the annual report and need no adjustment.
One of the two bond-rating agencies acceptable for purposes of these
regulations.
A trust fund which must be established by an owner or operator who
obtains a RCRA letter of credit or surety bond. The institution issuing the
letter of credit or surety bond will deposit into the standby trust fund any
drawings by the authorized agency (usually the state) on the letter of credit
or bond.
A person who undertakes to pay money or do any other act in the event
that another party fails therein.
A contract in which a party called the "surety", guarantees that certain
obligations, such as the payment of money, will be paid if another party
fails to perform his obligations.
Net worth minus intangible assets, such as goodwill and rights to patents or
royalties.
Liability that is incurred by owners or operators of TSDFs as a result of (1)
bodily injury, or (2) property damage. The definitions of the terms "bodily
injury" and "property damage" vary according to the definitions established
under state law.
For a municipality that is considering the use of the Subtitle D financial test
or corporate guarantee for local governments, expenses that are required
for the day-to-day operation and maintenance of the municipality, including
labor, taxes, utilities, and interest on debt obligations.
A right of property, real or personal, held by one party for the benefit of
another. The grantor or trustor creates the trust; the trustee holds the
property held in trust; and the beneficiary is the party for whose benefit the
trust is created.
The document which establishes a trust.
A trust fund establishes a reserve of capital to pay claims for the
completion of closure and/or post-closure obligations.
The person appointed, or required by law, to execute a trust, i.e., to hold
and protect trust assets and invest them responsibly and according to the
terms of the trust agreement for the benefit of the beneficiary.
Trustor
One who creates a trust by depositing assets into it. Also called a grantor.
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Underwrite (a risk) To insure life or property; to assume a risk. In insurance, a person or
company undertakes all or part of the risk against theft, fire, death, or
whatever the policy stipulates, in exchange for a payment called a
premium.
Underwriting limitation The maximum amount allowed by law for which a surety can issue a
surety bond. The limit may be exceeded if the surety "shares the risk" of
the obligation, and then still may not exceed the combined underwriting
limitation of those companies.
Unqualified opinion Statement by an accountant that the financial statements of a firm present
fairly the financial position, results of operations, and changes in financial
position in conformity with generally accepted accounting principles
consistently applied.
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BIBLIOGRAPHY
The following documents were used in the development of this training manual:
40 CFR Part 257 and 258 Solid Waste Disposal Facility Criteria; Final Rule. 56 FR 50978.
October 9, 1991.
• 40 CFR Part 258 Financial Assurance Mechanisms for Local Governments Owners and
Operators of Municipal Solid Waste Landfill Facilities; Final Rule. 61 FR 60328. November 27,
1996.
• 40 CFR Part 258 Financial Assurance Mechanisms for Corporate Owners and Operators of
Municipal Solid Waste Landfill Facilities; Final Rule. 63 FR 17704. April 10, 1998.
• Financial Assurance for Closure and Post-Closure Care: Requirements for Owners and
Operators of Hazardous Waste Treatment, Storage, and Disposal Facilities - A Guidance Manual.
SW-955. May 1982.
• Standards Applicable to Owners and Operators of Hazardous Waste Treatment, Storage, and
Disposal Facilities Under RCRA Subtitle C, Section 3004 - Financial Requirements, Interim Status
Standards (40 CFR Part 265, Subpart H). SW-393. 1981 (Reprinted 1984 With Addendum).
• Background Document - Final Rule: Closure/Post-Closure and Financial Responsibility
Requirements for Hazardous Waste Treatment, Storage, and Disposal Facilities. EPA 530-SW-
88-009.
• Draft Background Document: Closure/Post-Closure Care and Financial Responsibility
Requirements (Subpart C, Sections 258.30 - 258.32) - Criteria for Municipal Solid Waste Landfills
(40 CFR Part 258). EPA/530-SW-88-041. August 18, 1988.
• Liability Coverage: Requirements for Owners or Operators of Hazardous Waste Treatment,
Storage, or Disposal Facilities - A Guidance Manual. SW-961. 1982.
• Final Report on the Feasibility of Using Various Mechanisms to Demonstrate Financial
Assurance for the Long-Term Treatment of Acid Mine Drainage. June 21, 2000.
• Regulatory Impact Analysis of Proposed Changes in Financial Assurance Requirements for Solid
Waste Management Facilities in Florida. December 15, 1998.
The following documents were used in the development of this training manual and are attached for the
reference of the participants:
• RCRA Hotline Monthly Report Question Response Regarding Financial Assurance Adjustments
on a Quarterly Basis. EPA-R-94-005f.
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Memorandum from John H. Skinner, Acting Director, EPA Office of Solid Waste, to Bradley E.
Dillon, Associate General Counsel, US Ecology Inc. Regarding the Applicability of Financial
Assurance Requirements to Federally Owned or Operated Facilities That Also Are Owned or
Operated by a Private Entity. January 5, 1983.
RCRA Hotline Monthly Report Question Response Regarding "GNP vs. GDP for Cost
Adjustments Under RCRA". EPA-R-94-005f.
Memorandum From Elizabeth Cotsworth, EPA Office of Solid Waste, to Senior RCRA Policy
Advisors and RCRA Enforcement Managers, Regarding Obsolete Language in the Financial Test
for Subtitle C Treatment, Storage, or Disposal Facilities. February 27, 1997.
RCRA Hotline Monthly Report Question Response Regarding Adjustment of Post-Closure Care
Trust Funds Used for Financial Assurance. November 1988.
RCRA Hotline Monthly Report Question Response regarding Determination of Trust-Fund Pay-
In Period for TSDFs with Hazardous Waste Management Units With Different Closure Dates.
June 1986.
RCRA Hotline Monthly Report Question Response Regarding Changing Financial Assurance
Mechanisms During Post-Closure. Undated.
RCRA Hotline Monthly Report Question Response Regarding Annual Payments Into a Standby
Trust Fund When Using a Letter of Credit. EPA 530-R-96-0021. 1996.
Memorandum From Stephen Heare, Acting Director, EPA Office of Solid Waste, Permits and
State Programs Division, to Billie S. Flaherty, Beazer East, Inc. regarding interpretation of the
term "annual aggregate" with respect to use of a letter of credit for third-party liability coverage.
Undated.
Memorandum from Sylvia Lowrance, Director, EPA Office of Solid Waste to RCRA Branch
Chiefs, EPA Regions 1-10. Regarding reporting requirements for bodily injury or property
damage claims at TSDFs. January 25, 1990.
Memorandum from Marcia Williams, Director, EPA Office of Solid Waste, to EPA Regional
Waste Management Division Directors, Regions 1-10. Regarding Guidance for Reviewing
Exclusions for Pre-Existing Conditions in RCRA TSDF Insurance Policies. November 23, 1987.
RCRA Hotline Monthly Report Question Response Regarding Definition of Liability for Purposes
of Requirements Related to the RCRA Subtitle C financial Test. March 1986.
RCRA Hotline Monthly Report Question Response Regarding Service Charges for Stand-By
Trust Funds. Undated.
Memorandum from Joseph S. Carra, Director, EPA Office of Solid Waste, Permits and State
Programs Division to EPA RCRA Branch Chiefs, EPA Regions 1-10, Regarding Acceptable
Bond Ratings for Use in the Subtitle C Financial Test. May 16, 1989.
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PPC: 9477.1994(02)
EPA: 530-R-94-005f
NTIS: PB94-922 406
FAXBACK 13677
4. Financial Assurance Cost Adjustments On a Quarterly Basis
The financial assurance regulations of 264/5.142(b)
require the owner/operator of a TSDF to annually adjust closure
and post-closure costs. For a facility adjusting costs via
implicit price deflator (IPD), the cost adjustments must be made
within 60 days prior to the anniversary of the establishment of
the facility?s financial assurance (or within 30 days after the
close of a facility?s fiscal year for owner/operators using the
financial test or corporate guarantee). If a facility?s
anniversary date of financial assurance (or fiscal year) does not
coincide with the issuance of the annual IPD, how should the
facility adjust its costs?
If a facility?s financial assurance anniversary date or
fiscal year does not coincide with the issuance of the annual
IPDs, the owner/operator may use the latest IPD (for example, if a
facility must update their financial assurance in February of
1994, the facility may use the 1992 annual IPD, despite the time
lag). The U.S. Department of Commerce usually publishes the
annual IPD based on Gross National Product (GNP) in March, and the
Gross Domestic Product (GDP) IPDs in February; the owner/operator
may use either figure. Alternatively, the owner/operator may use
quarterly IPD figures published by the Department of Commerce,
obtaining the inflation factor by dividing the current quarterly
IPD by the IPD for the same quarter in the previous year (e.g.,
divide first quarter 1994 by first quarter 1993). If a facility?s
anniversary date or fiscal year does not coincide with the
issuance of the annual IPD, the facility may use the most current
annual or quarterly IPD, however owner/operators must be
consistent in their use of either annual or quarterly IPDs to
calculate the inflation factor. Some owner/operators may be
required by their state regulations to update financial assurance
cost estimates on a quarterly basis.
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FAXBACK12114
9477.1983(01)
SUBPART H FINANCIAL RESPONSIBILITY REQUIREMENTS
January 5, 1983
Mr. Bradley E. Dillon
Associate General Counsel
US Ecology, Inc.
3200 Melbville Road, Suite 526
P.O. Box 7216
Louisville, Kentucky 40207
Dear Mr. Dillon:
Your letter of November 5, 1982, raises a question about the
applicability of the Subpart H, Financial Responsibility
requirements to a US Ecology facility. Your specific concern is
the extent of your responsibility for compliance in view of the
265.140(c) exemption for States and Federal government and
the fact that your facility operates on land leased from the
State of Nevada.
Section 265.140(c) states "States and the Federal government
are exempt from the requirements of this subpart." The Subpart H
regulations apply to owners and operators; while either party may
fulfill the requirements, the Agency may take action against
either or both of the parties in the event of noncompliance. The
Agency interprets this exemption to mean that where one party
(the owner or the operator) is an exempted party because it is a
State or Federal governmental unit, the other, private sector
party need not comply with the Subpart H requirements. However,
a State or Federal agency owner may, of course, require the
private sector operator by contractual agreement to demonstrate
financial responsibility.
