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‘ .- . •
Impact of MRA on Various lypes of
i:
•The MRA applies to money received for the use
of the United States.
•The MRA requires that such money be deposited
into the eeneral fund of the U.S. Treasury, not
into an agency’s own appropriations unless
otherwise authorized by law.
• Financial Assurance ordered by court is not
subject to the MRA.
I ityp s f i ia [
Assurance
• Closure and Post-closure. Financial Assurance
under 40 C.FR. Parts 264 and 265.
• Financial Assurance tbr Corrective Action in
Permits or RCRA 3008 (1) Orders.
•Financial Assurance tinder RCRA 7003
FinanciaP ssuranccundcrRCRA
§7003
•EPA-ordered financial assurance.
Consintcii c receipt
7 US. Op. Otliccof Legal Counsel 36 (Fcb. Itt.
4B U.S. Op. Officc oiLcgril Counsel (84 (June t3.
1980)
•Ccurt-ordercd financial assurance.
•Cortsultatiori with legal counsel to insure
compliance with MRA.

ep, __
P/ca JL .
- ,2L -Z- &td-
L 7
/ 1 - 2 4 1
4jt
9
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does no: create any right or benefit, substantive or procedural. This document is not a complete
representation of RCRA or of EPA’s regulations and views, and may not necessarily reflect the current posit ion of EPA.

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Cost Estimation

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THE FA COST QUIZ
1 - A reliable cost estimate is necessary in order to obtain
adequate
2 - (true/false): Closure/post closure cost estimates shall reflect the most expensive
options.
3 - (circle one): Parent companies and subsidiaries shall/shall not be considered to
be third parties for closure/post-closure estimating purposes.
4- General (prime) contractor costs are classified as _____________ costs
in a facility cost estimate.
5 - (true/false): The potential salvage value of facility equipment shall not be
deducted from the closure cost estimate.
6- What is the estimated value in 2004 of a 2003 cost estimate of $1 Million, if:
The 2003 GDP Price Deflator = 105.998
The 2002 GDP Price Deflator = 104.092
7- Which of the following statements apply to mandatory requirements for cost
estimates developed for corrective actions ?
(a) The cost estimate shall address all aspects of the work
(b) The value of the potential re-sale of hazardous materials shall receive a zero credit
(c) Changes to the planned work shall be addressed in a revision to the cost estimate
(d) None of the above

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8 - A — _____________ _____________ is the term used to describe the
organization of a cost estimate.
9 - What does the acronym “UOM” represent?
10-If a crew consisting of one equipment operator (@ $50/br) and one backhoe
(@$l5OIhr) can excavate an average of 65 cubic yards per hour, what is the total
estimated cost to excavate 13,000 cubic yards (CY)?
11 - In the problem above, what is the unit price per CY? ______________
12 - (true/false): Direct costs represent the price charged by the subcontractors.
13 - Which of the following categories generally are included in a facility’s cost
estimate indirect cost pool?
(a) corporate G&A
(b) site overhead (office trailers, work plans, permits, site supervision, etc.)
(c) general contractor profit
(d) design costs
(e) all of the above
14 - (circle one): The greater the level of certainty/uncertainty, the larger the
contingency factor applied to a facility cost estimate.
15 - CostPro was developed for ____________ / estimates.
16- ___________ software is a good tool to employ when reviewing cost
esftmates submitted by facilities for corrective actions.

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17 - The cost information in the RSMeans cost reference books (or CDs) provides
a common _____________ for both CostPro and RACER parametric estimating
applications.
18 - Which of the following choices will enhance a regulator’s ability to review
facility cost estimates?
(a) keep current RSMeans cost data books on hand
(b) retain contractor support on an as-needed basis to assist with large-scale facilities
(c) maintain a copy of CostPro software for closure/post-closure estimate reviews
(d) establish cross-program contacts with other state office personnel - such as CERCLA
and UST - for pricing support and information
(e) require facilities to submit cost estimates in an electronic format
(f) maintain a copy of RACER software for corrective action estimate reviews
(g) designate and train a staff position as a resident expert in cost estimating matters
(h) consult prior project files for pricing data and estimating formats
(i) establish contacts with other state agencies or EPA regional offices
(j) all of the above
19 - What is the total estimated direct cost for the landfill cap on Sheet LF-2?
$______________
20- As CostPro does not include a separate line item for “indirect costs” on Sheet
LF-2, where could these costs be included? _______________________
21 - How did CostPro calculate the estimated “156 hours” (line 2.C) for spreading
and compacting the clay layer in Sheet LF-3?
(Hint:) ________ x ________ =l56hrs

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22 - How did CostPro calculate the estimated “578.7 CY” (line 1 .C) on
Sheet LF-6, Form Sequence “1” (topsoil worksheet)?
(Hint:) __________ x __________ = 578.7 cubic yards
23 - (true/false): On the RACER “Project Cost Detail Report” sheet, the “General
Conditions” and ‘Overhead” categories are intended to cover site overhead arid
corporate G&A expenses.
24 - Also on the same RACER report, under which category would the user
include contingency costs? _______________
25 - On page 1 of the Drum Storage Bldg Excel estimate, what is the RSMeans
production rate cited for loading the drums onto a flatbed trailer? ___________
26 - On page 7 of the Drum Storage Bldg Excel estimate, what indirect cost per-
centage factor is applied to “site activity management”?
27 - Regarding the CSA Excel estimate, what is the production rate for cutting the
tanks (demolition) in line item 1.6 (p. 2)? _________ SF/Hr
28 - Also in the CSA Excel estimate, what is the projected distance to the offsite
disposal facility in alternate line item 1.03(b) on p. 6? _________ miles
29 - (true/false): Reliable pricing for offsite disposal is readily available in
published databases.
30- Using the information from the four sample cost estimates provided, develop
a comprehensive cost estimate by completing the form on the following page:

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Comprehensive Cost Estimate Summary:
Line Item
QTY UOM Unit Price
Extended Cost
Subtotal - Direct Costs
Indirect Costs/Profit:
1.0 Landfill Cap Const.
2.0 Pump & Treat System Inst. (mci. esc.)
3.0 Drum Storage Closure
4.0 CSADem0PT&D
Subtotal - Indirect Costs
$
$
$
94.611
81.338
$
220.206
$
187.226
Indirect Cost Percentage:
divided by
= __ %
Total - Direct & Indirect Costs
$
Contingency Costs:
1.0 Landfill Cap Const.
2.0 Pump & Treat System Inst.
3.0 Drum Storage Closure
4.0 CSA Demo!I’&D
Total Contingency Costs
$
193.907
$
0
$
113.773
$
93.613
Contingency Cost Percentage:
divided by,
=__
R74925
Direct Costs for Closure:
1.0 Construct Landfill Cap
2.87
acre
S_______
=
2.1 Install Extraction Wells
8
well
$
17.806
=
2.2 Install Air Stripper
1
LS
$_______
=
$ -
2.3 Install of Carbon Treatment
1
LS
$________
=
2.4 Install 6’ Effluent Pipe
500
LF
$
32.29
=
3.0 Offsite T&D - Haz Drums
6,000
drum
$_______
=
4.1 Offsite T&D - Haz Liquids
180,000
gal
$
3.55
=
4.2 DemoIT&D Tanks
8
each
$_______
=
4.3 Decon/Dem/T&D CSA
12,500
SF
$
4.34
=
$
4.4 Other CSA direct costs
1
LS
$________
=
$
115077
16.143
917.524
20.172
35 .686
Total Estimated Cost (mci. Contingency)
S

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Cost Estimating for RCRA
Financial Assurance
- A reliable cost estimate is necessary in order to
obtain adequate financial assurance
Cost estimate reviews should achieve the same
level of quality which is provided to the selection
of the financial assurance instrument
The right resources are needed in order to review
and evaluate facility cost estimates adequately
REGULATORY GUIDANCE
• 40 CFR 264142 2nd 44
• 40 CFR 235. 42 nci 44
OSWER Dtrectiv 9476.00-5
(Jrll nry, 987)
• OSWER Directive 047600-6
(November, 1986)
• Interim Guidnrrce — RCR.A Corrective Action
(September. 2003)
*
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does nd create any nght or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA’S
regulations end views, and may not necessanly reflect the current pos,t,on of EPA
1

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e 1— d u t-’
te ?L- - Z 5 4 1 (} L tp U 1* I
Mi,— C /416 - -)1 flLA— Pa t Q
- -
REGULATORY REQUIREMENTS
Based upon Closure & Post-Closure
Plans
Most Expensive Options
Third-Party Costs
Salvage Credits and Zero Economic
Value
AnnuaT Updates
Corrective Action Plans
Facility cost estimates are required
for closures & post-closures
Faci I itv ens! esti mates shall hc based U Ofl
closure & post-closure plans
Each activity listed in a permit or plan shall
be included and priced iii the estimates
Posi-closurc maintenance usually is based
upon 30-year periods of performance
Facility Cost Estimates Shall Reflect the
Most Expensive Options
Estimates shall reflect the maximum
permitted quantities or volumes
. May need to provide either for new onsite
disposal units, or for offsite T&D
Estimates shall be predicated upon
concurrent closure activities
This document as intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA ’s
regulations and views, and may not necessarily reflect the current position of EPA
2

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Facility Cost Estimates Shall Reflect Third
Party Costs
Estimates shall not be based upon the use
of in-house resources even if available
. Parent companies and subsidiaries shall
not be considered to be third parties
Use market-based pricing based upon
outside, independent contractor set-vices
Contract Costs
- General (prime) contractor: indirect costs
- site management costs
• corporate G&A
• general contractor profit
‘ Specialty Subcontractors: direct costs
labor
• equipment
• materials
• subcontract profit
Facility Cost Estimates Shall Preclude
Salvage Credits and Zero Costs for
Wastes Generated During Closure
Potential salvage values — such as reusable
drums or tanks — shall not be incorporated into
cost estimate to offset costs
Disposal costs for recycling or hazardous or non-
hazardous materials with potential economic
value shall not be assigned ‘zero” values
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA . States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a complete representation of RCR4 or of EPA ’s
regulations and views, end may not necessanly reflect the cuirent position of EPA
3

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Annual Facility Cost Estimates Updating
. To account for annual inflation, either:
recalculate estimates using Current pricing;
or multiply original estimate by an inflation
factor
If TSDF units are added, expanded, or closed,
cost estimates must be updated to reflect the
changes
2004 Estimate Escalation using the Annual Deflator
if the 2003 cost estimate 50000 ,000: and
if the 2002 GOP Poce Deflator = 104,092; and
if the 2003 GOP Price Deflator = 105.99S; then
the 2004 inf1 ticn factor is (2003 PD)/(2002 PD), or
105.998/104.092 = 1.0133107 (or 1.83 do)
and the 2004 cost est = 510,000,000 1.0183, or
S I D, 183, 107
Cost Estimates for Corrective Action
If Congress intended TSDFs to provide
adequate financial assurance for corrective
actions; and
If cost estimates are necessary to determine
the values of financial assurance required;
Then
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a complete representation of RCR4 or of EPA ’s
regulations and views, and may not necessarily reflect the current position of EPA
4

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Estimate Structure
A t&/ork Breakdown Structure (WBS)
approach is the preferred method
with whrch to organize the estimate
A WBS is analogous to an outline for
a thesis or term paper
A WBS begins with major activities . $
and adds increasing levels of detail as
necessary
Drum Storage Closure WBS
Inventory Drums
D sposc of Drums
• solids drums
• rqutds drums
Decon Bui’ding
• r nJ r! rir src
• 5ir1ipIrr S ari1Iy 5
Health & Safety
• 1r2V0I 5 51 PrOtCCtOfl
Sluririnli S rrrS5eClrOnS
Site Supcrviaon
sw certification
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCR.A or of EPA’S
regulations end views, and may not necessarily reflect the current position of EPA
5

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Unit of Measure (UOM)
May be taken directly from
permit or detailed plans; e.g.,
gallons, number of drums, or
area of landfill
May be derived from basic site
parameters pIF1IuI 1
Basis of quanUties employed
should be documented
excavate & stockpile 10,000 CY @ 75 cy/hr
10,000 CY soil @ $3.75/CY = $37,500
or
1 laborer © $40/hr x 135 hrs = $5,400
2 EOs @ $50/hr x 135 hrs $13,500
1 excavator © $70/hr x 135 hrs = $9,450
1 loader @ $40/hr x 135 hrs = $5,400
Total = $33,750
Production Efficiency
The hourly output is determined in
part by the crew makeup, and in
part by working conditions
Taken from standard databases, or
may be based upon similar projects
Basis of production utilized should A
be documented
Th,s document is intended to provide guidance to EPA staff It does not create any legally binding requu’ements on EPA. States. or the regulated
community, and does not create any nglfl or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPAs
regulations end views, and may not necessarily reflect the current position of EPA
6

