UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
MAY 2919®
MEMORANDUM
OFFICE OF
WATER
SUBJECT: Guidance for Financial Assurance for Federally-
UIC programs
fderground Inip<5tion Control Branch Guidance 139
FROM: victor J/yKimm, Director
Office CUT Drinking Water
TO: Water Division Directors
Water Supply Branch Chiefs
Regions I-X
On May 11, 1984, the Office of Drinking Water (ODW) promulgated
regulations for the Federally-Administered Underground Injection
Control (UIC) programs in 22 jurisdictions and amended Part 144
of the regulations. Included in the amendments to Part 144 were
the new Subpart F Financial Responsibility regulations for the
plugging and abandonment of existing and new Class I hazardous
waste injection wells. However, EPA decided not to promulgate
specific financial responsibility criteria in the May 11, 1984
promulgation for other classes of facilities. Instead, as stated
in the Preamble, the Agency decided to use guidance "... setting
forth those criteria EPA believes . . . are appropriate to evaluate
the major types of possible financial responsibility demonstra-
tions" for Class I (non-hazardous), II and III wells. 49 Fed.
Reg. 20149 (May 11, 1964). *
In June of 1984, ODW distributed a guidance manual entitled
"Financial Assurance for Federally-Administered Underground
Injection Control Programs". Unlike the financial responsibi-
lity regulations for Class I hazardous waste injection wells,
contained in 40 CFR Part 144 Subpart F, which are specific and
comprehensive regulations, the financial assurance guidance
The financial responsibility regulations for Class I (non-
hazardous), II, and ill wells, contained in 40 CFR 5144.28(d)
and S144.52(a)(7), require that the owners or operators of
these wells ". . . maintain financial responsibility and
resources to close, plug and abandon the underground injection
operation in a manner prescribed by the Director" (emphasis
added).
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manual provides flexible criteria to be used by the Regions to
determine the adequacy of financial responsibility mechanisms
provided by the owners and operators to cover the plugging and
abandonment costs of Class I (non—hazardous), II and III wells,
as required in 40 CFR §144.28(d) and Sl44.52(a)(7). 2
This manual is a guidance piece to be used on a case—by—case
basis, taking into consideration all relevant factors including
other reasonable criteria and methods not explicitly delineated
in the manual. Adherence to the guidance manual assures that
the owners and operators will receive an expeditious approval
of their financial responsibility mechanisms, but other criteria
and methods may be acceptable on a case—by—case basis.
Since the June 1984 issuance of the financial assurance guidance
manual, various questions have been asked concerning specific
criteria and procedures contained in the manual. Most of the
questions concerned the flexibility of the criteria used for
assessing the likelihood that Class II wells may not be properly
plugged and abandoned by the owner or operator. Therefore,
the questions are addressed here in the same format as the
criteria presented in Chapter IV, pages 2—4, of the financial
assurance guidance manual.
Criteria Questions
1) History of Plugging Compliance
Question: Who is responsible for providing the information on
plugging compliance history?
Answer: The Regions should seek information from an oil and
gas Commission or other state regulatory body on
the practices of the operator, or the Regions may
ask the operator for plu9ging and abandorunent
records. The U1C program will eventually have its
own plugging records for different fields and
operators, which may simplify this problem. Currently,
if no records exist, then it is assumed that the
operator has a good history.
2 The financial responsibility regulations for Class I hazardous
waste injection wells, contained in 40 CFR Part 144 Subpart F,
are similar to those prescribed under RCRP for all hazardous
waste management facilities.
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2) Number of Fields and 4) Number of Wells
Question: Should the Regions consider the number of fields
and wells of owners and operators in other states
or regions when assessing the likelihood that the
wells may not be properly plugged and abandoned?
Answer: The Guidance suggests that in the general case the
number of fields and wells should be determined by
the number of producing fields and wells within
the State (Region) in which the operator is seeking
review. However, the Regions may, at their own
discretion, take into consideration wells and
fields of the operator outside the particular
State (Region) and other relevant factors such as
overall financial health.
3) Remaining Economic Life of the Fields
Question: What evidence must be provided to assure that at least
one field has a remaining life exceeding five years?
Answer: A certified statement noting the remaining life of
the field should be provided. In general, this statement
can be certified by a petroleum engineer within the
company or by an independent consultant. However,
the certifying engineer should be a registered profes-
sional engineer. In addition, the certified statement
of field life should be co-signed by a company's
operations manager (the company official with first
hand knowledge of the remaining economic life of the
field).
5) Number of Years in Business
•
No questions
6) Financial Performance
Question: When a financial statement is the financial mechanism
under evaluation and the operator is using a bond
rating to satisfy the financial performance test,
what must be submitted?
Answer: The operator should submit a letter from a person of
sufficient authority in the corporation to legally
bind the corporation whose bond is rated (not a
subsidiary) containing the following information:
1) Current bond rating of most recent issuance
of the firm and name of bond rating service;
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2) Date of issuance of bond rating;
3) Duration of the bond rating; and
4) Copy of the notification of bond rating from the
bond rating service.
Question: When a financial statement is the financial mechanism
under evaluation must the letter containing the
company’s financial information be signed by the
Chief Financial Officer of the company?
Answer: The letter should be signed by the Chief Financial
Officer. In the alternative, it should be signed by
a person of sufficient authority in the company to
legally bind the company. The financial statement
must represent the assets of the company that the
Chief Financial Officer or other person of sufficient
authority is seeking to legally bind.
Question: When a financial statement is the financial mechanism
under evaluation must it be an audited financial
statement?
Answer: It may be an audited financial statement. In the
alternative, it should at least contain the required
financial data examined by an independent certified
public accounting firm.
In summary, two general principles should be considered in the
application of the financial assurance guidance for Class I
(non—hazardous), II and III injection wells.
1. The goal of the guidance is to ensure that adequate
financial resources are available to properly plug
and abandon injection wells as necessary.
2. ODW considers the guidance a flexible set of criteria
that should be applied with appropriate judgment to
ensure this goal. When the likelihood of non performance
is great, the owner or operator is required to obtain
financial coverage adequate to plug and abandon each
well covered by the demonstration. co-rrespondingly,
when the likelihood of non performance is small, less
financial coverage is required, and the Regions may
exercise more discretion in the use of specific elements
of the criteria.
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A booklet entitled “Federal Financial Responsibility Demonstra-
tions for Owners and Operators of Class II Injection Wells: A
Summary” has been written and will be sent to you within the
next month. This booklet is designed to explain the tJIC financial
responsibility requirements to owners and operators of Class II
wells and should be distributed to them as appropriate. Sample
forms for the various financial responsibility mechanisms are
also available and will be sent to the Regions along with the
booklet. These forms are available to the owners and operators
upon request . However, other means of obtaining the required
data may be acceptable.
We are also developing additional Regional training on evaluating
financial assurance applications. In the interim, this guidance
should be used to supplement the materials already available to
you.
If you have questions about the guidance and/or this memo,
please contact Roger Anzzolin at FTS—382—5559, George Denninq at
FTS 382—5540 or Susan Desrosiers at FTS—382—5545.
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