I suggest that you confer with staff at EPA Region IX and
the state of Nevada to determine the extent and applicability of
responsibility for the concerned parties under the Resource
Conservation and Recovery Act regulations. You should be aware
that RCRA Subpart G regulations, which stipulate the
requirements for performance of closure and post-closure care, do
not contain any such exemption. The exemption applies only to
the Subpart H regulations, which contain the requirements for
proving financial responsibility for closure and post-closure
care and for liability coverage.
Sincerely,
John H. Skinner
Acting Director
Office of Solid Waste
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PPC: 9477.1994(03)
EPA: 540-R-94-005f
NTIS:PB94-922406
FAXBACK 13676
"GNP v. GDP for Cost Adjustments Under RCRA"
Key Words: Cost adjustment; financial assurance; implicit price
deflator
QUESTION: The RCRA financial assurance regulations at
264/5.142(b) require the owner or operator of a TSDF to provide
financial assurance to cover closure and post-closure costs. The
regulations require the owner or operator to calculate closure
and post-closure cost estimates and adjust them annually by
either recalculating the cost estimate in current dollars, or by
multiplying the previous estimate by an inflation factor. The
inflation factor is calculated by dividing the current Implicit
Price Deflator (IPD) by the previous IPD. For those
owner/operators who choose this method, must the inflation factor
be calculated using the IPD based on Gross National Product
(GNP), or may the IPD based on Gross Domestic Product (GDP) be
used instead?
ANSWER: Although 264/5.142(b) specifies using an IPD based on
GNP, EPA allows owners/operators to update cost estimates using
the annual IPD based on GDP. The IDP based on GDP produces
similar results to the IPD based on GNP, however, the IDP based
on GDP is available to owners/operators two months before the IDP
based on GNP. The IDP based on GDP was not available at the time
this regulation was issued. When financial assurance regulations
were originally promulgated, the Department of Commerce used GNP
figures to calculate the IPD, but in recent years has favored GDP
as a basis for the IPD because the data better represent national
output. The IPD is a measure of the change hi the relative
nominal value of a dollar due to inflation as well as to changes
in the composition of GNP or GDP. Because changes in inflation
will affect the value of a dollar, IPDs are used to accurately
compare costs over time. Whichever type of deflator is used, be
it the IPD based on GNP or GDP, the owner/operator must use only
that type for all cost estimates and adjustments, since each
deflator is based on different data. An owner/operator may
choose to switch deflators, but must adjust previous cost
estimates accordingly. Annual IPDs based on GNP are usually
published by the Department of Commerce each March; annual IPDs
based on GDP are published each January. In the interest of
maintaining as accurate records as possible, the Department of
Commerce reviews IPDs for the previous three years each August,
making any changes to previous figures as necessary. Facilities
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cost adjustments should reflect as soon as practicable any
changes to previous IPDs as a result of this review. Annual IPDs
since 1987 are as follows:
GNP GDP
1987 100.0 100.0
1988 103.9 103.9
1989 108.5 108.5
1990113.2 113.3
1991 117.7 117.7
1992121.1 121.1
1993 124.1 124.2
(June 1994 Monthly Hotline Report)
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
FEE 27, 1997
Memorandum
Subject: Obsolete Language in the Financial Test for Subtitle C Treatment Storage and
Disposal Facilities
From: Elizabeth A. Cotsworth, Acting Director
Office of Solid Waste
To: Senior RCRA Policy Advisors
RCRA Enforcement Managers
This memorandum provides guidance to Regions and States on an acceptable form for
the independent certified public accountant's (CPA's) special report that owners or
operators must submit when using the financial test and corporate guarantee to comply
with EPA's financial assurance regulations. This guidance is necessary because the
regulatory requirement (that the CPA's report provide "negative assurance") has become
inconsistent with current professional auditing standards.
Background on the Regulations
Subpart H of 40 CFR parts 264 and 265 allows owners and operators of RCRA treatment,
storage, and disposal facilities to use a financial test or a corporate guarantee to
demonstrate financial assurance. In using the financial test or corporate guarantee, the
owner or operator's chief financial officer (CFO) must submit (1) a letter using the
language specified in 40 CFR 264.151 to report financial information and test results, (2)
a copy of the firm's audited year end financial statement, and (3) a copy of a special
report from a CPA. The CPA's special report presents the procedures performed and
findings based on the CPA's comparison of the data which the chief financial officer's
letter specifies as coming from the independently audited year end financial report with
the amounts in the audited financial statements. The regulations also require the CPA's
report to state that "In connection with that procedure, no matters came to his attention
which caused him to believe that the specified data should be adjusted" (see, for example,
40 CFR part 264.143(f)(3)(iii)(B)). This is referred to by the auditing profession as a
"negative assurance."
The CFO's letter must discuss any adjustments made in the data to report the results of the
financial test that differ from the amounts in the audited financial statements. The purpose
of the CPA's special report on the CFO's letter is to ensure that information provided in
the financial test is consistent with information in the firm's audited financial statements.
This is particularly important when information cannot be checked directly against the
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financial report because of adjustments by the chief financial officer. An allowable
adjustment by the chief financial officer for the Subtitle C financial test was discussed in
the preamble to the proposed corporate financial test for municipal solid waste landfills
(59 FR 51530, October 12, 1994). The preamble states that in reporting for "post-
retirement benefits other than pensions" (e.g. health benefits for a company's retirees), the
Financial Accounting Standards Board Statement 106 allows either an immediate or
deferred recognition of these benefits as liabilities. Since either method is allowable
under generally accepted accounting principles for financial reports, EPA will allow
companies to use the immediate recognition method for their financial reporting to the
Securities and Exchange Commission and the delayed method for purposes of the
financial test.
New Professional Standards for CPAs Do Not Permit Expressions of Negative Assurance
In performing audits and other types of work, CPAs must follow certain professional
standards. The American Institute of Certified Public Accountants, Inc.'s (AICPA's)
Statement on Auditing Standards no longer permits independent auditors to express
negative assurance (i.e. "no matter came to his attention which caused him to believe that
the specified data should be adjusted."). The new standards require the auditor to present
the results of procedures performed in the form of findings, and explicitly disallow
issuing "negative assurance." This has left many accountants, corporations and States
uncertain how to fulfill the regulatory requirement for using the financial test.
Use of a Report from an "Agreed Upon Procedure"
The Agency intends to change the regulations so that they conform to the new
professional auditing standards. Until that rulemaking is completed, in addition to, or in
lieu of, a CPA report stating that "no matter came to his attention," EPA will accept a
CPA's report describing the procedures performed and related findings, including
whether or not there were discrepancies found in the comparison, based on an agreed-
upon procedures engagement performed in accordance with AICPA's Statement on
Auditing Standards No.75, Engagements to Apply Agreed-Upon Procedures to Specified
Elements, Accounts or Items of a Financial Statement. (In an agreed-upon procedures
engagement an accountant is engaged by a client to issue a report of findings based on
specific procedures performed on the specific items of a financial statement.) The Agency
will regard this report as satisfying the requirements of the financial test or corporate
guarantee for a special report by an independent CPA on the CFO's letter.
Please distribute a copy of this memo to your authorized states. Also, if you or your
authorized States have any questions on this issue, please feel free to contact Dale Ruhter
at
(703)308-8192.
cc: Steven Herman, OECA
Tom Kennedy, ASTSWMO
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Faxback 13234
9477.1988(05)
RCRA/SUPERFUND HOTLINE MONTHLY SUMMARY
NOVEMBER 88
1. Adjustment of Post-Closure Trust Funds Used for Financial Assurance
A TSD facility has been in post-closure care for one year. The facility
owner or operator had established a post-closure trust fund to meet their
financial assurance obligations. Can the facility owner or operator remove
from the trust fund the amount which exceeds the remaining cost of post-
closure care?
According to Section 264.145(a)(10), during the period of post-closure
care, the Regional Administrator (RA) may approve a release of funds if
the owner or operator demonstrates to the RA that the value of the
trust fund exceeds the remaining cost of post-closure care. Therefore,
the facility owner or operator must receive approval for the release of
excess funds from the RA, prior to removing that amount from the trust
fund.
Source: Mark Pollins (202) 382-6259
Research: Kim Jennings
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Faxback 12659
9477.1986(11)
RCRA/SUPERFUND HOTLINE MONTHLY SUMMARY
JUNE 86
3. Financial Requirements/Closure Costs
The regulations under 40 CFR 265.143(a) apply to the use of a trust
fund as a financial assurance mechanism for closure of an interim
status facility. Section 265.143(a)(3) requires the owner/operator
to make annual payments into the fund throughout the "pay-in period."
The "pay-in period" is defined as the 20-year period following July
6, 1982 (the effective date of the regulation per 47 FR 15032) or
the remaining operating life of the facility, whichever period is
shorter. An interim status facility with three surface impoundments
has estimated different closure dates for each unit. If the facility
uses a trust fund for closure/financial assurance, how does it make
adjustments in the pay-in period for the different closure dates?
Do the new closure/financial assurance regulations, effective October
29, 1986 (see the May 2, 1986 Federal Register)(51 FR 16422)), change
these requirements?
Assuming that the estimated closure dates fall before July 6,
2002 for the units, the pay-in period for the facility would
equal the pay-in period for the units closing last. Specifically,
Section 265.143(a)(3) states that the owner/operator must make
payments into the trust fund "over the remaining operating life
of the facility as estimated in the closure plan...." For
example, if unit A closes in six years, unit B in eight years,
and unit C in ten years, the pay-in period would be ten years.
Closure of the first two impoundments would constitute partial
closure, as defined in 260.10, so that the facility would
continue operating until the last unit closed. A definition
of "final closure" was added to 260.10 by the May 2,1986
regulations.