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Demolition of a CSA: 6” to 12” depth
Crew B-38, with 5 persons, an excavator with
a hydraulic hammer, and a front-end loader,
can demo 3,780 SF/day © $0.71/SF
Crew B-39, with 6 persons and two sets of air
tools, can demo 1,600 SF/day © $133/SF
Unit Pricing
Most unit prices can be found in standard
dambases such as RSMearis or in office case files
. Unit prices are tied to production efficiencies
which in turn are related to crew configurations
For offsite T&D, it may be necessary to call other
TSDF facilities for pricing
. Basis of Linit pricing should be documented
/*
Direct Costs
Direct costs reflect those charges made by
subcontractors
The direct costs include all costs incurred by
subcontractors, plus subs’ profit
Line item pricing in RSMeans, CostPro, and
PACER reflect direct costs
This document is intended to provide guidance to EPA staff It does not create any !egafiy binding requirements on EPA, States, or the regulated
community, and does not create any nght or benefit substantive or procedural This document is not a complete representation of RCR4 or of EPA ’s
regulations and views, and may not necessarily reflect the current position of EPA
7

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thctrect Costs
Preconstruction design and engineering
General contractors site-related costs: trailers,
utilities, security, onsite engineering, inspectors,
permits, vork plans (general condition costs)
General contractor’s corporate overhead (G&A)
General contractor’s profit
Estimate Contingencies
. does the project have a detailed design or
plan? then a range of 5°/o to 10%
is the project above or below the ground?
the greater the unknowns, the greater the
level of uncertainty, and therefore, the
qreater the contingency
LAJ -
Total Estimated Cost
Database unit pricing usually is based upon
subcontractor rates, includinu overhead and
profit, and are considered to be contract
direct costs
In addition to contract direct costs, estimates
should include contract indirect costs — also
called third-aerty general contractor costs -
such as site management, home-ollice G&A,
and profit
- In addition, the cost estimate should include
design costs and contingencies, as necessary
This document is intended to provide gwdance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any right or benefit. substantive or procedural This document is not a complete representation of RCP .A orof EPA ’s
regulations and views, and may not necessarily reflect the current position of EPA
8

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Cost Estimating Resources
PSMeans cost references (manuals or CDs)
CostPro parametric software and manual
RACER parametric software w/on-line help
Other cost estimate review resources
C)
R.S. Means Cost References
- Provides a common database for both RACER and
CostPro systems
Includes thousands of line items
Two complementary references for env ronmental
line items
, Other references for civil works activities
CostPro Software
. Developed by EPA in mid- 1990’s and
follows the detailed methodology of
OSWER Directive 9476.00-6 (1986)
Provides seventeen (17) basic models
developed primarily for closure and post-
closure activities
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCR4 or of EPA ‘ S
regulations and views, end may not necessanly reflect the current position of EPA
9

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CostPro Example for a LandFll Cap (2.9 acres)
FacPity estimate 5745K, or 5250K per acre
costpro estimate = SLI6N, or 5405K per acre
An in-house estimatc enables the agency to diSCUSS
pricing assumptions vith facility, such as:
Is the facility projecting the usc of OnSite Soil and
clay for the cap layers?
Is the facility projecting the use of in-house labor
and equipment?
CostPro Features
transparent software; .e , user-friendly
i models can be grouped into projects
duplicate worksheets can be added for
additional activities — but not me items
quantity, production, and pricing can be
adjusted
i. indirect costs and profit can be added to the
‘contingency allowance’ line item
RACER Software
Developed by USAF in early 1990s for
use by RPMs to estimate the costs of
CERCLA and RCRA activities
Provides approximately 100 parametric
models — including key remediation
technologies as well as many civil works
activities, such as infrastructure
construction and demolition
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, arid does not create any right or benefit, substantive or procedural This document is not a complete representation of RCR4 or of EPA’S
regulations and views, and may not necessanly reflect the cuirent position of EPA
10

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RACER Example — Pump & Treat System
Facility estimate 5250K
RACER estimate 5376K
An n-house estimate permits thc agency to discuss pricing
assumptions, such as:
Is the facility projecting a different drilling method?
Does the facility estimate include adequate estimates
icr indirect costs and contingencies?
RACER Features
caIcuIations are not “transparent”
i models can be grouped into projects
iine items can be added or deleted
. -quantities and unit pricing can be
adjusted
separate provision for indirect costs
- separate provision for escalation
Other Estimate Review Resources
Intra-office cost estimating expertise; e.g.,
CERCLA or a UST counterparts
. Intra-office databases or prior case files of
similar projects — RCRA and CERCLA
Other state or Federa’ resources
Outside contractors — without conflicts of
interest - employed on an as-needed basis
This document as intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, end does not create any right or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA’S
regulations and views, and may not necessanly reflect the current position or EPA
11

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— -‘
%U O\ Pe2A\J 6 &
Cost Estimate Samples
. CostPro Example — Landfill Cap
- RACER Example — Pump & Treat
Excel Example — Drum Storage Warehouse
Excel Example — Container Storage Area
Quiz Example — Comprehensive Estimate
costpro highlights: landfill cap
- WBS based primarily upon cap layers
LF-1: parameter inputs
LF-2: cost summary
LF-2: add indirect costs/profit to Line 22
LF-3: adds clay mat’l for compaction (1.6)
. LF-3: production efficiency (2.6)
LF-6: seq. 1 used far topsoil (1.E)
LF-6: seq. 2 used for cheaper fill (1.E)
Users manual documents line items
racer highlights: pump & treat
WBS based upon four models
input screens require site-specific data
cost summary adds indirect cost factor
i cost summary adds profit
cost summary adds inflation factor
. quantities and pricing can be changed
line items can be added or deleted
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA ’s
regulations and views, and may not necessarily reflect the current position of EPA
12

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ts - t4 -& Q( &Q o . 0 /
excel spreadsheet: drum storage
detailed estimated using WBS
calculations are very transparent
production rates are documented
crew components are documented
unit pricing is documented
alternate offsite T&D is included
comparison with facility estimate is
provided
Excel Spreadsheet — CSA Tank Demolition
How to price this activity when there are no
specific database items and there are no
CostPro or RACER parametric models?
From CERCLA Removal OSC, obtained details
of a possible crew configuration
From RShleans data, found related demolition
data with crews and production factors
Tank Demolition Crew Configuration (UOMS),
production efficiency, and unit pricing
3 Lab’s w/welding equip’t & 2 Equip’t Opers
1 Excavator w/shears attachment & claw
1 Loader and 1 Crane
Used an “average” hourly production rate
Priced each crew component separately
This document Is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any rrght or benefit. substantwe or procedural This document is not a complete representation of RCF A or of EPA’S
regulations and views, and may not necessanly reflect the current position of EPA
13

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Summary and Discussion
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. Slates, or the regulated
community, end does not create any nght or benefit, substantive or procedural This document as not a complete representation of RCR4 or of EPA’S
regulations and views, end may not necessarily reflect the current position of EPA
14

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COST ESTIMATING
FOR
FINANCIAL AS SURANCE

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OSWER Policy Directive 119476.00-5
RCRA GUIDANCE MANUAL
FOR
SUBPART G CLOSURE AND
POST-CLOSURE CARE STANDARDS AND
SUBPART H COST ESTIMATING REQUIREMENTS
Prepared by
ICF Incorporated
for
Permits Branch, Office of Solid Waste
U.S. Environmental Protection Agency
EPA/530-SW-87-01 0
January 1987

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OSWER Policy Directive
#9476.00-5
TABLE OF CONTENTS
Page
CHAPTER 1. INTRODUCTION 1-1
1.1 SUMMARY OF CLOSURE/POST-CLOSURE CARE REQUIREMENTS 1-2
1.2 ORGANIZATION AND USE OF MANUAL 1-3
CHAPTER 2. CLOSURE AND POST-CLOSURE CARE REQUIREMENTS 2-1
2.1 APPLICABILITY OF CLOSURE AND POST-CLOSURE CARE REGULATIONS ... 2- I.
2.1.1 Applicability of Closure Regulations 2-1
2.1.2 Applicability of Post-Closure Care Regulations 2-4
2.1.3 Units Subject to Contingent Plan Requirements 2-5
2.2 CLOSURE REQUIREMENTS TO BE ADDRESSED IN THE CLOSURE PLAN 2-5
2.2.1 Facility Description 2-7
2.2.2 Partial Closure 2-9
2.2.3 Maximum Extent of Operations 2-10
2.2.4 Management of Maximum Inventory 2-10
2.2.5 Facility Decontamination 2-13
2.2.6 Final Cover 2-16
2.2.7 Ground-Water Monitoring 2-17
2.2.8 Ancillary Closure Activities 2-18
2.2.9 Survey Plat 2-21
2.2.10 Closure Certification 2-21
2.2.11 PartiAl and Final Closure Schedule 2-22
2.3 POST-CLOSURE CARE REQUIREMENTS TO BE ADDRESSED IN THE
POST-CLOSURE PLAN 2-23
2.3.1 Scope of Post-Closure Care Activities 2-25
2.3.2 Considerations Affecting the Length of the Po3t-
Closure Care Period
2-32

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OSWER Policy Directive
#9476.00-5
TABLE OF CONTENTS (continued)
2.4 DESCRIPTION OF DATA SOURCES FOR CLOSURE AND POST-CLOSURE
PLANS 2-34
2.4.1 Part B Application 2-35
2.4.2 Facility Operating Record 2-36
2.4.3 Inspection Logs 2-36
2.4.4 Manifests and Other Contracts for Waste Shipments 2-37
2.4.5 Ground-Water Monitoring Data 2-37
2.4.6 Biennial Report 2-37
2.4.7 Part A Application 2-38
CHAPTER 3. PROCEDURAL AND ADMINISTRATIVE CLOSURE AND POST-CLOSURE
CARE REQUIREMENTS 3-1
3.1 AVAILABILITY OF PLANS AND COST ESTIMATES 3-1
3.2 CLOSURE AND POST-CLOSURE PLAN AND COST ESTIMATE REVIEW
PROCEDURES AND PUBLIC INVOLVEMENT REQUIREMENTS 3-2
3.2.1 Review of Closure and Post-Closure Plans and
Cost Estimates by the Regional Administrator or
State Director 3-2
3.2.2 Public Involvement Requirements 3-5
3.3 REQUIREMENTS FQR AMENDING CLOSURE OR POST-CLOSURE
PLANS AND COST ESTIMATES 3-12
3.3.1 Changes that Require Amendments to Plans and
Cost Estimates 3-12
3.3.2 Deadlines for Amending Plans and Cost Estimates 3-14
3.3.3 Procedures for Amending Plans and Cost Estimates 3-15
3 .4 CLOSURE SCHEDULE 3-16
3.4.1 Receipt of Final Volume of Hazardous Wastes 3-16
1.4.2 Notification of Closure 3-17

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OSWER Policy Directive
#9476 .00-5
TABLE OF CONTENTS (continued)
Page
3.4.3 Completion of Closure Activities 3-17
3.4.4 Submittal of Closure Certification 3-22
3.4.5 Submittal of Survey Plat 3-22
3.4.6 Submittal of Record of Wastes 3-22
3.4.7 Submittal of Deed Notation 3-25
3.4.8 Release from Financial Assurance 3-27
3.5 PROCEDURES FOR ALTERING THE LENGTH OF THE POST-CLOSURE
CARE PERIOD 3-29
CHAPTER 4. INSTRUCTIONS FOR PREPARING CLOSURE AND POST-CLOSURE COST
ESTIMATES 4-1
4.1 APPLICABILITY OF COST ESTIMATING REQUIREMENTS 4-1
4.2 BAS’IC RULES FOR PREPARING COST ESTIMATES 4-3
4.2.1 Relationship Between the Closure and Post-Closure
Plans and Cost Estimates 4-4
4.2.2 Scope of the Closure Cost Estimate 4-4
4.2.3 Scope of the Post-Closure Cost Estimate 4-6
4.2.4 Inclusion of Ground-Water Monitoring Costs in Cost
Estimates
4.2.5 First- vs. Third-Party Costs 4-7
4.2.6 Disallowance of Salvage Value and Zero Credit for
Sale of Hazardous Wastes 4-8
4.3 REVISING COST ESTIMATES TO REFLECT CHANGES IN CLOSURE
AND POST-CLOSURE PLANS 4-9
4.3.1 Changes in the Closure or Post-Closure Plans that
May Increase the Cost Estimates 4-9
4.3.2 Changes in the Closure or Post-Closure Plans that
May Decrease the Cost Estimates 4-10
4.4 ANNUAL ADJUSTMENTS FOR INFLATION 4-11