The new closure/financial assurance regulations published in
the May 2,1986 Federal Register (51 FR 16422) do not directly
affect the current pay-in period system. EPA requested comments
on the system in the preamble to the proposed closure/financial
assurance regulations published in the March 19,1985 Federal
Register (see 50 FR 11068). Some comments suggested that the
pay-in .period should be as long as the shortest operating life
of a unit at a multiple process facility. EPA believes that
the accelerated pay-in period may be cost-prohibitive for
smaller facilities and discourage owners/operators from conducting
partial closures (51 FR 16438). Presently, EPA will maintain
the existing pay-in period regulations and evaluate the situation
further.
Source: Michael Northridge (202) 382-4790
Research: Jennifer Brock
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1. Changing Financial Assurance Mechanisms During Post-Closure
A permitted treatment, storage, and disposal facility (TSDF) uses
The financial test to satisfy the 30-year maintenance and monitoring post-closure
period financial assurance requirements (40 CFR Section 264.145(1)). If the owner
or operator no longer passes the financial test, he must establish an alternative
financial assurance mechanism to fund the remainder of post-closure care. One
option is to use a trust fund. If the facility chooses to utilize a trust fund for the
remainder of the post-closure period, what would be the pay-in period?
The facility does not have a pay-in period. The owner or operator must establish
a fully funded trust fund that can immediately cover all remaining costs of post-
closure care. If an owner or operator initially chooses the trust fund as the
financial assurance mechanism, the owner or operator would contribute
annually to the trust fund over the term of the initial RCRA permit, or over the
remaining operating life of the facility, whichever period is shorter, as specified
in the closure plan (Section 264.145(a)(3)). If the owner or operator switched from
the financial test or any other mechanism to the trust fund during the operating
life of the facility, the first payment into the trust fund would have to equal the
amount the fund would have contained if the trust fund were used initially
(Section 264.145(a)(5)). In both cases, by the time the facility began the post-
closure period, the fund would contain enough money to cover the full cost of
post-closure care. In contrast, phasing payments into a trust fund during a post-
closure pay-in period would not meet the requirement that the facility
provide full funding for post-closure at the time of post-closure activity.
A TSDF switching to a trust fund during post-closure must ensure that the first
payment into the fund is the full amount to cover post-closure care, since the
facility would need to draw from that fund immediately in the event that it must
cover the costs of monitoring and maintenance. The facility in the example has to
either switch to a fully funded trust fund, or establish some other financial
assurance mechanism. This guidance also applies to interim status facilities.
Faxback 14129
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FAXBACK 13348
9477.1990(01)
BODILY INJURY/PROPERTY DAMAGE CLAIMS AT TSDFs
JAN 2 5 1990
MEMORANDUM
SUBJECT: Clarification of 40 CFR 264.147(a)(7), (b)(7),
and 265.147(a)(7), (b)(7)
FROM: Sylvia K. Lowrance, Director
Office of Solid Waste, (OS-300)
TO: RCRA Branch Chiefs, Regions I-X
This memorandum clarifies the regulations at 40 CFR
264.147(a)(7), (b)(7) and 265.147(a)(7), (b)(7), which require
an owner or operator of a hazardous waste treatment, storage, or
disposal facility (TSDF) to report to the Agency claims for
bodily injury or property damage that result from operation of
the facility. We believe this clarification is necessary because
the Agency has been asked what types of information owners and
operators must report to comply with those provisions.
The reporting requirement in those sections was promulgated
as part of a rulemaking related to liability coverage on
September 1,1988 and became effective on October 3,1988. Those
sections state that owners or operators must notify the Regional
Administrator in writing within 30 days (i) whenever a claim for
bodily injury or property damages caused by the operations of a
TSDF facility is made against the owner or operator or an
instrument providing financial assurance for liability coverage
under this section, and (ii) whenever the amount of financial
assurance for liability coverage under this section provided by a
financial instrument authorized by this rule is reduced. We have
been asked to define the extent of the first requirement, that
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is, the meaning of the language, "whenever a claim ... is made."
The purpose of the notification requirement is 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 valid third-party claims. To achieve these
goals the Agency envisions that TSDF facilities will report to
the Regional Administrator whenever:
1) a claim results in a reduction in the amount of
financial assurance for liability coverage
provided by an authorized financial instrument, or
2) a certification of a 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 into between the
owner or operator and a third-party claimant for
liability coverage, or
3) 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 providing
financial assurance for liability coverage.
The regulation is not intended to require owners or
operators to report all types of claims that potentially could be
filed against a facility. Section 264.151, a related provision
promulgated in the same rulemaking, authorizes the payment of
funds from the financial instruments only for valid third-party
claims and expressly excludes payment for certain categories of
damages or obligations such as claims under worker's compensation
law or resulting from automobile accidents involving vehicles
owned by the facility. Similarly, the Agency intended to require
owners or operators to report only valid claims to the Regional
Administrator.
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The Agency did not intend that the reporting requirement
extend beyond the three situations listed above and plans to
clarify the regulatory language in the near future. This
memorandum interprets the provision as it stands pending formal
clarification in the Federal Register. It should be noted that
the Agency is clarifying this provision in the interim through
use of a memorandum because of the particular circumstances of
this case.
If you have any questions about this issue, please contact
Barbara Foster at 382-4696.
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FAXBACK13093
OSWER DIRECTIVE # 9477.00-6
EXCLUSIONS FOR PRE-EXISTING CONDITIONS IN RCRA TSDF INSURANCE
POLICIES,
GUIDANCE ON
OFFICE OF SOLID WASTE AND EMERGENCY RESPONSE
23 NOV 87
MEMORANDUM
SUBJECT: Guidance for Reviewing Exclusions for Pre-Existing Conditions in
RCRA TSDF Insurance Policies
FROM: Marcia Williams, Director, Office of Solid Waste Original
Document signed
TO: Regional Waste Management Division Directors, Regions I-X
SUMMARY
Under 40 CFR Parts 264 and 265, Subpart H, owners and operators of RCRA
treatment, storage and disposal facilities (TSDFs) may use insurance policies
to meet RCRA requirements for financial assurance for third-party property
and bodily injury damages. Insurance policy language generally begins with
broad coverage for damages, which is modified through the use of inserted
exclusions to limit the scope of the policy coverage. Because insurance is
intended to cover only possible future events, policies typically have
exclusions limiting the insurer's coverage of releases which occurred prior
to the start of the policy. Such "pre-existing conditions" exclusions are
acceptable provided that they do not so limit a policy that it no longer
provides the coverage required by Subpart H. While the Agency recognizes
that it is inappropriate to expect insurance to be provided to cover damage
that is certain to occur or that has already occurred, it does expect
policies to cover future conditions whose incidence is uncertain. This
guidance describes acceptable pre-existing conditions exclusions based on the
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Agency's interpretation of the Subtitle C regulations.
BACKGROUND
Regulatory Provisions
On April 16,1982 (47 FR16554), EPA promulgated regulations to require
owners and operators of TSDFs to provide financial assurance for third-party
compensation for bodily injury and property damage caused by accidental
-2-
occurrences arising from facility operations. Such damage should be "neither
expected or intended" by the owner or operator of the facility (40 CFR
264.141(g) and 265.141(g)).
While the regulation defines accidental occurrence and other key terms,
it also provides that these definitions "are not intended to limit their
meanings in a way that conflicts with general insurance industry usage," but
rather are intended to "be consistent with their common meanings within the
insurance industry." Also, the definitions of bodily injury and property
damage would "not include those liabilities which, consistent with standard
industry practices, are excluded from coverage" (40 CFR 264.141 (g) and
265.141(g)).
Specific guidance on what constitutes industry practices was not deemed
necessary in 1982. Of late, however, it has become difficult to define
standard industry practice regarding exclusions. In response to court
decisions that interpreted policy language in a manner that expanded the
coverage intended by insurers, some insurers have tried to clarify the
coverage by modifying the pre-existing conditions exclusions. A variety of
such modified exclusions have been developed, some of which are inconsistent
with the accidental occurrence definition in 264.141 (g). This guidance is
intended to assist in determining which exclusions are permissible under
current regulations.
GUIDANCE
Acceptable Exclusions
The range of pre-existing conditions exclusions can be divided into broad
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and narrow exclusions. Broad exclusions are usually part of the basic policy
language used by an insurer, while narrow exclusions are added to specific
policies as endorsements to limit the scope of the basic policy for a
particular insured. The Agency reviewed a variety of both types of
exclusions and identified acceptable language for both. This guidance
describes and provides examples of that language.
Broad Exclusions
Broad pre-existing conditions exclusions are "generic" exclusions
applicable to all facilities covered by a particular type of policy. Such
exclusions generally apply to a specific type of occurrence (^.g., a
-3-
pollution incident known or expected by the insured or a release occurring
prior to the policy's effective date) or a particular type of damage (e.g.,
contamination of ground water).
Permissible broad exclusions may allow the insurer to limit its liability
for current and certain damages present at the stcjrt of the policy. Policies
that make clear that pre-existing conditions (releases likely to result in
damages) must be known or reasonably foreseeable to the owner/operator
would
be acceptable.
The Agency has determined that the following provide examples of
acceptable broad pre-existing conditions exclusions:
"Insurance does not apply where the insured knew or could
have reasonably foreseen that claims would result."
"Insurance will pay on behalf of the insured ... provided
always that the claim is made during the policy period and
that the insured as of the 'First Coverage Date' did not
know or might not have reasonably foreseen that such a claim
would result."
"The policy will pay on behalf of the insured for damages
caused by an occurrence ..," with occurrence defined as "a
happening resulting in bodily injury or property damage
neither expected nor intended from the standpoint of the insured."
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"The insurance does not apply to damages arising from any
environmental impairment that was known or should have been
known to the insured prior to the original policy inception
date."
"This insurance does not apply to 'bodily injury/'property
damage1 or 'environmental damage1 expected or intended from the
standpoint of the insured."
"Insurance does not apply to damages from a release that the
insured knew or could reasonably have known had occurred."
The language in these examples is specific enough to provide guidance to
insurers and is consistent with the intent of the definition of accidental
occurrence in its focus on whether damage, rather than a release, was
expected or intended, or on whether the impairment was known or should have
-4-
been known. These exclusions are also consistent with industry practice
since they are now used by some insurers.
The following sample language is representative of unacceptable broad
exclusions:
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Page 5 of 8
contamination at facility A). Narrow exclusions are generally added, in an
accompanying endorsement, to the basic policy's broad exclusions and are
intended to tailor the policy to a specific facility.
Narrow exclusions should be specific enough to prevent excessive
limitations of policy coverage. A narrow should be described so
that there appears to be a basis for the exclusion (i.e., damage must be
expected from a known, actual release). To ensure that such a basis exists,
narrow exclusions should refer to a facility assessmentl that identifies the
threatening contamination. An acceptable exclusion should include a
description of the media, type of contamination, and specific location
involved. Thus, such exclusions should specifically indicate a current and
reasonable belief that damage has occurred or is likely to occur.
Given this need for specificity, the Agency has identified the following
sample language as representative of acceptable narrow exclusions:
"All claims and costs resulting from ...
a) groundwater contamination as identified in the
facility assessment dated XX/XX/87 ...
-5-
[or]
b) groundwater contamination by light and gross
hydrocarbons as identified in the facility assessment
dated XX/XX/87...
[or]
c) contamination arising from a release at unit A and identified
in the facility assessment dated XX/XX/87 ...
at facility XYZ in Smalltown, Any State, are not covered
by this policy."
These types of exclusions specifically and clearly identify particular known
existing problems constituting current and certain — i.e., known or expected
— damages that an insurer should not be required to cover.
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Less specific language, or language excluding certain damages from
coverage due to facility conditions causing insurers to suspect, rather than
know, there has been or will be a release, are unacceptable. There should be
clear evidence that a pre-existing condition in fact exists that has a
reasonable likelihood of resulting in damage. The Agency reviewed, and
found
1 A facility assessment is similar to a CERCLA preliminary assessment or
the preliminary review portion of the RCRA facility assessment. It is
generally based on a search of the files of the facility and regulating
agencies, and a windshield site review. The format for assessments will
vary, and we are not suggesting that any specific format is required. It is
also not necessary to review those assessments unacceptable, the following
language:
"All claims and costs resulting from...
a) ground water contaminations ...
[or]
b) groundwater contamination by light and gross
hydrocarbons...
at facility XYZ in Smalltown, Any State, are not covered
-6-
by this policy."
These exclusions are insufficiently narrow to justify an exclusion of a pre-
existing condition. They could be interpreted to exclude all groundwater
damage, even that initially occurring during the policy period. The coverage
provided would thus be too limited to meet the 264.141(g) and 265.141(g)
definition of accidental occurrence.
Implementation
Current regulations (40 CFR 264.147 and 265.147) require the owner or
operator of a RCRA TSDF to submit a signed duplicate of the Hazardous Waste
Liability Endorsement or Certificate of Liability Insurance to the
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appropriate EPA Regional Administrator(s). These certificates and
endorsements state only that coverage is provided in a particular amount and
do not reveal specific policy terms or endorsements. Therefore, to implement
this guidance, EPA or the authorized State should review the pre-existing
conditions exclusions of the policies being used to demonstrate financial
assurance. Such a review should routinely include the following steps:
1) Endorsements relating to pollution coverage should be
routinely requested. Any endorsement adding narrow
exclusions for pre-existing conditions should be
reviewed to determine if the exclusions are
acceptable based on the criteria described above.
2) If the narrow exclusions are determined to be
unacceptable, the owner/operator should be notified,
so that it can seek an acceptable policy (enforcement
action may also be determined to be appropriate).
3) If reason for broader concern arises, the Regional
Administrator or State may request signed copies of
liability policies from owner/operators (this
authority is granted under 264.147(a)(l)(i) and
(b)(l)(i) and 265.147(a)(l)(i) and (b)(l)(i)).
4) Periodically, a review of selected basic policy
language should be undertaken to determine if its
broad pre-existing conditions exclusion is acceptable
based on the criteria described above.
Apart from the acceptability of any narrow exclusions, their presence in
-7-
a policy may signal a need for corrective action at the facility. In some
cases, the need for corrective action will already have been determined by
EPA because exclusions are often written based on records from the RCRA
permitting and interim status program. However, if a review of narrow
exclusions indicates a potential need for corrective action, the following is
applicable:
5) Appropriate EPA Regional or State staff should be
notified if a narrow pre-existing conditions
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Page 8 of 8
exclusions points to a potential need for corrective
action.2
For further assistance in implementing this guidance, please contact
Margaret Schneider, Chief, Closure and Financial Responsibility Section,
Office of Solid Waste (202 or FTS 382-4640).
cc: Regional Counsels
2 The presence of a narrow exclusion is merely one factor to consider in
determining the need for corrective action decisions. Consistent with
established priorities, these releases should be addressed using any and all
corrective action authorities.
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Page 2 of2
a certain date (i.e., within one year), (2) are
unavoidable, and (3) the obligating event occurred when
the Company purchased the inventory, supply or service
associated with the current liability. For purposes of
the financial test, total liabilities should include any
obligation of the company which meets the three essential
characteristics listed above. The time period in which
the obligation is due, whether short or long-term does
not matter.
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QUESTION: The operator of a hazardous waste management facility established a
letter of credit and a stand-by trust fund (containing $1 to keep it active) in
accordance with the financial responsibility requirement (4OCFR 265.143 (c) of
RCRA). The trustee (i.e., the bank) then levied a $1,500 per annum service
charge on the stand-by trust fund. Does RCRA prescribe service charge rates
for stand-by trust funds or control the service charge in anyway?
ANSWER: No, RCRA only prescribes the mechanisms that can be used to meet the
financial requirements. Trustee's fees can be expected to vary depending on ~
the specific institution chosen, the amount of funds held in trust, the extent
to which the owner or operator uses other services of the institution, and the
extent and type of invest-ment activity and trustee involvement. The owner or
operator should not only find out what fees the institution itself will charge '—
but other applicable fees and charges, including brokerage fees, legal fees
(such as those for setting up trust), accounting fees, and provisions for
local, State, and Federal income taxes. There is currently no provision in the
U.S. Internal Revenue Code that allows payments into the fund to be deducted
from taxable income or allows trust income to be exempt from taxation. Owners
or operators may want to request private rulings on the tax aspects of RCRA
trust funds from the Internal Revenue Service under Revenue Procedure 80-20.
SOURCE: Carole Ansheles
FAXBACK 12147
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FAXBACK13285
ACCEPTABLE BOND RATINGS FOR USE IN SUBTITLE C FINANCIAL TEST
9477.1989(01)
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
MAY 16 1989
MEMORANDUM
SUBJECT: Acceptable Bond Ratings for the Use in Subtitle C
Financial Test
FROM: Joseph S. Carra, Director
Permits and State Programs Division
TO: RCRA Branch Chiefs, Regions I - X
We have recently received specific inquiries concerning
whether certain types of bond ratings meet the conditions
required by the bond rating alternative of the Subtitle C
financial test. 40 CFR 264/265.143(f), 264.145(f),
265.145(e), and 264/265.147(f). Specifically, whether a BBB-
rating from Standard and Poor's (S&P) or a Baa3 rating from
Moody's satisfies the minimum ratings required by regulation.
In brief, these ratings can be used to satisfy the bond rating
alternative of the financial test.
Regulations relating to the bond rating alternative of the
financial test specify that the owner or operator must have a
bond rating "of AAA, AA, A, or BBB as issued by Standard and
Poor's or Aaa, Aa, A, or Baa as issued by Moody's." At the time
these regulations were promulgated, S&P had not yet begun the
practice of adding a "+" or "-" suffix to bond ratings, and
Moody's had not yet begun adding a "1", "2", or "3" suffix. The
bond rating suffix indicates the relative standing of a bond
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within a major rating category. In other words, a BBB- bond has
a lower relative standing than a BBB bond or a BBB+ bond, but
all three bonds fall within the major rating category of BBB
bonds. The BBB- bond would have been rated as a BBB bond prior
to the time when S&P began adding a rating suffix. Similarly, a
bond rated Baa3 by Moody's would have been rated Baa prior to
the time when Moody's began adding the rating suffix.
In summary, pursuant to current regulations, a Moody's
rating of Baa3 or better, or a S&P rating of BBB- or better
satisfies the legal requirements of the financial test. We note
that revisions to the financial test are currently being
considered. The question of bond ratings will be fully
re-examined during this effort.