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OSWER Policy Directive
#9476.00-5
TABLE OF CONTENTS (continued)
Page
4.4.1 Options for Updating the Closure and Post-Closure
Cost Estimates for Inflation 4-11
4.4.2 Deadlines for Adjusting Cost Estimates for
Inflation 4-14
4.5 DOCUMENTATION FOR COST ESTIMATES 4-17
4.5.1 Guidance Manual: Cost Estimates for Closure and
Post-Closure Plans (Subparts G and H) 6-17
4.5.2 Owner or Operator Experience 4-18
4.5.3 Contractor Estimates 4-18
4.5.4 Cost Estimating Handbooks 4-18
4.5.5 Worksheets and Workups 4-19
APPENDIX A: CLOSURE TIMELINES A-i
A. 1 Closure Time lines for Permitted Facilities and Interim
Status Facilities With Approved Plans: Surface
Impoundments, Waste Piles, Landfills, and Land
Treatment Units A-3
A.2 Closure Timelines for Permitted Facilities and Interim
Status Facilities With Approved Plans: Container
Storage, Tank and Incinerator Units A-4
A.3 Closure Timelines for Interim Status Facilities Without
Approved Plans: Surface Impoundments, Waste Piles,
Landfills, and Land Treatment Units A-5
A.4 Closure Timelines for Interim Status Facilities
Without Approved Plans for: Container Storage, Tank
and Incinerator Units A-6
APPENDIX B: TECHNICAL CRITERIA AND SITE-SPECFIC FACTORS TO
CONSIDER IN DETERMINING THE LENGTH OF THE POST-CLOSURE
CARE PERIOD B-i
B.l Technical Evaluation Criteria to Consider in Determining
the Length of the Post-Closure Care Period B-i
8.1.1 Containment B-2
B.l.2 Detection B-3

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TABLE OF CONTENTS (continued)
Page
3.1.3 Migration and Attenuation B- )
3.1.4 Risk Potential 3-4
3.2 Site-Specific Technical Factors Involved In Evaluating
the Length of the Post-Closure Care Period 3-4
3.2.1 Facility Characteristics 3-4
3.2.2 Waste Types and Characteristics B- I s
3.2.3 Environmental and Health Considerations 3-17
APPENDIX C: CLOSURE, CONTINGENT CLOSURE, AND
POST-CLOSURE PLAN CHECKLISTS c - i.

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OSWER Policy Directive
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CHAPTER 1
INTRODUCTION
This guidance manual accompanies the Parts 264 (permitted status) and 265
(interim status) Subpart G closure and post-closure care regulations, and the
Subpart H cost estimating rules promulgated on May 19, 1980, and January 12,
1981, and later amended on May 2, 1986. These requirements are found in 40
CFR 264.110—264.120, 264.142, 264.144, 265.110-265.120, 265.142, and 265.144.
The purpose of this guidance manual is to assist the Regional and State
Offices in implementing the closure and post-closure care and cost estimate
regulations and to help. owners and operators prepare plans arid cost estimates
that satisfy these regulations. In particular, the manual:
• clarifies the intent and scope of th closure and
post-closure plan and cost estimate regulatory
requirements;
• provides examples of the kinds of information that
should be included in closure and post-closure plans and
cost estimates;
• discusses site-specific factors that may affect
closure and post-closure care activities; and
• provides closure and post-closure plan checklists
to assist in preparing and reviewing plans.
The information in this manual supersedes guidance contained in two
earlier manuals published in November 1981 to accompany the May 19, 1980,
interim final rules: Final Draft Guidance for Subpart G of the Interim
Status Standards for Owners or Operators of Hazardous Waste Treatment,
Storage and Disposal Facilities , and Final Draft Guidance for the Subpart H
Cost Estimating Requirements of the Interim Status Standards for Owners or
Operators of Hazardous Waste Treatment, Storage and Disposal Facilities .
Guidance for future regulatory changes and policies, including determining
“how clean is clean”, will be published at a later time.
Readers may also wish to refer to two other manuals that address closure
and post-closure cost estimates and financial responsibility requirements:
Guidance Manual: Cost Estimates for Closure and Post-Closure Plans (Subparts
G and Iii , Volumes I-IV, November, 1986, EPA #530-SW-86-036, OSWER Policy
Directive Number 9476.00-6; and Financial Assurance for Closure and
Post-Closure Care: Requirements for Owners and Operators of Hazardous Waste
Treatment, Storage and Disposal Facilities , U.S. EPA, Office of Solid Waste,
May 1982, EPA #SW-96l, NTIS #PB 83-144-675.

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OSWER Policy Directive
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CHAPTER 4
INSTRUCTIONS FOR PREPARING CLOSURE
AND POST-CLOSURE COST ESTIMATES
Owners and operators must prepare detailed written estimates of the
current costs of closing their facilities and, for disposal facilities, the
costs of monitoring and maintaining them after closure.’. The cost
estimates must be based on the activities described in the closure and
post-closure plans. These cost estimates are used to determine the level of
financial assurance required.
This chapter discusses the assumptions to be used in developing estimates
as follows:
• Section 4.1 -- Applicability of cost estimating
requirements;
• Section 4:2 -- Basic rules for preparing cost
estimates;
• Section 4.3 -- Revising cost estimates to reflect
changes in closure and post-closure plans;
• Section 4.4 -- Annual adjustments for inflation; and
• Section 4.5 -- Documentation for cost estimates.
This chapter supplements the informa ion included in Guidance Manual:
Cost Estimates for Closure and Post-Closure Plans (Subparts G and H )
(hereinafter referred to as Cost Estimate Guidance Manual) , EPA
(/530-SW-86-036, OSWER Policy Directive Number 9476.00-6. That document
includes sample worksheets outlining the cost components that should be
included in a closure or post-closure cost estimate for various process
types. In addition, that document presents unit costs (or ranges of costs)
for each of the activities.
4,1 APPLICABILITY OF COST ESTIMATING REQL’REMENTS
Exhibit 4-1 summarizes the applicability o.f the cost estimating
regulations as follows:
(1) Owners or operators of ALL TSDFs with the exception
of Federal or State government agencies, must prepare
closure cost estimates based on the closure plans. 2
40 CFR 264.142(a), 264.144(a), 265.142(a), and 265.144(a).
2 40 CFR 264.140 and 265.140.

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Process Tvoe
L, ..uBIT Li—i
APPLICABILITY OF CLOSURE AND POST-CLOSURE COST ESTIMATES
Contingent
Closure Closure
Cost Estimate Cost Estimate
OSWER Policy Directive
#91176. 00-5
Post—Closure Cost Estimate
Permitted Facilities
Container
Tank with secondary containment
Waste pile: does not satisfy liner
design standards
Interim Status Facilities
x
RequIred only if it is determined prior to
certification of final closure that the unit must
be closed as a landfill
x
x
x
x
Required only If it Is determined prior to the
certification of closure that the unit must be
closed as a.iandflII.
RequI édon ly rit isdetermined pr1oi tofthe
certlfIcñt 1onof 1 cibsure that her nltmus b.
closed a
Tank without secondary containment
Incinerator
Landri ii
Land treatment
Disposal surface impoundment
Storage or treatment surface impoundment:
satisfies liner design standards
Storage or treatment surrace impoundment:
does not satisfy ‘iner design standards
Waste pileS satisfies liner design
standa rds
x
x
xi . x
x
‘C
x
x
x
x
‘C
Required only if it is determined prior to
certification of final closure that the unit must
be closed as a landfill.
‘C
x
x
‘C
Required only if it is determined prior to the
certification of closure that the unit must be
closed as a landfill.
x
Required only if it is determined prior to the
certification of closure that the unit must be
closed as a landfill.
Is
Container X
Tank with secondary containment ‘C
Tank without secondary containment X l .
Incinerator ‘C
Landrili
Land treatment x
Disposal surface Impoundment
Storage or treatment surface impoundment X
Waste pile
These t....ts requ%re

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4-3 OSWER Policy Directive
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(2) Owners or operators of ALL facilities with disposal
units must prepare estimates of the costs of conducting
30 years of post-closure care based on the post-closure
plan. Disposal units include landfills 1 land
treatment, and disposal surface impoundments.
(3) ALL owners or operators of surface impoundments, waste
piles, and tanks required to prepare contingent
closure and post-closure plans must prepare closure
and post-closure cost estimates consistent with the
contingent plans. 3 Owners or operators of tanks
must prepare a closure cost estimate consistent with
the contingent closure plan if those costs are higher
than the costs of “clean closure”. (See Section
2.1.3 of this manual for further discussion on
contingent plans.)
(4) Owners or operators of ALL storage or treatment
surface impoundments, waste piles, or tanks not
otherwise required to prepare contingent plans and
cost estimates must revise the closure cost estimate
and prepare a post-closure cost estimate if it is
determined prior to the certification of final closure
that the unit must be closed as a landfill. 5
4.2 BASIC RULES FOR PREPARING COST ESTIMATES
The following sections describe the assuxnptidns that should be used when
preparing closure and post-closure cost estimates:
• Section 4.2.1 -- Relationship between the closure and
post-closure plans and cost estimates;
• Section 4.2.2 -- Scope of the closure cost estimate;
• Section 4.2.3 -- Scope of the post-closure cost
estimate;
• Section 4.2.4 -- Inclusion of ground-water monitoring
costs in cost estimates;
40 CFR 264.228(c) and 264.258(c).
40 CFR 264.197(c) and 265.197(c).
40 CFR 264.112(c), 264.118(a) and Cc), 264.197(b), 265.112(c),
265.118(a) and (d), and 265.197(b).

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4-4 OSWER Policy Directive
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• Section 4.2.5 -- First- vs. third-party costs; and
• Section 4.2.6 -- Disallowance of salvage value and zero credit.
for sale of hazardous wastes.
4.2.1 Relationship Between the Closure and Post-Closure Plans
and Cost Estimates
The closure and post-closure cost estimates must be based on activities
described in the closure and post-closure plans (or contingent plans).
Exhibit 4-2 lists the key activities that must be included in the closure and
post-closure cost estimates. Closure and post-closure cost estimates must
include a cost for each activity or sub-activity outlined in the closure and
post-closure plans. The cost components included in the cost estimate
should correspond to the activities described in the plan.
The cost estimates may be prepared on a per-unit basis or for the whole
facility. Appendix C of this manual includes sample closure and post .closure
plan checklists prepared on a per-unit basis that may be useful in identifying
cost components to include in the cost estimates. The Cost Estimate Guidance,
Manual also presents costs on a per-unit basis. Owners or operators of
facilities with multiple units may prefer to estimate certain costs (e.g.,
final cover installation, incineration of inventory, removal of wastes from ax
impoundment) on a per-unit basis and others on a facility-wide basis (e.g.,
ground-water monitoring, testing for soil contamination, removal of
contaminated soil and residues, decontamination of facility equipment and
structures, and certification of final closure).
4.2.2 Scope of the Closure Cost Estimate
The closure cost estimate should reflect the costs of conducting closure
in the year that the estimate is prepared. Annually thereafter, the owner
or operator must update this estimate for inflation either by using an
inflation adjustment factor, or by recalculating the cost estimate based on
current costs of that year (see Section 4.4).
The closure cost estimate must be based on the most expensive cost of
closure at any time over the life of the facility.’ The closure cost
estimate should always be high enough to ensure that if, at any time 1 the
facility had to begin closure, the costs of closure would not exceed the cost
estimate. For example, the cost estimate must account for the costs of
managing the maximum inventory over the life of the facility, including the
costs of constructing a new cell to handle the wastes, if necessary, if the
wastes are to be disposed on-site, and closing the maximum number of cells of
a landfill even open, including those no longer receiving wastes but not yet
completely closed. The conditions on which the cost estimate is predicated
may differ significantly from the conditions anticipated at the end of normal
facility life.
‘ 40 CFR 264.142(a)(l) and 265.142(a)(l).

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OSWER Policy Directive
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EXHIBIT 4-2
KEY ACTIVITIES TO BE INCLUDED IN THE CLOSURE
AND POST-CLOSURE COST ESTIMATES
ACTIVITIES
CLOS TRE
Inventory management
- transportation to off-site TSDF
- on-site treatment or disposal
Facility decontamination
Monitoring activities
Final cover installation
Maintenance of security
Survey plat
Closure certification
POST-CLOSURE CARE
Monitoring
Leachate management
Routine maintenance
Filing post-closure notices
Maintenance of security
Post-closure certification

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4-6 OSWER Policy Directive
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In some cases, owners or operators may intend to expand the capacity 0r-
capabilities of the facilities by constructing •new hazardous waste management
units or expanding existing ones. The cost estimate must equal the max.jmu ,
costs of closing all units currently active at the facility. If an owner
operator does not close units prior to expanding or constructing new ones, thp
maximum extent of operation over the life of the facility will be
significantly greater than at the time the cost estimate was first preparee
and subsequently updated. Owners and operators must revise their cost
estimates whenever the cost of closing the units currently active at the
facility increases. When new units are constructed or existing units are
expanded, the cost estimate must be increased within 60 days prior to the
initial receipt of hazardous waste at the new (or expanded) unit.
The cost estimate need not include the costs of responding to highly
unusual contingencies unless such circumstances apply at the time the owner o
operator prepares the initial cost estimate. For example, the cost estima
need not account for costs resulting from the effects of the 100-year flood oj
a liner failure that requires all hazardous wastes in a trench to be dug up
and disposed elsewhere. If such an event occurs during the life of the unit
or facility, thus causing the original maximum inventory estimate to be
exceeded, the owner or operator should revise the closure plan and cost
estimate to account for the new conditions, unless the maximum inventory will
be reduced to the level originally estimated quickly.
To account for the maximum costs of closure, the cost e timate should
reflect fully loaded costs, including cost of labor, fuel and maintenance,
contingency fees which are routinely incorporated into contractor cost
estimates. Finally, the closure cost estimates must be based on the costs of
hiring an independent party to conduct closure (see Section 4.2.5).
4.2.3 Scope of the Post-Closure Cost Estimate
The post-closure cost estimate must reflect the costs of monitoring and
maintaining each disposal unit of the facility for the entire post-closure
care period. 7 When prepard.ng the cost estimate, the owner or operator
should assume a 30-year post-closure care period unless the Regional
Administrator or State Director extends or reduces the length of the period
prior to final closure of the facility. Because the timing of the
post-closure care period may vary by unit (i.e., some units will be closed
while others will be operating) at some facilities it may be easiest to
calculate post-closure care costs on a per-unit basis.
The post-closure cost estimate for each unit is calculated by multiplying
the current ANNUAL post-closure cost estimate by the number of years of
‘ 40 CFR 264.144(a) and 265.144(a).

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4-7 OSWER Policy Directive
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post-closure care required.e The estimate must include the cost of
activities conducted annually over the post-closure care period (e.g., ground-
water monitoring and inspections), and activities required less frequently,
such as: extensive soil replacement and maintenance or replacement of
equipment (e.g., ground-water monitoring wells).
The post-closure cost estimate should reflect the costs of 30 years of
post-closure care in the year that the estimate is prepared and should be
adjusted annually thereafter until final closure has been certified (see
Section 4.4). The post-closure cost estimate should also incorporate fully
loaded costs and third-party costs (see Section 4.2.5).
4.2.4 Inclusion of Ground-Water Monitoring Costs in Cost Estimates
The cost estimate for ground-water monitoring during the closure and
post-closure care periods, should be consistent with the costs of monitoring
activities conducted during the operating life If a corrective action
program has been instituted at a unit or facility, the costs of conducting
corrective action do not need to be included in the cost estimates. 3 The
costs of compliance monitoring, however, must be included.
4.2.5 First- vs. Third-Party Costs
The regulations specify that the closure and post-closure cost estimates
must be based on the costs to the owner or operator of hiring a THIRD PARTY
to conduct the activities specified in the closure and post-closure
plans. Parents or subsidiaries of the owner or operator cannot be
considered third parties. 11 The regulations do not require that the
estimates be prepared by a third party.
‘ 40 CFR 264.144(a)(2) and 265.144(a)(2).
‘ Regulations requiring financial assurance for corrective action are
currently being developed under the authority of RCRA Sections 3004(a) and
(u). Financial assurance for corrective action was proposed on October 24,
1986 in 51 Federal Register 37854.
10 40 CFR 264.142(a)(2), 264.144(a)(l), 265.142(a)(2) 3 and 265.144(a)(l).
11 40 CFB 264.142(a)(2), 264.144(a)(l), 265.142(a)(2), and
265.144(a)(l). A parent is a corporation that directly owns 50 percent or
more of the voting stock of the corporation that owns or operates the
facility. A corporation is considered a subsidiary of the owner or operator
if 50 percent or more of its stock is owned by the owner or operator (40 CFR
264.141(d) and 265.141(d)).

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4-8 OSWER Policy Directive
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The following assumptions should be used when preparing the estimates:J
Hazardous wastes may be treated or disposed of on
site or at an off-site TSDF. However, if an owner or
operator chooses on-site management, he must demonstrate
that on-site capabilities will be available at all times
over the life of the facility. For example, if an owner
or operator intends to dispose of wastes in tanks by
deep welling them on site, the plan must indicate that
the underground injection wells will be open and
operating and are allowed to accept the wastes from the
tank. In addition, if the owner or operator intends to
dispose of wastes on site, he must demonstrate that
disposal capacity will be available at all times over
the life of the facility. (If the owner or operator
intends to dig a trench or cell at closure to handle
remaining inventory, the costs of cell design and
construction must be included in the cost estimate.)
• The estimate of costs of managing hazardous wastes
on site must be sufficient to cover routine maintenance
that may be required at any time over the life of the
facility (e.g., operating and maintenance costs for
incinerators).
• The cost estimates must incorporate the costs of a
third party conducting all closure and post-closure care
activities including managing hazardous wastes on
site, if applicable. For example, the estimate must
include the costs of hiring a third party to pretreat
wastes and dispose of them on site.
Although the estimates must be based on the costs of a third party
conducting all closure and post-closure care activities, the owner or operator
or a corporate parent or subsidiary may conduct the activities specified in
the closure and post-closure plans. Under all circumstances, however, closure
and post-closure care certifications mu t be completed by an INDEPENDENT
registered professional engineer. ‘
4.2.6 Disallowance of Salvage Value and Zero Credit for Sale of
Hazardous Wastes
An owner or operator may intend to recycle all remaining hazardous wastes
or sell equipment, land, or hazardous waste. While these practices are
encouraged, an owner or operator may not deduct the potential salvage value
of these items from the closure cost estimate. ‘ Similarly, owners or
operators may not assign a zero value to the costs of disposing of wastes
that are expected to have economic value at closure. 1 ’
12 40 CFR 264.115, 264.120, 265.115 and 265.120.
‘ 40 CFR 264.142(a)(3) and 265.l42(a)(3).
‘ 40 CFR 264.142(a)(4) and 265.142(a) (4).

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4-9 OSWER Policy Directive
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4.3 REVISING COST ESTIMATES TO REFLECT CHANGES IN
CLOSURE AND POST-CLOSURE PLANS
Prior to certification of final closure of the facility, owners or
operators must revise the closure and post-closure cost estimate whenever a
change in the closure or post-closure plan INCREASES the cost estimate.
(See Section 3.3 of this manual for a discussion of deadlines and procedures
for revising the plans and estimates.) If the Regional or State Office
determines prior to final closure that post-closure care for any or all of the
units must continue for longer than 30 years, the owner or operator must
increase the post-closure cost estimate accordingly. If an owner or operator
of a storage or treatment impoundment, waste pile, or tank system not
otherwise required to prepare a post-closure cost estimate must close the unit
as a landfill, the owner or operator must prepare a post-closure cost
estimate. An owner or operator may revise the cost estimates if a change in
the plans results in a decrease in the costs.
4.3.1 Changes in the Closure or Post-Closure Plans that May
Increase the Cost Estimates
The following changes in facility conditions or activities could increase
the closure or post-closure cost estimate:
• An increase in facility size and/or capacity;
• Changes in the partial closure schedule (e.g., .
owner or operator conducts partial closures of the
facility less frequently than originally scheduled, thus
increasing the maximum extent of the operation);
• An increase in the estimate of maximum inventory;
• Changes in the types of hazardous wastes to be handled
at closure;
• Changes in regulatory requirements that affect the
costs of closure activities (e.g., pretreatment
standards that must be satisfied to landfill certain
hazardous wastes;
40 CFR 264.142(c), 264.144(c), 265.142(c), and 265.144(c).

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More extensive ground-water monitoring requirements as
a result of an owner’s or operator’s operating
experience or the availability of new data that were
previously unavailable;
• Contingencies over the operating life of the facility
which affect the types of activities that will be
required at closure or during the post-closure care
period;
• For surface impoundments, wastes piles, and tanks not
otherwise subject to the contingent plan and cost
estimate requirements, extensive soil contamination
results in .the need to close the unit as a landfill and
conduct post-closure care;
• Extensions to the length of the post-closure care
period for one or more units;
• Changes in annual or intermittent post-closure care
maintenance activities, including changes in the nature
and frequency of the activities required; and
• Changes in surrounding land use (e.g., an increase in
population density surrounding the facility warrants
increased security provisions during the post-closure
care period; expanded ground-water monitoring is
required due to a change in the underlying ground-water
usage).
4.3.2 Changes in the Closure or Post-Closure Plans that May Decrease the ’,
Cost Estimates
The closure cost estimate may be reduced ONLY if the new estimate still
accounts for the maximum costs of closing operating units at any time over the
life of the facility. The following changes in facility conditions may
justify a decrease in the closure or post-closure cost estimate:
• Reductions in the size of the facility remaining to be
closed over the remaining life of the facility (e.g.,
if the maximum cost of closure over the life of the
facility includes the costs of closing two landfill
cells and four tanks, the cost estimate may be reduced
after closure of the entire landfill if only the storage
tanks were operating for the remaining life of the
facility);
• Reduction in the size of the facility subject to
post-closure care (e.g., fewer cells of a landfill are
operated than were originally intended);

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4-11 OSWER Policy Directive
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Changes in manufacturing processes reduce the
quantities of hazardous wastes to be handled at closure;
• Reduction in the number of years of post-closure care
remaining for units closed prior to final closure of the
facility.
4.4 ANNUAL ADJUSTMENTS FOR INFLATION
The closure and post-closure cost estimates must equal the current costs
of closing the facility and conducting 30 years of post-closure care. To
account Lor annual inflation, an owner or operator may either: (1)
recalculate estimates every year using that year’s current prices; or (2)
every year multiply the current estimate by an inflation factor that measures
the general trend in prices in the economy.’ 6 The cost estimates must be
updated until final closure of the facility.
4.4.1 Options for Updating the Closure and Post-Closure Cost Estimates
for I nflation
Owners or operators may choose to update their cost estimates for
inflation by recalculating the costs using current dollars. For example, if
the owner or operator prepared the initial cost estimates in 1985 using the
prevailing prices in 1985, in 1986 he may recalculate the estimates using the
prices prevailing in 1986.
If the owner or operator chooses to update the cost estimates annually
using an inflation factor, this factor must be derived from the most recent
Annual Implicit Price Deflator for Gross National Product (GNP) and the
Annual Implicit Price Deflator of the previous year.’ 7 The implicit price
deflator is an index that reflects the increase or decrease in the general
price level over the past year, using prices from the year 1982 as the base.
Owners or operators using the implicit price deflator to adjust their cost
estimates for inflation should follow these three steps:
Step 1. Obtain the most recent annual Implicit Price
Deflator and the annual Implicit Price Deflator of
the previous year.
Step 2. Calculate the inflation factor.
Step 3. Multiply the inflation factor by the cost estimate
to derive the new cost estimate.
“ 40 CFR 264.142(b), 264.144(b), 265.142(b), and 265.144(b).
‘ 40 CFR 264.142(b), 264.144(b), 265.142(b), and 265.144(b).