If you have any questions, please call Mark Pollins of FTS
382-6259.
cc: RCRA Hotline
Regional Subpart H Contacts
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CHECK LISTS
Trust Funds
Letters of Credit
Subtitle C Financial Test
Subtitle D Financial Test for Corporations
Subtitle D Financial Test for Local Governments
Subtitle C Corporate Guarantee
Subtitle D Guarantee for Corporations
Subtitle D Guarantee for Local Governments
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CHECK LIST FOR TRUST FUNDS
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR TRUST FUNDS FOR CLOSURE AND POST-CLOSURE CARE
(Page 1 of 2)
Parent Company Name:
Parent Company Address:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Phone Number:
Instrument Covers:
LJ Closure Post-Closure Care
Trustee Name:
Trustee Address:
Trustee Contact Person/Title :
Trustee Contact Phone Number:
Cost Estimate for Post-Closure Care
(State Approved):
Source Document:
Date:
Trust Fund Effective Date: Number of Years Remaining in the
Trust Fund Pay-In Period:
Trust Fund Instrument Number:
Cost Estimate for Closure Current Value of
(State Approved): Trust Fund:
Source Document: Source Document:
Date: Date:
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR TRUST FUNDS FOR CLOSURE AND POST-CLOSURE CARE
(Page 2 of 2)
YES NO
LJ LJ Is the trustee an entity that has the authority to act as a trustee and whose trust operations are
regulated and examined by a federal or state agency? (40 CFR 258.74(a)(l))
LJ LJ Has a copy of the trust agreement been placed in the facility's operating record? (40 CFR
258.74(a)(l))
LJ LJ Does the trust fund pay-in period correspond with the term of the facility's initial permit or the
remaining life of the facility, whichever is shorter? (40 CFR 258.74 (a)(2))
I—I I—I Have all required payments into the trust fund been made in full? (40 CFR 258.74(a)(3))
LJ \^J Was the first payment into the trust fund made before the initial receipt of waste at the facility
or before April 9, 1997, whichever was later? (40 CFR 258.74(a)(5))
COMMENTS:
Reviewed by:
Date:
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR TRUST FUNDS FOR CORRECTIVE ACTION
(Page 1 of 2)
Parent Company Name :
Parent Company Address:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Phone Number:
Trustee Name:
Trustee Address:
Trustee Contact Person/Title:
Trustee Contact Phone Number:
Trust Fund Effective Date:
Trust Fund Instrument Number:
Number of Years Remaining in the
Trust Fund Pay-In Period:
Cost Estimate for Corrective Action Current Value of
(State Approved): Trust Fund:
Source Document: Source Document:
Date: Date:
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR TRUST FUNDS FOR CORRECTIVE ACTION
(Page 2 of 2)
YES NO
LJ LJ Is the trustee an entity that has the authority to act as a trustee and whose trust operations are
regulated and examined by a federal or state agency? (40 CFR 258.74(a)(l))
LJ LJ Has a copy of the trust agreement been placed in the facility's operating record? (40 CFR
258.74(a)(l))
LJ LJ Does the trust fund pay-in period correspond with one-half of the estimated length of the
corrective action program? (40 CFR 258.74(a)(2))
I—I I—I Have all required payments into the trust fund been made in full? (40 CFR 258.74(a)(3))
LJ LJ Was the first payment into the trust fund made no later than 120 days after the selection of the
corrective action remedy? (40 CFR 258.74(a)(5))
COMMENTS:
Reviewed by:
Date:
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CHECK LISTS FOR LETTERS OF CREDIT
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR LETTERS OF CREDIT FOR CLOSURE AND POST-CLOSURE CARE
(Page 1 of 2)
Parent Company Name:
Parent Company Address:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Phone Number:
Instrument Covers:
Land Disposal Facility:
Issuing Institution:
CJ Closure
D Yes
Issuing Institution Address:
Issuing Institution Contact:
Issuing Institution Contact Phone Number:
Instrument Number:
Date Instrument Effective:
Cost Estimate for Closure
(State Approved):
Source Document:
Date:
Cost Estimate for Post-Closure Care
(State Approved):
Source Document:
Date:
LJ
Post-Closure Care
No
Face Value of the
Letter of Credit:
Source Document:
Date:
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YES
a
a
a
a
NO
a
a
a
a
a a
a a
a a
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR LETTERS OF CREDIT FOR CLOSURE AND POST-CLOSURE CARE
(Page 2 of 2)
Does the issuing institution have authority to issue letters of credit? Are its letter-of-credit
operations regulated and examined by a federal or state agency? (40 CFR 264.143(d)(l)/40
CFR 264.145(d)(l) and 40 CFR 265.143(c)(l)/40 CFR 265.145(c)(l))
Does the letter of credit use wording identical to that specified in 40 CFR 264.15 l(d)? (40
CFR 264.143(d)(2)/40 CFR 264.145(d)(2) and 40 CFR 265.143(c)(2)/40 CFR 265.145(c)(2))
Has the owner or operator established a standby trust fund? (40 CFR 264.143(d)(3)/40 CFR
264.145(d)(3) and 40 CFR 265.143(c)(3)/40 CFR 265.145(c)(3))
Has an originally signed duplicate of the trust agreement been submitted with the letter of
credit? (40 CFR 264.143(d)(3)(i)/40 CFR 264.145(d)(3)(i) and 40 CFR 265.143(c)(3)(i)/40
CFR 265.145(c)(3)(i))
Is the letter of credit properly accompanied by a letter from the owner or operator, as specified
in 40 CFR 264.143(d)(4)/40 CFR 264.145(d)(4) and 40 CFR 265.143(c)(4)/40 CFR
265.145(c)(4)?
Has the letter of credit been issued irrevocably for a period of at least one year, and does it
meet all other requirements specified in 40 CFR 264.143(d)(5)/40 CFR 264.145(d)(5) and 40
CFR 265.143(c)(5)/40 CFR 265.145(c)(5)?
Has the letter of credit been issued for at least the amount of the current estimates of the costs
of closure and post-closure care? (40 CFR 264.143(d)(6)/40 CFR 264.145(d)(6) and 40 CFR
265.143(c)(6)/40 CFR 265.145(c)(6))
COMMENTS:
Reviewed by:
Date:
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR LETTERS OF CREDIT FOR THIRD-PARTY LIABILITY
(Page 1 of 2)
Parent Company Name:
Parent Company Address:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Phone Number:
Instrument Covers:
LJ Sudden Liability LJ Nonsudden Liability
Land Disposal Facility:
LI Yes L_l No
Issuing Institution:
Issuing Institution Address:
Issuing Institution Contact:
Issuing Institution Contact Phone Number:
Instrument Number:
Date Instrument Effective:
Date Instrument Expires:
Year Reviewed:
Annual Aggregate Amount, Sudden Face Value of the
(State Approved): , Letter of Credit:
Source Document: Source Document:
Date: Date:
Annual Aggregate Amount, Nonsudden
(State Approved):
Source Document:
Date:
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR LETTERS OF CREDIT FOR THIRD-PARTY LIABILITY
(Page 2 of 2)
YES NO
a a
a a
a a
a a
Has a copy of the letter of credit been submitted? (40 CFR 264.147(h)(l) and 40 CFR
265.147(h)(l))
Does the issuing institution have authority to issue letters of credit, and are its letter-of-credit
operations regulated and examined by a federal or state agency? (40 CFR 264.147(h)(2) and
40CFR265.147(h)(2))
Does the letter of credit use wording identical to that specified in 40 CFR 264.15 l(k)? (40
CFR 264.147(h)(3) and 40 CFR 265.147(h)(3))
If the owner or operator has elected to establish a standby trust fund, does the standby trust
fund use wording identical to that specified in 40 CFR 264.151(n)? (40 CFR 264.147(h)(5)
and40CFR265.147(h)(5))
Not Applicable
COMMENTS:
Reviewed by:
Date:
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CHECK LIST FOR SUBTITLE C FINANCIAL TEST
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST
(Page 1 of 4)
Parent Company Name:
Parent Company Address:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Person Phone Number:
Instrument Covers:
Land Disposal Facility:
I—I Closure
LJ Sudden Liability
Q Yes
I—I Post-Closure Care
LJ Nonsudden Liability
No
Cost Estimate for Closure
(Facility Submittal):
Source Document:
Date:
Cost Estimate for Closure
(State Approved):
Source Document:
Date:
Cost Estimate for Post-Closure Care
(Facility Submittal):
Source Document:
Date:
Cost Estimate for Post-Closure Care
(State Approved):
Source Document:
Date:
Annual Aggregate Amount, Sudden
(State Approved):
Source Document:
Date:
Annual Aggregate Amount, Nonsudden
(State Approved):
Source Document:
Date:
Fiscal Year Ends
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST
(Page 2 of 4)
FINANCIAL TEST ALTERNATIVE 1 (as specified in 40 CFR 264.143(f)(l)(i)/40 CFR 264.145(f)(l)(i)
and 40 CFR 265.143(e)(l)(i)/40 CFR 265.145(e)(l)(i) and 40 CFR 264.147(f)(l)(i)/40 CFR
LJ The owner or operator meets at least two of the three following ratios.1
LJ The owner or operator fails to meet at least two of the three following ratios.
(Indicate the results of the calculations in the blank spaces provided.)
total liabilities < 2.0
net worth
net income and depreciation and depletion and amortization >0.1
total liabilities
current assets > 1.5 _
current liabilities
Tangible net worth is at least $10 million.
LJ Net working capital and tangible net worth are each at least six times the sum of the current estimates of
the costs of closure and post-closure care and the annual aggregate amount of third-party liability
coverage to be demonstrated.
LJ The owner's or operator's U.S. assets are equal to at least 90 percent of total assets or six times the sum
of the current estimates of the costs of closure and post-closure care and the annual aggregate amount of
third-party liability coverage to be demonstrated.
1 Owners and operators intending to use Alternative 1 of the financial test demonstrate financial assurance
only for third-party liability do not need to meet these ratio requirements.
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST
(Page 3 of 4)
CD FINANCIAL TEST ALTERNATIVE 2 (as specified in 40 CFR 264.143(f)(l)(ii)/40 CFR
264.145(0(l)(ii) and 40 CFR 265.143(e)(l)(ii)/40 CFR 265.145(e)(l)(ii) and 40 CFR 264.147(f)(l)(ii)/40
CFR265.147(f)(D(ii)):
The current bond rating of the owner or operator is adequate:
(Indicate the appropriate bond rating and the source of that rating)
a
Standard and Poor's
a
c
c
a
AAA
AA
A
BBB
a
Moody's
a
c
L
a
Aaa
Aa
A
Baa
LJ Tangible net worth is at least $10 million.
LJ Tangible net worth is at least six times the sum of the current estimates of the costs of closure and post-
closure care and the annual aggregate amount of third-party liability coverage to be demonstrated.
LJ The owner's and operator's U.S. assets are equal to at least 90 percent of total assets or six times the sum
of the current estimates of the costs of closure and post-closure care and the annual aggregate amount of
third-party liability coverage to be demonstrated.