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4-12 OSWER Policy Directive
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STEP 1. Obtain the MOST RECENT Annual Implicit Price Deflator and th
Annual Deflator for the previous year from the following sources:
(1) The Survey of Current Business;
(2) Economic Indicators;
(3) Regional or State EPA Office; and
(4) RCRA/Superfund liotline.
(1) The Survey of Current Business, is published monthly by the U.S.
Department of Commerce, Bureau of Economic Analysis. The figures for the
Annual Implicit Price Deflators are included in the section of the Survey of::
Current Business called “National Income and Product Accounts Tables.” i
deflators are generally found in Table 7.1, entitled “Implicit Price Deflatb
for Gross National Product.” Exhibit 4-3 includes a sample page from the
November 1985 issue. The Implicit price Deflator that is used to adjust the
cost estimate is the one specified for Gross National Product (GM?) - - line j
in Table 7.1 (see line 1 on Exhibit 4-3). The most recent annual deflator aw
the annual deflator of the previous year must be used. Therefore, the owner
or operator should refer only to the annual totals for GNP and ignore all
quarterly data. The most recent annual deflator in this issue is for 1984
223.43; the deflator for the previous year (1983) is 215.34. (See “A” on
Exhibit 4-3.)
Subscriptions of Survey of Current Business may be obtained for 3O.OO
per year by contacting the Superintendent of Documents, U.S. Government
Printing Office, Washington, D.C., 20402. It also should be available in mo t
large public libraries. If the publication is not available in the owner’s o
operator’s library, the owner or operator may wish to urge the 1ibrary to
obtain the document from a Federal Depository Library. The Federal Depository
Library Program provides government publications free of charge to designated
libraries. Because of lag times in publishing and distribution, if the
current month’s issue is not available, the owner or operator should use the
annual price deflators from the most recent issue available.
18 Because the Department of Commerce derives the Annual Implicit Price
Deflator by averaging prices throughout the calendar year, the Annual Implicit
Price Deflator is generally not available until February of the following
calendar year. Therefore, the most recent Annual Implicit Price Deflator will
reflect inflation of the previous calendar year. For example, cost estimates
adjusted for inflation in April 1987 will be updated using the Annual Implicit
Price Deflator for 1986.

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OSWER Policy Direct vs
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November 1985
4-13
EXHIBIT 4-3
SURVEY OF CURRENT BUSINESS
Table 3.2.—Federal Government Receipts and Expendituree
Billion, of dells , ,
2983
II irn(iv
-
Pernonal Ian and ,mnta ,
I com .
faiai, and gift Ianoo__..
Nes Ia . sas - ——
Table 7.1.—Implicit Price Deflator. (or Groes National Product
Snasonsily adjusted at ssinusi rum
2934 1954 19 15
“ Eun. ____
— on.
113.0 Giuu ,.Ilon,l piuduct
P . ,uon.l consumption
esprodl lum... —.
No.durnbl. good.
Grosi pci’ .i. domostlc
Ibid uwmtctont..... —
Nocrond .n li si
Co 7 o .iita profit . Ian
lnduuct bwin tan and
ucolli Ict7VIb .. .
Encim tan. . . . . .. . . . . .
Custom. ducim
N on laa —.
Conlr ibu%aooi for social
Lapuiditim-
Pu,cha.si ii pod. and
Nsltminl defen ,s..................
Nondaf.... —
Trui.f.r 7wusti ——
To pirsons —
To IoruiInuu....... . ...._
r.itt..imaid I. Slat. and
local gorsTociunts
.1 listarut —
lni.rmt —
To pisoons nod bu.l-
—
To fo,ugnm ._ . . ._ __
L Inloruut r.ooiv.d........
stuidlen l cmToot iw
plus of gorsrnmsnt
-
A
nd.. numb.,. *912.200
1983
L Swonall’
1981 2984 1955
ii u’ iv i I
—
Zl5.34I323.13 222.45 Z24.37 281I0 222.071330.55 232.36
213.6 1830.1 219.2 222.3 1822.8 231.5 1221.2 221.1
1777 11790 2195 179.2 1784 *79* 11784 1762
223.0 12111 2264 221 I 2194 830 1 1831.2 831.1
2260 2316 2210 839.7 242.0 245.2 248.1 2512
In.uIm u i._......_.._................. —. . —
60 2187 4116 1219.2 aoi .L .4 mo
2064 8978 207 4 1201.0 209.4 21* 3 212.2 2243
17 254.5 284.1 1255.2 212.9 2581 272.0 274.1
Pmduoo, durubIs sqwpmeni . 833 2860 654 1186.5 1176 189.2 1891 192.3
P .ondmnuaL. . .. . ............. P.4 255.1 2559 1251.6 259 I 2516 259.3 2605
NonLan , uroo......... 94 1259.8 259.2 1262.1 252.1 262.2 ‘262.9 264.2
F .m. ,t.umum. — 7.3 261.8 2617 1261.1 251.5 128.8 I 4 .2 21110
Pruducoru dw.bl. .qwpmmnt — 72.8 1173.1 113.6 1172.3 172.9 11726 1111.3 110.5
Diange in buaus in,.nion.. — . ——
Nil .nps,u of gosds and
sirult— — — —- —-- .- ——
Ezport. 1420 7.494 320.4 2301 2496 252.0 252.0 251.4
Impona.. . . ... —— 171.5 256.0 2596 283.3 263.7 252.8 2513 2515
Co ’en,ionni p.t9—.— of
goods and .qr,ucen_________ 234.8 247.1 2*2 341.1 252.1 2548 231.1 232.4
F. slar.l__ 132.1 241.2 2406 241.5 243.7 245.4 250.1 248.2
National d.f.na._................ 2566 241.2 241.4 211.4 249.3 252.4 255.1 2554
Nondsf.n .s — 110.0 834.7 8351 nIl nI.2 831.5 235.2 230.9
Slat, and land 236.7 251.7 251.0 253.3 2569 260.9 264.1 I
704.7 714.3 701.3 122.9 172.1 7333
2952 3250 310? 3297 321.9 362.2 313.3 354.8
2888 3081 3036 321.0 3212 3554 3108 3474
2.9 5.9 5.2 50 60 6.2 67 68
.5 1 .6 .7 7 .7 7 7
598 701 75.6 653 69* 174 661 695
32.4 555 559 56.2 559 554 SOT 556
36.2 31.8 33.1 356 31.5 35.3 35.3 35.3
9.1 21.9 12.2 *2.4 12.1 12.5 21.5 22.0
1.1 7.3 71 8.2 84 8.1 *38 53
232.7 2814 262.0 266.2 259.0 265.3 2659 282.1
125.7 130.3 183.0 586.1 911.7 935.5 42.0 973.0
269.7 235.4 4 302.0 3151 319.9 324.2 3506
2005 2215 320.8 251.3 222.6 nI.9 241.1 255.0
62.3 133 15.6 81.1 541 859 83.2 95.6
343.5 3530 350* 353.3 3604 3703 3598 3710
335.7 3445 343.1 3462 311.2 3631 3616 3656
7.0 5.4 6 4 7.7 18.1 7.2 12 7.4
86.3 93.2 93.2 92.1 970 95.1 962 101.4
94.2 1157 120.9 2510 1264 1512 132.1 132.2
119.5 113.6 138.0 149.0 253.9 255.6 3596 260.0
101 . 3 224.0 119.2 2239 232.9 1319 2390 2392
277 *91 289 20.0 21.0 207 206 209
25.3 25.9 21.2 270 27.4 27 4 26.9 781
514 83.3 ITT ItS 207 812 513 25.9
21.7 21.1 I I I 15.8 20.5 231 251 27.0
—2.7 —.7 —1.3 —.7 —3 .6 3.6 2.2
—.4 .2 .2 —.4 .3 I —1.0 •0
—2713 —173.1 —IlL? —110.1 —291.3 —113.1 —236.1 —2033
—234 .5.3 —77 —7.3 —302 —2.5 Ii —
—2502 —*674 —156.0 —212.3 —2877 —252.6 —215.8 —2006
l. Qirteni surplus or
Ionnus.Dt soturpris..
Welt sm.iaala Is.
“ s ot.
6.,plus .r d.flsIt
I—I. NIPAa
iclal loenrun, f—h
U i . , - -
Table 7.2.—Fixed-Weighted Price md cxc. for Groin National Product.
1972 WeIght.
Table 3.3.—State and Local Government Receipts and Expenditures
Ra .e4p
mend tan and ooiitaa
- —a--- —
mciii. tas.
Ncn la ,ss —
Othor -
— t sI&aaccn i .
418.2
2090
UT
406
‘5
36.0
1 07.4
92.3
29.3
320
61.3
131.1
415.3
24*4
214 4
50.7
—22.9
32.4
$4.3
2.6
2813
145
453
20.0
29 I
243.4
239 4
95.3
30.7
42.5
93.2
41 5.?
452.0
260.1
*91.3
546
-223
382
63.5
2.8
$45 ..
1268
61.2
49 1
20.3
313
261.2
1250
203.9
32.2
44.1
95.1
411.9
472.0
28.2
296.1
576
—26 1
42.2
686
3.0
$20.6
119 6
642
45.2
99
812
248.4
218.3
96.9
33.2
413
93.3
4443
447.4
2583
*892
544
—24 9
315
62.1
2.1
—60
6
86
25 1 .I
2299
M l
506
10.7
27.1
258.8
1279
1060
33.9
43.,
95.3
307.7
4867
2183
208.2
589
—26.5
435
702
3.1
131.?
1818
‘57
478
10.3
18.3
2 . 85.5
*810
201 9
31.7
43.
910
444.8
121.8
2578
127.0
56.5
—264
406
669
2.9
—82
315.7
131.9
51,
32.2
03
Ill
2113
231.0
201 . 0
814
46.2
201 4
321.1
495.8
253.3
2253
603
-264
434
711
3.2
222.2
64.6
46$
10.2
17.3
2505
120.2
994
30.9
43.0
92.1
417.0
4559
2830
*95.9
518
—259
39.0
54.9
23
—8 1
6
57
idItect bunjis. tao sod
uses ,, aci sla
Sal. tu.s....
Prnprsqy na.
Other
CnIributio , . for social in-
da po io-
I npeodluu sen
‘unthis . of pod. and
:cm.a of .mplsq’-
Oth.,_ .________
y,.nu to psr
son’
4t Intitusi paid
IflIsoent psM__
L Intoroot n .ceavod........
O iQ.dsnds recited —
iubus4 5 s I1 current is,.
plo. of po,srumsnt
curvent surple. of
iritmuut unhcrprsj ,.
W 1 actnini, Is.
— - .—— -
Surpte. or d.IltII
Othir Ods
India su,b.r,. 1272. 200
1983
1984
Swonnily .4Jum.d
1964
1915
aim
iv
i
a
m•
Cr aaimnal p.oduci............ . .I 233.1
Personal casioumpeloss
.!p ,ndluum 222.4 232.2
DuruSi. g 285.0 118.9
Nondurebl. goods ‘223.2 399.7
5s,vic . — 134.3 241.9
Grs. pfl.ns. domodk
—
Fined .nootw.nt.... —. 2345 2406
N.nr . id.nl sa l —___________ 2301 834.9
S truetur .. 7498 2564
durabl. squpinunI 229.3 nI.0
R..id s n ’ —— 2 3 251.7
232.8 831.2 591.2 2391
830.0 232.2 234.5 155.4
255.8 289.1 189.3 291.1
nIl nI.6 832.7 232.4
245.2 2454 252.3 255.5
142.1
213.8
131.2
3. 14.3
258.9
243.3
240.3
191.1
2348
262.2
.. — — —
2.2 244.0 .9 245.6 2485
834.7 238 I .1 238.7 245.5
235.3 2562 16 2593 2855
8 831.5 5354 226.5 739.3
2*4 259.0 259.7 258.7 2601
in stains. ,nv.ntcn . —
Nil sopon. of good. and
m l , . , ,. . .. .. - — — - . .—
Espore . 1180 2548 2572 156.3 2333 2564 233.8
Impor ’ 199.9 239.0 302.1 2393 2970 292.2 202.7
Gooui,uis.sI purrliaa i, of
goods and s.r.koo 236.3 249.2 245.2 230.6 2529 257.2 259.9
F.d.r.1__________ 1367 246.5 2464 241.3 241.9 252.3 253.3
Nscicn,J d.fuun —— 242.3 252.6 253.9 253.4 253.3 258.5 2395
Nond.f.nss__ — 122.3 230.7 220.0 232.6 232.1 238.2 238.2
Stag. sod land — 236.4 2510 249.4 252.1 2562 260.1 264.1
Adduidai
Gis. dimmtic purchi... 221.2 2383 835.7 831.9 2399 242.1 244.4
Final .alm...... ... .. . ..._... ._.... 223.3 233.5 832.9 2352 2213 239.9 242.8
Final al, 10 domumc purcha..
s ., ... ..._.. . — fT 3 2364 231.5 2380 240 I 242.3 2546
Potsoani consumption .sprndi.
I , . , . I d.. ._. 8315 2309 fT 5 8309 832.7 234.2 233.9
P.rsonnl consumption espsndi.
nurse. many .._...... . - ... . 3650 3683 3691 367.9 3691 365.2 3160
Othir p ,r,oeal con.umption • .
209 4 2115 217.3 530 I fT.5 225 I
Ors. domsituc pioduct ......... .._ 834.3 233.9 fT0 2353 I231 4 2400 1243.4
Buainoo . .._... . 2235 2324 2316 2339 2235.0 2381 12403
Nonlarm - ... . 534.6 — . .._.... ..__f..... -——-I-—— -
.
—...
254.9
2891
2112.1
254.1
260.3
839.2
2515
248.2
244.2
246.4
2313
372.9
i
fT.3
244.2
242.9
——-
—18 -.52
5 .6
8.3 8.7
0 0
—82 —53 —84
1 .7 7
0
44.2 12.9 54.5
275 42.6 439
86 104 12.6
0 0 0
47.5 531 53.7
133 4451 454
13 IIIj 83
90 91
0 0
56.3 118
162 466
42. 30
To6L,7I-72
I C c i. domets, purchases equal. QNP Is. seporte plus impost, final sak. to domelit pus’
chaa,ru squall final ml. Ii . isposin phi. unposin

-------
4-14 OSWER Policy Directive
#9476.00-5
(2) Economic Indicators is published monthly by the Council of Economia
Advisors. The same GNP annual deflators as are published in the Surveys!
Current Business are published on page 2 of Economic Indicators in a tab1e
entitled “Implicit Price Deflators for Gross National Product.’ t Exhibit 4-4
includes a sample page from the November 1985 issue. As discussed above, the
owner or operator should refer to the most recent annual figure for GNP and
the annual figure for the previous year. (See “B” on Exhibit 4-4.)
Subscriptions may be obtained from the Superintendent of Documents, u.s..
Government Printing Office, Washington, D.C. 20402, for $27.00 per year. . it
also should be available in most large public libraries or through the Federa:
Depository Library Program.
(3) The EPA Regional or State Office should maintain a subscription to
Survey of Current Business or Economic Indicators .
(4) The owner or operator may also contact the RCRA/Superfund Hotlirie
toll free from 8:30 to 4:30 EST at 800-424-9346. In Washington, D.C., the
number is 202-382-3000. The owner or operator should be sure to request the
most recent Annual Implicit Price Deflator and the final Annual Implicit
Price Deflator for the previous year.
STEP 2. Calculate the inflation factor by dividing the most recent
annual implicit price deflator by the annual implicit price deflator of the
previous year. Using the figures. included in the November 1985 issue of
Survey of Current Business or Economic Indicators (shown in Exhibits 4-3 and
4-4) as an example, the inflation facitor would be calculated as follows:
Most recent GNP Annual Implicit Price Deflator, 1984 (223.43)
Previous Year’s Annual GNP Implicit Price (215.34)
Deflator, 1983
The result is an inflation factor of 1.04.
STEP 3. Adjust the cost estimates for inflation by multiplying the most
recent closure and post-closure cost estimates by the inflation factor. For
example, if a closure cost estimate of $100,000 prepared in December 1984 were
adjusted for inflation in December 1985, the new cost estimate would be
$106,000 (i.e., $100,000 times the inflation factor of 1.04). Each subsequent
update for inflation will adjust the cost estimates updated the previous
year. Using the above example, in December 1986, the owner or operator will
multiply the new cost estimate of $104,000 by an inflation factor derived from
the 1985 and 1984 Deflators.
4.4.2 Deadlines for Adjusting Cost Estimates for Inflation
Owners and operators must update their closure and post-closure cost
estimates within 60 days PRIOR to the anniversary date of the establishment
of the financial assurance instrument. Owners or operators who use the
financial test to demonstrate financial assurance must update their cost

-------
4-15 OSWER Policy Directive
119476.00-S
EXHIBIT 4-4
GROSS NATIONAL PRODUCT IN 1972 DOLLARS
IH,Ilu nr .J i )7 ? dellir ,. quinrdi dais ii .us o:aiIr idjusird innuil rural
Periud
!
I Perionul
0,Tos I
nuimonsi i i ,mpu o
priaduci . ‘tpe’ndi-
lures
.
a
urvua prwsc.
domestic mnteatmeni
E pom of giandi
J and irvare,
Qi.iri’timruit nu,chsus gf
gooda end ,r’,cr,
— I —
F.d,, l II
. iisie
Tomil and luc i
dclrnse defence I
.
iOflI’i3I- Rr ,idrn.
cmii
Change
in
: :
ne c
Paporti kipirir
—
j
. impmr’s
I
3976
1977..
1978
1979 . ...
3980
1981 —..
1982
3983....
1984 —..
1982; m
I V ..
1983: 1
U
IU
IV. . ..
1984: L...._....
U
U I...
I V
1g85: I......
U ...
UI ’
I.!98.2
3.389.?
3,438.6
1.4794
1.475,0
1512.2
1.4800
1.53.1.7
1.639.3
1,477.1
1,478.8
1,491.0
3,524.8
1,350.2
3,572.7
1,610.9
3,638.8
1,845.2
1.662.4
I.663.5
1,671.3
1,688.9
823.1
864.3
903.2
927.6
931.8
950.5
963.3
1009.2
1,062.4
964.2
976.3
982.5
1,006.2
1015.8
1,032.4
1.044.1
1,064.2
1,065.9
1,075.4
1,089.1
1,102.3
1.L 16.5
125 6
340.3
158.3
1699
165.8
175.0
1669
171.0
204.9
363.9
161.5
161.6
165.3
372.6
184.5
193.3
202.9
209.5
213.8
213.0
220.3
218.2
51.2
60.7
62.4
59.1
47.1
44.5
37.9
53.7
60.2
38.8
40.8
46.2
53.4
57.2
57.8
60.8
60.8
60.1
59.2
60.0
60.9
826
7.8
33.3
160
7.3
—
I 3.3
—104
—3.8
24.8
—6.4
—24.6
—16.5
—6.1
.9
7.2
31.6
20.3
30.6
16.8
19.1
8.3
2.5
25.4 110.1
22.0 112.9
24.01 126.7
3 j I 1462
50.3 159.1
.1.1.8 160.2
29.7 147.8
12.6 339.5
—15.0 146.0
25.7 346.6
24.1 338.7
22.9 138.2
33.6 .137.0
11.9 141.8
2.0 141.0
—8.3 144.9
—11.4 144.7
—27.0 347.4
—13.4 147.1
—28.4 143.7
—33.8 137.9
—38.4 138.0
84.7
909
11)2.7
109.0
108.8
118.4
118.0
328.9
361.1
320.9
112.6
.
313.3
123.4
129.7
139.1
153.2
158.2
174.4
160.5
172.1
171.8
176.4
285.2
289.2
274.6
278.3
294.3
287.0
292.7
291.9
302.1
292.8
300.6
294.3
292.4
292.0
288.8
289.5
302.1
306.1
310.5
310.7
3133
327.5
96.8
100.4
100.3
102.1
106.4
110.3
117.0
316.2
122.5
117.2
124.8
119.0
117.2
115.8
113.0
112.2
123.2
325.0
129.6
129.8
329.7
341.3
64.9
654
65.7
67.4
70.0
733
79.3
84.7
89.8
80.6
81.9
83.3
84.8
84.4
B6.3
87.1
89.6
89.1
92.7
92.7
94.3
99.9
33.8
35.0
347
:3.1.8
38.4
36.7
37.9
S1.5
32.9
36.6
42.9
35.7
32.3
31.!
26.1
25.2
338
36.0
38.8
37.3
35.4
41.4
168.411 1.290
16881 l.396.i
174.3 1 ,42
376 2 I
177.91 L.479.4
176.8 1500.9
175 I 1.4904
375.7 I.53s.3
379.6 1.61.1.5
175.71 3.483,5
175.8 1503.4
175.3 1,507.5
175.21 3.530,9
376.4 3,349.3
175.8 (.565.4
177.3 (.579.3
173.9 3,638.5
181.1 1.61.1.6
180.9 3,845.8
180.9 I.844.4
183.9 1.663.0
188.2 (.696.4
Sosrir Depiuueua. sI Co mu,iu. Burn. of Brnumae AuaIy -
IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT
Column (197!iu 300: quutevly di ii sri ,rusonuilv e.dju.tedl
one
Pound
Ornu
nutianul
rod
p i C ’
Pr
,zpendacure.
Gnu pnvslu
domestic inceaunesi
Camporu end import, of
good, end ,er,cu
Government purehuisa of goods and
aemee,
Totul
Du bi
gtd,C
Noisdi,.
able
Services
.

dential
i ’r ã
Eupocta
Import,
Pedenul
S

N.AIOIII I [
1976 132.34 331.7 123.9 137.2 199.6 138.6 140.7 155.3 385.6 333.5 132.4 135.7 138.3
3977 .... .. 140.05 139.3 129.2 143.6 138.3 146.3 158.0 161.9 205.3 142.8 143.9 344.6 148.4
(978.... 150.42 149.1 136.4 153.4 150.0 357.9 178.3 172.6 214.1 153.1 332.7 153.8 359.7
1979... . ... 383.42 162.3 145.0 169.9 362.3 170.8 200.5 192.5 246.1 364.8 166.0 362.5 373 7
1980 — __. 178.42 179.0 156.2 388.1 378.8 186.2 238.5 212.9 289.4 385.2 187.5 380.8 191.5
1981 195.60 194.5 167.1 202.5 396.8 202.2 234.3 230.9 2938 207.6 209 1 2047 2080
1982 207.38 206.0 (74.5 2087 2(3.6 209.5 241.3 236.0 279.3 221.4 227.0 209.8 222.8
1983 215.34 213.6 177.7 213.0 298.0 206.4 246.4 241.0 271.5 232.1 236.8 220.0 2333.7
3984.... 223.43 220.4 379.0 217.7 237.6 207.8 255.7 249.4 286.0 241.2 247.2 224.7 251.7
1982: m 208.53 207.6 373.5 209.6 215.6 208.8 241.8 236.2 280.9 223.2 227.4 213.9 224.7
IV .... 210.27 209.6 175.6 2(0.5 219.4 210.1 240.0 235.3 280.1 223.8 233.1 206.2 228.4
1983: 1 212.87 210.7 176.6 230.2 221.8 907.1 245.2 237.7 267.8 229.4 233.7 219.4 231.5
I I . . .... .. 214.25 212.8 176.8 212.6 224.9 205.2 243.0 239.4 271.0 2308 234.8 220.3 2349
i lL. 215.89 214.8 178.0 214.5 221.3 205.1 248.7 241.5 276.3 232.8 237.9 219.1 238.4
IV 218.21 216.0 179.3 214.8 229.7 208.1 248.3 245.4 270.3 235.6 240.0 921.4 241.8
1984: 1 290.59 218.0 1790 211.4 232.6 206.3 249.4 247.7 261.9 238.5 245.1 235.5 246.4
U 222.40 219.2 179.5 21.6.4 2360 201.4 255.9 230.4 269.6 240.6 246.4 225.1 250.0
Il 224.37 221.5 319.2 211.8 239.7 208.0 258.6 250 1 963.3 241.5 247.4 227.1 253.5
IV 226.10 222.8 178.4 219.4 242.0 209.4 259.1 249.6 263.7 243.7 249.8 228.2 2569
1985; 1 229.01 294.6 179.1 220.3 245.2 211.8 258.6 251.0 252.8 246.4 252.4 231.5 260.9
II 230.55 226.2 rlS.4 223.2 248.1 212.3 259.3 2520 257.1 250.1 255.6 235.2 264.7
III’ 231.86 227.4 178.1 221.7 951.2 2(4.8 260.5 2514 255.6 248.2 255.4 230.9 261 9
beurer De .rtoie,, ii L ouev. Buru.n ii Ernvnm Anulun
2