-------
YES NO
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST
(Page 4 of 4)
a a
a a
a a
Has a letter, properly executed and signed by the owner's or operator's CFO and worded as
specified in 40 CFR 264.151(f) or 40 CFR 264.151(g), been submitted? (40 CFR
264.143(f)(3)(i)/40 CFR 264.145(f)(3)(i) and 40 CFR 265.143(e)(3)(i)/40 CFR 265.145(e)(3)(i)
and 40 CFR 264.147(f)(3)(i)/40 CFR 265.147(f)(3)(i))
Has a copy of the independent CPA's report on examination of the owner or operator's financial
statements for the latest completed fiscal year been submitted? (40 CFR 264.143(f)(3)(ii)/40
CFR 264.145(f)(3)(ii) and 40 CFR 265.143(e)(3)(ii)/40 CFR 265.145(e)(3)(ii) and 40 CFR
264.147(f)(3)(ii)/40 CFR 265.147(f)(3)(ii)) If a report was submitted, indicate the nature of the
opinion rendered.
C
Unqualified Opinion
Disclaimer of Opinion or Adverse Opinion
Qualified Opinion
Has a special report from the owner or operator's independent CPA been submitted? (40 CFR
264.143(f)(3)(iii)/40 CFR 264.145(f)(3)(iii) and 40 CFR 265.143(e)(3)(iii)/40 CFR
265.145(e)(3)(iii) and 40 CFR 264.147(f)(3)(iii)/40 CFR 265.147(f)(3)(iii))
COMMENTS:
Reviewed by:
Date:
-------
CHECK LIST FOR SUBTITLE D FINANCIAL TEST FOR CORPORATIONS
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE FINANCIAL TEST FOR CORPORATIONS
(Page Iof3)
Parent Company Name:
Parent Company Address:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Person Phone Number:
Instrument Covers:
I—I Closure I—I Post-Closure Care
LJ Corrective Action
Cost Estimate for Closure
(State Approved):
Cost Estimate for Post-Closure Care
(State Approved):
Cost Estimate for Corrective Action
(State Approved):
Total Cost Estimates for All Other MSWLFs
Covered Under the Financial Test
(State Approved):
Total Cost Estimates for All UIC Facilities Covered
Under a Financial Test
(State Approved):
Total Cost Estimates for All Petroleum UST
Facilities Covered Under a Financial Test
(State Approved): j
Total Cost Estimates for All PCB Storage Facilities
Covered Under a Financial Test
(State Approved):
Total Cost Estimates for All Hazardous Waste
TSDFs Covered Under a Financial Test
(State Approved):
TOTAL OBLIGATIONS COVERED BY ALL FINANCIAL TEST MECHANISMS:
Fiscal Year Ends
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE FINANCIAL TEST FOR CORPORATIONS
(Page 2 of 3)
FINANCIAL TEST ALTERNATIVE 1 (40 CFR 258.74(e)(l)(i)(A)):
LJ The current bond rating of the corporation is adequate.
(Indicate the result of the calculation in the blank space provided.)
a
Standard and Poor's
a
Moody's
D
C
L
a
AAA
AA
A
BBB
£j
L
L
a
Aaa
Aa
A
Baa
Q FINANCIAL TEST ALTERNATIVE 2 (40 CFR 258.74(e)(l)(i)(A)):
LJ The corporation meets the following ratio.
(Indicate the result of the calculation in the blank space provided.)
total liabilities < 1.5
tangible net worth
FINANCIAL TEST ALTERNATIVE 3 (40 CFR 258.74(e)(l)(i)(A)):
LJ The corporation meets the following ratio.
(Indicate the result of the calculation in the blank space provided.)
net income plus depreciation, depletion, and amortization minus $10 million >0.1
total liabilities
-------
COMMENTS:
Reviewed by:
Date:
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE FINANCIAL TEST FOR CORPORATIONS
(Page 3 of 3)
YES
a
NO
a
a a
a a
a a
a a
Is the tangible net worth of the corporation greater than the sum of the current cost estimates for
closure and post-closure care and corrective action, plus all other obligations covered by a
financial test, plus $10 million? (40 CFR 258.74(e)(l)(ii))
Does the corporation have assets located in the U.S. at least equal to the sum of the current cost
estimates for closure and post-closure care and corrective action, plus all other obligations
covered by a financial test? (40 CFR 258.74(e)(l)(iii))
Was a letter from the corporation's CFO, containing the information specified in 40 CFR
258.74(e)(2)(i), placed in the operating record of the facility within 90 days after the close of the
corporation's fiscal year?
Was a copy of the independent CPA's report on examination of the corporation's financial
statements for the latest completed fiscal year placed in the operating record of the facility within
90 days after the close of the corporation's fiscal year? (40 CFR 258.74(e)(2)(ii)) If a report was
placed in the operating record of the facility, indicate the nature of the opinion rendered.
LJ Unqualified Opinion
L_J Disclaimer of Opinion or Adverse Opinion
LJ Qualified Opinion
If the data used in the CFO's letter to pass the financial test were derived from the audited, year-
end financial statements of the corporation, was a special report from the corporation's
independent CPA placed in the operating record of the facility within 90 days after the close of
the corporation's fiscal year? (40 CFR 258.74(e)(2)(ii))
Not Required
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CHECK LIST FOR SUBTITLE D FINANCIAL TEST FOR LOCAL GOVERNMENTS
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST FOR LOCAL GOVERNMENTS
(Page 1 of 4)
Name of Local Government:
Address of Local Government:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Person Phone Number:
Instrument Covers:
I—I Closure I—I Post-Closure Care
LJ Corrective Action
Cost Estimate for Closure Cost Estimate for Post-Closure Care
(State Approved): (State Approved):
Cost Estimate for Corrective Action Total Cost Estimates for All Other MSWLFs
Covered Under the Financial Test
(State Approved): ; (State Approved):
Total Cost Estimates for All UIC Facilities Covered Total Cost Estimates for All Petroleum UST
Under a Financial Test Facilities Covered Under a Financial Test
(State Approved): (State Approved):
Total Cost Estimates for All PCB Storage Facilities Total Cost Estimates for All Hazardous Waste
Covered Under a Financial Test TSDFs Covered Under a Financial Test
(State Approved): (State Approved):
TOTAL OBLIGATIONS COVERED BY ALL FINANCIAL TEST MECHANISMS:
Fiscal Year Ends
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST FOR LOCAL GOVERNMENTS
(Page 2 of 4)
FINANCIAL TEST ALTERNATIVE 1 (40 CFR 258.74(f)(l)(i)(A)):
LJ The current bond rating of the local government is adequate:
(Indicate the appropriate bond rating and the source of that rating)
LJ Standard and Poor's LJ Moody's
a
L
L
a
AAA
AA
A
BBB
a
L
c
a
Aaa
Aa
A
Baa
FINANCIAL TEST ALTERNATIVE 2 (40 CFR 258.74(f)(l)(i)(B)):
LJ The local government meets both of the following ratios.
(Indicate the results of the calculations in the blank spaces provided.)
cash plus marketable securities
total expenditures
annual debt service
total expenditures
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST FOR LOCAL GOVERNMENTS
(Page 3 of 4)
RELATIVE FINANCIAL STRENGTH RATIO (40 CFR 258.74(9(4)):
LJ Total obligations covered by all financial test mechanisms do not exceed 43 percent of the total revenues
of the local government.
(Indicate the result of the calculation in the blank space provided.)
total obligations covered by all financial test mechanisms z 0.43
total revenues
YES NO
LJ LJ Is the local government currently NOT in default on any outstanding general obligation debt?
(40 CFR 258.74(f)(l)(iii)(A))
I I LJ Does the local government NOT have a rating on any outstanding general obligation bonds lower
than Baa, as issued by Moody's or BBB, as issued by Standard and Poor's? (40 CFR
LJ LJ Has the local government NOT run operating deficits of five percent or more in both of the past
two consecutive fiscal years? (40 CFR 258.74(9(l)(iii)(Q)
LJ LJ Is the comprehensive annual financial report (CAFR) for the local government prepared in
compliance with generally accepted accounting principles (GAAP) for governments? (40 CFR
258.74(f)(l)(ii))
LJ LJ Has the local government, in each year that the financial test is used, identified the costs assured
by the financial test in either its budget or in its CAFR? (40 CFR 258.74(9(2))
LJ LJ Was a letter from the chief financial officer (CFO) of the local government, containing the
information specified in 40 CFR 258.74(9(3)(i)(A), placed in the operating record of the facility
within 180 days after the close of the local government's fiscal year?
LJ LJ Was a copy of the local government's budget or CAFR for the latest completed fiscal year, or
certification that the requirements of Governmental Accounting Standard Board (GASB)
Statement 18 have been met, placed in the operating record of the facility within 180 days after
the close of the local government's fiscal year? (40 CFR 258.74(9(3)(i)(D))
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR FINANCIAL TEST FOR LOCAL GOVERNMENTS
(Page 4 of 4)
a a
a a
Was a copy of a report from either an independent CPA or an appropriate state agency on
examination of the local government's financial statements for the latest completed fiscal year
placed in the operating record of the facility within 180 days after the close of the local
government's fiscal year? (40 CFR 258.74(f)(3)(i)(B)) If a report was placed in the operating
record of the facility, indicate the nature of the opinion rendered.
L
L
Unqualified Opinion
Disclaimer of Opinion or Adverse Opinion
Qualified Opinion
Was a special report from either an independent CPA or an appropriate state agency on
examination of the CFO's letter placed in the operating record of the facility within 180 days
after the close of the local government's fiscal year? (40 CFR 258.74(f)(3)(i)(C))
COMMENTS:
Reviewed by:
Date:
-------
CHECK LIST FOR SUBTITLE C CORPORATE GUARANTEE
-------
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR CORPORATE GUARANTEE
(Page 1 of 6)
Name of Guarantor:
Address of Guarantor:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Person Phone Number:
Instrument Covers:
Land Disposal Facility:
Cost Estimate for Closure
(Facility Submittal):
I—I Closure
I—I Sudden Liability
O Yes
I — I Post-Closure Care
LJ Nonsudden Liability
Source Document:
Date:
No
Cost Estimate for Closure
(State Approved):
Source Document:
Date:
Cost Estimate for Post-Closure Care
(Facility Submittal):
Source Document:
Date: .