-------
4-16 OSWER Policy Directive.
#9476.00-5
estimates for inflation within 30 days AFTER the end of the firm’s fiscal
year and prior to the submission of financial test documentation to the
Regional or State Office.
Prior to October 29, 1986 (the effective date of the May 2, 1986
cost estimates were updated for inflation on the anniversary date of the
estimate rather than on the anniversary date of the financial assurance
mechanism. This change in deadlines may result in a number of one-time
adjustment rules that apply the first time an owner or operator of an exjst4
facility renews the financial instrument (or resubmits financial test
documentation), or updates the cost estimates under the revised regulatjon .
The rule for calculating the inflation adjustment factor for the first
time under the May 2, . 1986 rules will depend on when the cost estimate was
last adjusted for inflation under the previous regulations AND the
anniversary date of the financial assurance mechanism (or the fiscal
year-end date for financial test users). These rules are discussed below,
Rule I: If the cost estimate was last updated between
October 29, 1985 and March 1, 1986, and the next
update is required between October 29, 1986 and
March 1, 1987 (i.e., the anniversary date of the
financial instrument or the fiscal year-end date
falls within this period), the inflation
adjustment factor is calculated by dividing the
1985 Deflator by the 1984 Deflator.’ 9
Rule II: If the cost estimate was last updated between
March 1, 1986 and October 28, 1986, and the next
update is required between October 29, 1986 and
March 1, 1987, no adjustment for inflation is
required until the period between October 29, 1987
to March 1, 1988. These owners or operators have
already updated their estimates to account for
1985 inflation.
Rule Ill: If the cost estimate was last updated between
October 29, 1985 and March 1, 1986, and the next
update is required between March 1, 1987 and
October 28, 1987, the inflation adjustment factor
is calculated by dividing the 1986 Deflator by the
1984 Deflator . These owners or operators must
adjust their estimates to reflect 1984 and 1985
inflation.
19 Owners or operators with financial instrument renewal dates between
October 29, 1986 and December 27, 1986, will not have the full 60 days to
update their cost estimates. Similarly, owners or operators using a financial
test with a fiscal year ending between October 1, 1986 and October 27, 1986
will have less than 30 days to update their estimates In these situations,
owners or operators may wish to contact the Regional or State Office or the
RCRA Hotline to obtain the Deflators as quickly as possible.

-------
4-17 OSWER Policy Directive
119476.00-5
Rule IV: If the cost estimate was last updated between
March 1, 1986 and October 28, 1986, and the next
update is required between March 1, 1987 and
October 28, 1987, the inflation adjustment factor
is calculated by dividing 1986 Deflator by the
1985 Deflator.
4.5 DOCUMENTATION FOR COST ESTIMATES
Although the regulations do not specify the format to be used for closure
and post-closure cost estimates or the level of detail to be provided, the
cost estimates must contain sufficient detail to allow the Regional or State
Office to evaluate their accuracy. Documentation for the cost estimates
should clearly delineate all activities and subactivities consistent with
those described in the closure and post-closure plans and include the fully
loaded costs of closure and post-closure care, including the costs of labor,
equipment, and contingency fees. Document tion supporting cost estimates
should also clearly reflect that such estimates are based on third-party costs
where required. Five sources that might be used in developing cost estimates
for the activities listed in the closure and post-closure plan are:
(1) Guidance Manual: Cost Estimates for Closure and Post-
Closure Plans (Subparts G and H) , November 1986,
available through EPA Regional Offices (OSWER Policy
Directive Number 9476.00-6);
(2) Owner or operator experience;
(3) Contractor estimates;
(4) Cost estimating handbooks; and
(5) Worksheets and workups.
These data sources are described in more detail below.
4.5.1 Guidance Manual: Cost Estimates for Closure and Post-Closure
Plans (Subparts G and H)
This EPA guidance manual contains guidance and information on key cost
components and ranges of unit costs applicable to closure and post-closure
care activities. The manual is organized into four volumes:
• Volume I contains worksheets outlining cost components
applicable to facilities with tank, container storage,
and incinerator units;
• Volume II contains worksheets outlining cost
components applicable to land disposal units;

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4-18 OSWER Policy Directive
#9476.00-3
Volume III contains information on unit costs of key
closure and post-closure care activities (e.g., final
cover, certification); and
Volume IV contains detailed documentation of the unit
costs.
4.5.2 Owner or Operator Experience
In many cases, the most readily available source of cost information fo
existing facilities will be operating records. For example, if an owner or
operator routinely ships wastes off site to a TSDF and intends to follow th e.
same procedures during .closure, an estimate of the costs of treating or
disposing of inventory at closure may be derived from contractor invoices. I
an owner or operator intends to construct a cell as part of closure
procedures, records of the costs of excavation, installing liners,
ground-water monitoring, etc., should be available from internal records.
Records from previous partial closures including contracts and invoices for
installing final covers, decontaminating facility equipment and soil, and
installing security equipment also may provide information to support the cost
estimate. Similarly, the costs of ground-water monitoring during the closure’
and post-closure care period may be similar to the costs of monitoring during
the facility’s active life.
The cost estimates must be based on the cost of hiring a third party to
conduct closure and post-closure care activities. Thus, the owner or
operator must include a factor for hiring third-party labor if current
practices include in-house labor and activities.
4.5.3 Contractor Estimates
Many cost estimates, particularly for those services that are to be
purchased from a contractor or ‘contractors, may be obtained from the
contractor themselves. It is not necessary for documentation purposes to have
written and validated cost estimates; a record of the party contacted, the
date of the contact, and the estimates given is sufficient.
4.5.4 Cost Estimating Handbooks
Three widely used cost estimating handbooks are the Means Mechanical
Cost Data, the Means Construction Cost Data, and the Means Site Work Cost
Data, which are published and updated annually by Robert Snow Means Company
Inc. Care should be taken in using such manuals. For example, some manuals
include costs of administration, normal contingencies, and profits in their
unit costs estimations, whereas others do not. In some cases, theoretical
work rates must be adjusted to normal field conditions and to include
administrative costs.

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4-19 OSWER Policy Directive
#9476.00-5
4.5.5 Worksheets and Workups
Detailed iorkups of the costs should include an estimate of labor,
equipment, energy, and material needs; the basis for these assumptions and the
total time required for each activity should be included in the workup. Costs
for supervision and administration should be added and adjustments made to
account for fully loaded labor and equipment costs.

-------
MODELS
FOR
COST ESTIMATING

-------
Heavy Construction Cost Data
Building Construction Cost Data
Environmental Restoration Assemblies Cost
Environmental Restoration Unit Cost
TMinus These Quantity Discounts: 2 iterns=1O%, 3 items = 15%, 4 items 20%, 5 items = 25°h1
Shipping Add 9% for billing (max $30 00), 7% for credit card/prepaid (max $20 00) _______
O Bill Me 0 Check/Money Order 0 Credit Card:
0 VISA 0 MasterCard 0 American Express 0 Discover
Sales tax for MA residents-add 5% of Order Total _______
Grand Total: _______
Cardholder Name:
• “-‘u have ordered the following previously
(Please note name/address corrections)
ORDER YOUR 2005 RSMEANS COST GUIDES IN ONE CONVENIENT STEP AND RECEIVE
DISCOUNTS ON YOUR PURCHASE - SEE OFFERS BELOW
F 1
- ‘ 34r 3 O 9
Prndiwt
2005 RSMeans Cost Data
Please Indicate selections below . Book Means CostWorks Totals
-3Bullding ConstructIon Cost Data
Book (60015)
$11595 (Qty_j
CD (G5015)
$14295 (QLy_)
Building Construction Cost Data Laoseleaf
Book (61015)
$144 95 (Qty
Building Construction Cost Data/Metric Version
Book (63015)
$115 95 (Qty
CD (65315)
$142 95 (Qty
Building Construction Cost Data/Open Shop
Book (60155)
$115 95 (Qty
CD (65155)
$142 95 (Qty
Building Construction Cost Data/Western Edition
Book (60225)
$115 95 (Qty
CD (65225)
$142 95 (Qty
Assemblies Cost Data
Book (60065)
$18995 (Qty_)
CD (65065)
$20295 (Qty_J
Concrete & Masonry Cost Data
Book (60115)
$105 95 (Qty
CD (65115)
$142 95 (Qty
Electrical Cost Data
Book (60035)
$115 95 (Qty
CD (65035)
$142 95 (Qty
Electrical Change Order Cost Data
Book (60235)
SI IS 95 (Qty ..._.J
CD (65235)
$142 95 (Qty
‘onmental Reinediation Assemblies Cost Data
Book (64025)
$189 95 (Qty
onmentalRemediation Unit Cost Data
Book (64015)
$12695 (Qty_)
Construction Cost Data
Book (60205)
$279 95 (Qty .._)
CD (65205)
$329 95 (Qty
Facilities Maintenance & Repair Cost Data
Book (60305)
$252 95 (Qty
CD (65305)
$329 95 (Qty
Heavy Construction Cost Data
Book (60165)
$115 95 (Qty
CD (65165)
$142 95 (Qty
Heavy Construction Cost Data/Metric Version
Book (63165)
$115 95 (Qty
CD (65365)
$142 95 (Qty
Interior Cost Data
Book (60095)
$115 95 (Qty
CD (65095)
$142 95 (Qty
Labor Rates for the Construction Industry
Book (60125)
$253.95 (Qty
Light Commercial Cost Data
Book (60185)
$ 82 95 (Qty
CD (65185)
$17795 (Qty
Mechanical Cost Data
Book (60025)
$115 95 (Qty
CD (65025)
$142 95 (Qty
Plumbing Cost Data
Book (60215)
$115 95 (Qty
CD (65215)
$142 95 (Qty
Repair & Remodeling Cost Data
Book (60045)
$ 99 95 (Qty
CD (65045)
$142 95 (Qty
Re idcnt ul Cost Data
Book (60175)
$ 82 95 (Oty
CD (65175)
$164 95 (Qty
-4 Site Work & Landscape Cost Data
Book (60285)
$115 95 (QI
CD (65285)
$142 95 (Qty
Square Foot Costs
Book (60055)
$126 95 (Qty
CD (65055)
$202 95 (Qty
CostWorks Estimator
CD (65605)
$299 95 (Qty
-dholder Signatui e:
Sub Total
Company:
£ JS____.
Email:
Far:
* All RSMeans Products come with a 30-day refund guarantee
* Please allow 2-4 weeks for delivery after availability date
City/State/Zip:.
1504

-------
Co 5P?P o
\4 EL 7
Table of Contents
Disclaimer .. ii
Introduction I
Contents of the Software 1
Contents of this Manual 2
Installation 2
System Requirements
System Installation
Navigation
Completing a Cost Estimate 4
Getting Started
Facility Information
Window
Worksheet Manager
Worksheets
Features of the Menu Bar 10
Files
Utilities 10
Help 11
Appendix A — CostPro© Help System
A. Container Storage Areas. -
B. Tank Systems
C. Surface Impoundments
D. Waste Piles
E Land Treatment Units
F. Landfills
G. Incinerators and Boilers
and Industrial Furnaces
H. Drip Pads
I. Containment Buildings
J. Post-Closure Care
K. Support Worksheets
L. Sampling and Analysis
M Monitoring Well Installations
N. Cover Installation
0. Transportation
P. Treatment and Disposal
Q. Backfill and Grading
R. User Defined Costs
Appendix B — Calculating Health and Safety Costs
.2
A-3
A-17
A I
it-i.,
A-49
A-63
A-71
A-95
A- 105
.A-119
A
‘i-i.’.,
A-i 47
A-Lc 1
A-i
A-i 1.,
A- 189
A-193
A-197
A-201
4
5
5
8
CostPro© User Manual i