Cost Estimate for Post-Closure Care
(State Approved):
Source Document:
Date:
Annual Aggregate Amount, Sudden
(State Approved):
Annual Aggregate Amount Nonsudden
(State Approved):
Source Document:
Date:
Source Document:
Date:
Fiscal Year Ends
-------
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR CORPORATE GUARANTEE
(Page 2 of 6)
CORPORATE GUARANTEE ALTERNATIVE 1 (as specified in 40 CFR 264.143(f)(l)(i)/40 CFR
264.145(f)(l)(i) and 40 CFR 265.1 43 (e)(l)(i)/40 CFR 265.145(e)(l)(i) and 40 CFR 264.147(g)(l)/40 CFR
265.147(g)(l)):
LJ The guarantor meets at least two of the three following ratios.1
LJ The guarantor fails to meet at least two of the three following ratios.
(Indicate the results of the calculations in the blank spaces provided.)
total liabilities <2.0 _
net worth
net income plus depreciation and depletion and amortization >0.1
total liabilities
current assets > 1.5 _
current liabilities
Tangible net worth is at least $10 million.
LJ Net working capital and tangible net worth are each at least six times the sum of the current estimates
of the costs of closure and post-closure care and the annual aggregate amount of third-party liability
coverage to be demonstrated.
LJ The guarantor's U.S. assets are equal to at least 90 percent of total assets or six times the sum of the
current estimates of the costs of closure and post-closure care plus the annual aggregate amount of
third-party liability coverage to be demonstrated.
1 Guarantors intending to use Alternative 1 of the corporate guarantee to demonstrate financial assurance
only
for third-party liability do not need to meet these ratio requirements.
-------
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR CORPORATE GUARANTEE
(Page 3 of 6)
CORPORATE GUARANTEE ALTERNATIVE 2 (as specified in 40 CFR 264.143(f)(l)(ii)/40 CFR
264.145(f)(l)(ii) and 40 CFR 265.143(e)(l)(ii)/40 CFR 265.145(e)(l)(ii) and 40 CFR 264.147(g)(l)/40
CFR265.147(g)(l)):
LJ The current bond rating of the guarantor is adequate:
(Indicate the appropriate bond rating and the source of that rating)
Standard and Poor's I—I Moody's
L
L
AAA
AA
A
BBB
L
L
Aaa
Aa
A
Baa
LJ Tangible net worth is at least $10 million.
Tangible net worth is at least six times the sum of the current estimates of the costs of closure and post-
closure care and the annual aggregate amount of third-party liability coverage to be demonstrated.
LJ The guarantor's U.S. assets are equal to at least 90 percent of total assets or six times the sum of the
current estimates of the costs of closure and post-closure care and the annual aggregate amount of
third-party liability coverage to be demonstrated.
-------
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR CORPORATE GUARANTEE
(Page 4 of 6)
YES NO
a a
a a
a a
a a
a a
a a
Has a letter, properly executed and signed by the guarantor's CFO and worded as specified in 40
CFR 264.151(f) or 40 CFR 264.151(g), been submitted? (40 CFR 264.143(f)(3)(I)/40 CFR
264.145(f)(3)(I) and 40 CFR 265.143(e)(3)(I)/40 CFR 265.145(e)(3)(I) and 40 CFR
264.147(0(3)(I)/40 CFR 265.147(0(3)0))
Is the guarantor one of the following? (40 CFR 264.143(0(10)740 CFR 264.145(0(10) and 40
CFR 265.143(e)(10)/40 CFR 265.145(e)(10) and 40 CFR 264.147(g)(l)/40 CFR 265.147(g)(l))
L
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
A firm with a "substantial business relationship" with the owner or operator
If the guarantor's parent corporation is also the parent corporation of the owner or operator, does
the letter from the guarantor's CFO describe the value received in consideration of the
guarantee? (40 CFR 264.143(0(10)740 CFR 264.145(0(10) and 40 CFR 265.143(e)(10)/40 CFR
265.145(e)(10) and 40 CFR 264.147(g)(l)/40 CFR 265.147(g)(l))
D
Not Applicable
If the guarantor is a firm with a "substantial business relationship" with the owner or operator,
does the letter from the guarantor's CFO describe this "substantial business relationship" and the
value received in consideration of the guarantee? (40 CFR 264.143(0(10)740 CFR
264.145(0(10) and 40 CFR 265.143(e)(10)/40 CFR 265.145(e)(10) and 40 CFR
264.147(g)(l)/40 CFR 265.147(g)(l)).
Not Applicable
Has a copy of the independent CPA's report on examination of the guarantor's financial
statements for the latest completed fiscal year been submitted? (40 CFR 264.143(0(3)(ii)/40
CFR 264.145(0(3)(ii) and 40 CFR 265.143(e)(3)(ii)/40 CFR 265.145(e)(3)(ii) and 40 CFR
264.147(0(3)(ii)/40 CFR 265.147(0(3)(ii) If a report was submitted, indicate the nature of the
opinion rendered.
C
L
Unqualified Opinion
Disclaimer of Opinion or Adverse Opinion
Qualified Opinion
If employed to satisfy requirements for financial assurance for closure and post-closure care, has
a corporate guarantee that uses wording identical to that specified in 40 CFR 264.151(h)(l) been
submitted? (40 CFR 264.143(0(10)740 CFR 264.145(0(11) and 40 CFR 265.143(e)(10)/40 CFR
265.145(e)(ll))
Not Applicable
-------
YES NO
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR CORPORATE GUARANTEE
(Page 5 of 6)
LJ LJ If employed to satisfy requirements for financial assurance for third-party liability, has a certified
copy of the corporate guarantee that uses wording identical to that specified in 40 CFR
264.151(h)(2) been submitted? (40 CFR 264.147(g)(l) and 40 CFR 265.147(g)(l))
Not Applicable
LJ LJ Has a special report from the guarantor's independent certified public accountant been
submitted? (40 CFR 264.143(f)(3)(iii)/40 CFR 264.145(f)(3)(iii) and 40 CFR
265.143(e)(3)(iii)/40 CFR 265.145(e)(3)(iii) and 40 CFR 264.147(f)(3)(iii)/40 CFR
265.147(f)(3)(iii))
LJ LJ If the corporate guarantee has been submitted by a corporation incorporated in the United States
to satisfy requirements for financial assurance for third-party liability, have the appropriate
written statements from state attorneys general or state insurance commissioners been submitted?
(40 CFR 264.147(g)(2)(i) and 40 CFR 265.147(g)(2)(i)) If applicable, indicate the appropriate
sources of the statements.
B
a
Attorneys General
Insurance Commissioners
Not Applicable
LJ LJ If the corporate guarantee has been submitted by a corporation incorporated outside of the United
States to satisfy requirements for financial assurance for third-party liability, has the foreign
corporation identified registered agents for service of process in each state in which a facility
covered by the guarantee is located and in the state in which the guarantor has its principle place
of business in the U.S.? (40 CFR 264.147(g)(2)(ii) and 40 CFR 265.147(g)(2)(ii))
Not Applicable
LJ LJ If the corporate guarantee has been submitted by a corporation incorporated outside of the United
States to satisfy requirements for financial assurance for third-party liability, have the
appropriate written statements from state attorneys general or state insurance commissioners
been submitted? (40 CFR 264.147(g)(2)(ii) and 40 CFR 265.147(g)(2)(ii)) If applicable,
indicate the appropriate sources of the statements.
a
a
Attorneys General
Insurance Commissioners
Not Applicable
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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FOR CORPORATE GUARANTEE
(Page 6 of 6)
COMMENTS:
Reviewed by:
Date:
-------
CHECK LIST FOR SUBTITLE D GUARANTEE FOR CORPORATIONS
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE GUARANTEE FOR CORPORATIONS
(Pagel of 4)
Name of Guarantor:
Address of Guarantor:
Facility Name:
Facility Address:
Facility ID Number:
Facility Contact Person/Title:
Facility Contact Person Phone Number:
Instrument Covers:
LJ Closure
L_J Corrective Action
Cost Estimate for Closure
("State Approved'):
Cost Estimate for Corrective Action
CState Approved'):
Total Cost Estimates for All UIC Facilities Covered
Under a Financial Test or Guarantee
(State Approved"):
Total Cost Estimates for All PCB Storage Facilities
Covered Under a Financial Test or Guarantee
("State Approved"):
1 — 1 Post-Closure Care
Cost Estimate for Post-Closure Care
(State Approved):
Total Cost Estimates for All Other MSWLFs
Covered Under the Financial Test or Guarantee
(State Approved"):
Total Cost Estimates for All Petroleum UST
Facilities Covered Under a Financial Test or
Guarantee
(State Approved"):
Total Cost Estimates for All Hazardous Waste
TSDFs Covered Under a Financial Test or
Guarantee
(State Approved"):
TOTAL OBLIGATIONS COVERED BY ALL FINANCIAL TEST
OR GUARANTEE MECHANISMS :
Fiscal Year Ends
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE GUARANTEE FOR CORPORATIONS
(Page 2 of 4)
FINANCIAL TEST ALTERNATIVE 1 (40 CFR 258.74(e)(l)(i)(A)):
LJ The current bond rating of the guarantor is adequate:
(Indicate the appropriate bond rating and the source of that rating)
I I Standard and Poor's LJ
Moody's
L3 AAA
GAA
QA
Q BBB
a
L
L
a
Aaa
Aa
A
Baa
FINANCIAL TEST ALTERNATIVE 2 (40 CFR 258.74(e)(l)(i)(A)):
LJ The guarantor meets the following ratio.
(Indicate the result of the calculation in the blank space provided.)
total liabilities < 1.5
tangible net worth
FINANCIAL TEST ALTERNATIVE 3 (40 CFR 258.74(e)(l)(i)(A)):
LJ The guarantor meets the following ratio.
(Indicate the result of the calculation in the blank space provided.)
net income plus depreciation, depletion, and amortization minus $10 million > 0.1
total liabilities
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE GUARANTEE FOR CORPORATIONS
(Page 3 of 4)
YES
a
a
a
NO
a
a a
a a
a a
a a
a a
a
a
Is the guarantor one of the following? (40 CFR 258.74(g)(l))
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
A firm with a "substantial business relationship" with the owner or operator
If the guarantor's parent corporation is also the parent corporation of the owner or operator, does
the letter from the guarantor's CFO describe the value received in consideration of the
guarantee? (40 CFR 258.74(g)(l))
Not Applicable
If the guarantor is a firm with a "substantial business relationship" with the owner or operator,
does the letter from the guarantor's CFO describe this "substantial business relationship" and the
value received in consideration of the guarantee? (40 CFR 258.74(g)(l))
Not Applicable
Is the tangible net worth of the guarantor greater than the sum of the current cost estimates for
closure and post-closure care and corrective action, plus all other obligations covered by a
financial test or guarantee, plus $10 million? (40 CFR 258.74(e)(l)(ii))
Does the guarantor have assets located in the U.S. at least equal to the sum of the current cost
estimates for closure and post-closure care and corrective action, plus all other obligations
covered by a financial test or guarantee? (40 CFR 258.74(e)(l)(iii))
Was a letter from the guarantor's CFO, containing the information specified in 40 CFR
258.74(e)(2)(i), placed in the operating record of the facility within 90 days after the close of the
guarantor's fiscal year?
Was a copy of a guarantee contract, as described in 40 CFR 258.74(g), placed in the operating
record of the facility?
Was a copy of the independent CPA's report on examination of the guarantor's financial
statements for the latest completed fiscal year placed in the operating record of the facility within
90 days after the close of the guarantor's fiscal year? (40 CFR 258.74(e)(2)(ii)) If a report was
placed in the operating record of the facility, indicate the nature of the opinion rendered.
a Unqualified Opinion
Disclaimer of Opinion or Adverse Opinion
LJ Qualified Opinion
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR THE GUARANTEE FOR CORPORATIONS
(Page 4 of 4)
LJ LJ If the data used in the CFO's letter to pass the financial test were derived from the independently
audited, year-end financial statements of the guarantor, was a special report from the guarantor's
independent CPA placed in the operating record of the facility within 90 days after the close of
the guarantor's fiscal year? (40 CFR 258.74(e)(2)(ii))
Not Required
COMMENTS:
Reviewed by:
Date:
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CHECK LIST FOR SUBTITLE D GUARANTEE FOR LOCAL GOVERNMENTS
-------
RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR GUARANTEE FOR LOCAL GOVERNMENTS
(Page 1 of 4)
Name of Local Government Guarantor:
Address of Local Government Guarantor:
Name of Local Government Owner or Operator:
Address of Local Government Owner or Operator:
Facilitv ID Number:
Facility Contact Person/Title:
Facilitv Contact Person Phone Number:
Instrument Covers:
LJ Closure
LJ Corrective Action
Cost Estimate for Closure
(State Approved"):
Cost Estimate for Corrective Action
("State Approved"):
Total Cost Estimates for All UIC Facilities Covered
Under a Financial Test or Guarantee
(State Approved"):
Total Cost Estimates for All PCB Storage Facilities
Covered Under a Financial Test or Guarantee
(State Approved"):
1 — 1 Post-Closure Care
Cost Estimate for Post-Closure Care
(State Approved"):
Total Cost Estimates for All Other MSWLFs
Covered Under the Financial Test or Guarantee
(State Approved"):
Total Cost Estimates for All Petroleum UST
Facilities Covered Under a Financial Test or
Guarantee
(State Approved"):
Total Cost Estimates for All Hazardous Waste
TSDFs Covered Under a Financial Test or
Guarantee
(State Aooroved'):
TOTAL OBLIGATIONS COVERED BY ALL FINANCIAL TEST
OR GUARANTEE MECHANISMS:
Fiscal Year Ends
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR GUARANTEE FOR LOCAL GOVERNMENTS
(Page 2 of 4)
FINANCIAL TEST ALTERNATIVE 1 (40 CFR 258.74(f)(l)(i)(A)):
LJ The current bond rating of the local government guarantor is adequate:
(Indicate the appropriate bond rating and the source of that rating)
LJ Standard and Poor's '—I
CD AAA
a AA
a A
LJ BBB L.
Moody's
Aaa
Aa
A
Baa
FINANCIAL TEST ALTERNATIVE 2 (40 CFR 258.74(f)(l)(i)(B)):
LJ The local government guarantor meets both of the following ratios.
(Indicate the results of the calculations in the blank spaces provided.)
cash plus marketable securities £ 0.05
total expenditures
annual debt service z 0.20
total expenditures
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR GUARANTEE FOR LOCAL GOVERNMENTS
(Page 3 of 4)
RELATIVE FINANCIAL STRENGTH RATIO (40 CFR 258.74(f)(4)):
LJ Total obligations covered by all financial test mechanisms do not exceed 43 percent of the total revenues
of the local government guarantor.
(Indicate the result of the calculation in the blank space provided.)
total obligations covered by all financial test or guarantee mechanisms <. 0.43
total revenues
YES NO
LJ LJ Is the local government guarantor currently NOT in default on any outstanding general
obligation debt? (40 CFR 258.74(f)(l)(iii)(A))
LJ LJ Does the local government guarantor NOT have a rating on any outstanding general obligation
bonds lower than Baa, as issued by Moody's or BBB, as issued by Standard and Poor's? (40 CFR
LJ LJ Has the local government guarantor NOT run operating deficits of five percent or more in both
of the past two consecutive fiscal years? (40 CFR 258.74(f)(l)(iii)(C))
LJ LJ Is the comprehensive annual financial report (CAFR) for the local government guarantor
prepared in compliance with generally accepted accounting principles (GAAP) for governments?
(40CFR258.74(f)(l)(ii))
LJ LJ Has the local government guarantor, in each year that the financial test is used, identified the
costs assured by the financial test or guarantee in either its budget or in its CAFR? (40 CFR
258.74(0(2))
LJ LJ Was a letter from the chief financial officer (CFO) of the local government guarantor, containing
the information specified in 40 CFR 258.74(0(3)(i)(A), placed in the operating record of the
facility within 180 days after the close of the local government guarantor's fiscal year?
LJ LJ Was a copy of a guarantee contract, as specified in 40 CFR 258.74(h), placed in the operating
record of the facility?
LJ LJ Was a copy of the local government guarantor's budget or CAFR for the latest completed fiscal
year, or certification that the requirements of Governmental Accounting Standards Board
(GASB) Statement 18 have been met, placed in the operating record of the facility within 180
days after the close of the local government guarantor's fiscal year? (40 CFR 258.74(f)(3)(i)(D))
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RCRA SUBTITLE D FINANCIAL ASSURANCE CHECKLIST
FOR GUARANTEE FOR LOCAL GOVERNMENTS
(Page 4 of 4)
a a
Was a copy of a report from either an independent CPA or an appropriate state agency on
examination of the local government guarantor's financial statements for the latest completed
fiscal year placed in the operating record of the facility within 180 days after the close of the
local government guarantor's fiscal year? (40 CFR 258.74(f)(3)(i)(B)) If a report was placed in
the operating record of the facility, indicate the nature of the opinion rendered.
Unqualified Opinion
Disclaimer of Opinion or Adverse Opinion
Qualified Opinion
a a
Was a special report from either an independent CPA or an appropriate state agency on
examination of the CFO's letter placed in the operating record of the facility within 180 days
after the close of the local government guarantor's fiscal year? (40 CFR 258.74(f)(3)(i)(C))
COMMENTS:
Reviewed by:
Date:
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1. 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 265. The current closure and/or post-closure cost estimates covered by the test are shown for each facility:
None.
2. The firm identified above guarantees, through the guarantee specified in subpart H of 40 CFR parts 264 and
265, the closure or post-closure care or liability coverage 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:
Evans Industries, Ltd. - Springfield Plant
125 Evans Ct.
Springfield, MO
MOD-999-999-999
Closure Cost Estimate: $179,562
Evans Industries, Ltd. - York Plant #1
146 Industrial Park Drive
York, PA
PAD-543-210-987
Closure Cost Estimate: $203,125
Evans Industries, Ltd. - York Plant #2
200 Technology Avenue
York, PA
PAD-2100-543-987
Cost Estimate for Closure: $411,788
Cost Estimate for Post-Closure Care: $197,496
3. In States where EPA is not administering the financial requirements of subpart H of 40 CFR parts 264 or
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 of 40 CFR parts 264 and
265. The current closure or post-closure cost estimates covered by such a test are shown for each facility:
None.
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:
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None.
5. This firm is the owner or operator of the following UIC facilities for which financial assurance for plugging
and abandonment is required under 40 CFR part 144. The current closure cost estimates as required by 40 CFR 144.62
are shown for each facility:
None.
This firm is 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 December 31. 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
December 31,2001.
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Part B. Closure or Post-Closure Care and Liability Coverage
ALTERNATIVE II
Sum of current closure and post-closure cost
estimates (total of all cost estimates listed above)
$991,971
2. Amount of annual aggregate liability coverage to
be demonstrated $8,000,000
3. Sum of lines 1 and 2 I $8,991,971
4. Current bond rating of most recent issuance and
name of rating service I Baa - Moody's
_5. Date of issuance of bond 06/24/92
6. Date of maturity of bond 06/15/02
*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) $549,000,000
*8. Total assets in U.S. (required only if less than 90%
of assets are located in the U.S.) | $54,000,000
Yes
9. Is line 7 at least $10 million?. X
10. Is line 7 at least 6 times line 3? X
* 11. Are at least 90% of assets located in the U.S.? If not,
complete line 12
12. Is line 8 at least 6 times line 3? X
No
X
I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR 264.15 l(g) as such
regulations were constituted on the date shown immediately below.
Jonathan P. Rockefeller
Chief Financial Officer, International Sludges, Inc.
March 31,2002
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