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Site Work & Utilities
Access Roads
Cleanup and Landscaping
Clear and Grub
Fencing
Load and Haul
Overhead Electrical Distribution
Parking Lots
Resurfacing Roadways/Parking Lots
Sanitary Sewer
Sprinkler System
Storm Sewer
Water Storage Tanks
Studies
Archives Search Report
Corrective Measures Study
Feasibility Study
Final Status Survey
Groundwater Monitoring Well
Monitonng
CE Site Characterization & Removal
Assessment
Petroleum UST Site Assessment
Preliminary Assessment
Professional Labor Management
RCRA Facility Investigation
Remedial Investigation
Site Characterization Survey
Site Inspection
Special Well Drilling & Installation
User Defined Estimate
. -. t_.
1L t_ 4 T. •
Treatment
Advanced Oxidation Processes
Air Sparged Hydrocyclone
Air Sparging
Air Stripping
Bioslurping
Bioventing
Carbon Adsorption (Gas)
Carbon Adsorption (Liquid)
Coagulation/Flocculation
Dewatering (Sludge)
Ex-situ Bioreactors
Ex-situ Land Farming
Ex-situ Solidification/Stabilization
Ex-situ Vapor Extraction
Heat Enhanced Vapor Extraction
In-situ biodegradation ( aturatedI Zone)
In-situ Land Farming
In-situ Solidification
Low Level Rad Soil Treatment
Media Filtration
Metals Precipitation
Neutralization
Off-site Transportation and Thermal
TM 2004
Treatment Continued
Treatment
Oil/Water Separation
On-site Incineration
On-site Low Temp. Thermal Desorption
Passive Water Treatment
Phytoremediation
Soil Flushing
Soil Vapor Extraction
Soil Washing
Solvent Extraction
Thermal & Catalytic Oxidation
r
Models

-------
Containment
Capping
In-situ Biodegradation (Saturated Zone)
Permeable Barriers
Sluny Walls
Storage Tank installation
UST Closure / Removal
Demolition
Demolition, Buildings
Demolition, Catch Basins/Manholes
Demolition, Curbs
Demolition, Fencing
Demolition, Pavements
Demolition, Pipes
Demolition, Sidewalks
—
•, -! r
TM 2004
I
- .,. .
?. :•_ .i;.
Remediation Support
Bulk Material Storage
D & D Sampling and Analysis
Decontamination Facilities
Groundwater Monitoring Well
Miscetlaneous Reid Installation
Monitoring
Natural Attenuation
Ordnance & Explosive Institutional
Controls
Ordnance & Explosive Monitoring
Professional Labor Management
Remedial Design
Residual Waste Management
Trenching/Piping
User Defined Estimate
Documentation
Administrative Record
Five-Year Review
Restoration Advisory Board
Site Close-Out Documentation
Ordnance
Archives Search Report
OE Removal Action
OE Site h r n, T,nn & Removal
Assessment
OE Sifting
Ordnance & Explosive Institutional Controls
Ordnance & Explosive Monitoring
UXO Active Range Clearance Planning
UXO Active Target Clearance
J
Discharge
Discharge to P01W
Infiltration Gallery
Injection Wells
Disposal
Off-site Transportation and Waste
Disposal
Residual Waste Management
Radioactive
D&D Contaminated Building Materials
D&D Sampling and Analysis
D&D Conduit, Pipe, & Ductwork
D&D Specialty Process Equipment
D&D Rad Contaminated Building
D&D Final Status Survey
D&D Removal, Attached Hazardous
Materials
D&D Removal, Unattached Hazardous
Materials
D&D Size Reduction
In-situ Vitrification
D&D Site Ghar2cteflzation Survey
D&D Surface ) nntemin tinn
Removal
Asbestos Removal
Contaminated Building Materials
Drum Staging
Excavation
Free Product Removal
French Drain
Groundwater Extraction Wells
Residual Waste Management
Special Well Drilling & Installation
Surface Decontamination
Transportation
UST Closure / Removal
‘

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COSTPRO ESTIMATE
FORA
LANDFILL CAP

-------
Work Breakdown Structure (WBS) for a Landfill Cap
Basic Parameter: 500 x 250’ = 125,000 SF = 2.87 acres
1 - Mobilization to Site
personnel & equipment
site preparation
2- Fencing & Signage
length & height of fencing/type of fencing/number of gates
location and number of signs
3- Cap Level 1: Vegetative Cover (CostPro worksheet LF - 7)
grading (crew configuration & productivity)
mulching/fertilizing/type of seeding
4- Cap Level 2: Topsoil -6 inches (CostPro worksheet LF -6: sequence 1)
soil borrow volume & delivery (offsite? or is onsite material available)
spreading & compacting (crew configuration & productivity)
5- Cap Level 3: Unclassified Fill - 18 inches (CostPro worksheet LF - 6: sequence 2)
soil borrow volume & delivery (offsite? or is onsite material available?)
spreading & compacting (crew configuration & productivity)
testing
6- Cap Level 4: Sand Drainage Layer - 12 inches (CostPro worksheet LF - 5)
offsite soil borrow volume & delivery (material purchase/delivery distance)
spreading & compacting (crew configuration & productivity)
geotextile filter fabric material & installation subcontract
drainage piping (length & location)
7- Cap Level 5: 40-mil Liner (CostPro worksheet LF -4)
material area (how much wrapping?)
installation labor (crew configuration & productivity)
testing
8- Cap Level 6: Clay Layer -24 inches (CostPro worksheet LF - 3)
soil borrow volume & delivery (offsite? or is onsite material available?)
spreading & compacting (crew configuration & productivity)
testing

-------
9- Cap Level 7: Leveling Layer - 6 inches (CostPro worksheet LF - 6: sequence 2)
soil borrow volume & delivery (offsite? or is onsite material available?)
spreading & compacting (crew configuration & productivity)
testing
10 - Gas Collection System (CostPro Worksheet LF - 10)
number and depth of wells
11 - Storm Water Control (CostPro worksheet LF - 12)
length of side slope conveyances
length of ditching/type of ditching
length of berms
12 - Other Direct Cost Items
surveys (CostPro worksheet LF - 13)
certification (CostPro worksheet LE - 14)
work plans
health & safety plans
ts
direct supervision
engineering
13- Indirect Cost Items
general site management overhead
general contractor home office G&A
preconstruction design
general contractor profit
contingency factor (uncertainty & change orders)

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LF-1
INVENTORY - Page 1 of 1
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1
1 AREA OF LANDFILL
1 .A
Length 500.0 ft
1 .B
Width 250.0 ft
1.C
Area of Landfill
1 .D
Area of Landfill in yd 2
1 .E
Area of landfill requiring gas collection wells
2 VOLUME OF CLAY LAYER
2.A
Thickness of clay layer 2.00 ft
2.B
Volume of Clay Layer
250,000.0 ft 3
2.C Volume of Clay Layer in yd 9,259.3 yd 3

3 VOLUME OF SAND OR GRAVEL
3.A Thickness of sand or gravel layer I 1 .OOft
3.B Volume of Sand or Gravel Layer 125,000.0 ft 3
3.C Volume of Sand or Gravel Layer in yd 4,629.6 yd 3
p__
4 VOLUME OF TOPSOIL LAYER
)SOil 0.50 ft
er 62,500.0 ft 3
,d 3
5 GAS COLLECTION SYSTEM
5.A Mean depth of landfill
. ‘. . . . - . . .. •_ — S’ $ . c,- ‘- y
4 ’ .
6 STORM WATER CONTROL
Length of side slopes requiring conveyances
125.00 ft
6.B
Total linear feet of grass ditches to be constructed
1,500.0 ft
6.C
Total linear feet of rip rap ditches to be constructed
0 0 ft
• • ‘:. - ‘;‘ ..
• —‘ . ‘ •
• . - i.,.\
125,000.0 ft 2
LANDFILLS
6.A
6.D
Total linear feet of concrete ditches to be constructed
0.0 ft

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LANDFILLS LF-2
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1
SUMMARY WORKSHEET
Activity
Worksheet
Number
Cost
1.
Installation of Clay Layer
LF-3
$257,517
2.
Installation of Geomembrane
LF-4
$202,500
3.
Installation of Drainage Layer
LF-5
$121,588
4.
Installation of Topsoil
LF-6
$256,212
5.
Establishment of Vegetative Cover
LF-7
$13,451
6.
Installation of Colloid Clay Liner
LF-8
$0
7.
Installation of Asphalt Cover
LF-9
$0
8.
Installation of a Gas Collection System
LF-1 0
$5,162
9.
Installation of Flares and Support Equipment
LF-1 1
$0
10.
Installation of Storm Water Control
LF-12
$18,495
11.
Decontamination
DC-i
$0
12.
Sampling and Analysis
SA-2
$o
13.
Monitoring Well Installation
MW-i
$0
14.
Transportation
TR-1
$0
15.
Treatment and Disposal
TD-1
$0
16.
User Defined Cost
UD-1
so
17.
Subtotal of Closure Costs
$874,925
18.
Engineering Expenses Percent Applied 10.00 %
$87,493
19.
SurveyPlat
LF-13
$3,118
20.
Certification of Closure
LF-i 4
$4,000
21.
Subtotal
$969,536
22. Contingency Allowance Percent Applied 20.00 %
TOTAL COST OF CLOSURE (Rounded to $1,200,000)
$193,907
$1,163,443

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LANDFILLS
Facility Name: COSTPRO CAP MODEL
Unit Name: LANDFILL CAP
1 PURCHASE AND DELIVERY OF CLAY
1 .A Volume of clay required
1 .B Compaction factor
1 . C Volume of additional clay required per yd 3
1.0 Total volume of clay required
i.E Cost of clay per yd 3
1.F Subtotal of cost of clay
1.G Cost of delivery of clay per yd 3
1.H Subtotal of cost to deliver clay
1.1 Cost to Purchase and Deliver Clay
LF-3
INSTALLATION OF CLAY LAYER - Page 1 of 2
Facility Sequence: 1 08/09/2004
Unit Sequence: 1 Form Sequence: 1
9,259.3 yd
0.40 F
3,703.7
12,963.0_yd
$7.05 Iyd 3
$7.35 fyd 3
i : 1
$95,278
$186,667
__ ,
2 SPREADING AND COMPACTING OF CLAY LAYER
2.A Labor and equipment cost per work hour $126.47 /work hr
Appropriate level of PPE Protection Level DI
2.B Work rate required to spread one yd 3 of
clay 0.01200 work hr/yd 3
2.C Number of hours required to spread clay 156.0 work hrs
2.D Subtotal of labor and equipment cost to spread clay
2.E Labor and equipment cost per work hour $145.12 /work hr
Appropriate level of PPE Protection Level
2.F Work rate required to compact one y& of
clay 0.00500 work hr/yd 3

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LANDFILLS LF-3
INSTALLATION OF CLAY LA YER - Page 2 of 2
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1
2 G Number of hours required to compact clay 65 0 work hr
2.H
Subtotal of labor and equipment cost to compact clay
$9,433
2.1
Cost of mobilization and demobilization (flat rate)
$350
2.J
Cost to Spread and Compact Clay Layer
$29,512
‘‘:. ‘ : 2: f
3 TESTING OF CLAY LAYER
3.A
Area of landfill 125,000 ft 2
3.B
Maximum landfill area per test
12,000.0 ft 2 /test
3.C
Number of tests per clay lift
11 tests/lift 1
3.D
Number of lifts required to construct a
compacted two-foot layer
6 lifts
3.E
Total number of tests required
66 tests
3. F
Cost per set of tests
$626/set of tests
3.G Cost to Perform Tests
$41,338
TOTAL COST OF INSTALLATION OF CLAY LAYER
$257,517

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LANDFILLS LF-4
INSTALLATION OF GEOMEMBRANE - Page 1 of 1
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1 Form Sequence: 1
1 Area of landfill 125,000 ft 2
F. L&
2 Cost to install 40-md VFPE liner per ft 2 $1.35/ft2J j1 J
3 Subtotal to install 40-md VFPE liner $168,750
4 Cost of engineering controls, inspection, and testing. $33,750
Percent Applied 20.00 %
TOTAL COST OF INSTALLATION OF GEOMEMBRANE $202,500

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LANDFILLS
LF-5
Fa
INSTALLATION OF DRAINAGE LA YER - Page 1 of 2
cility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1 Form Sequence: 1
1
PURCHASE AND DELIVERY OF SAND OR GRAVEL
l.A Volume of sand or gravel required
1.B Compaction factor
1 .C Volume of additional sand or gravel
required
Total volume of sand or gravel required
Cost of sand or gravel per yc?
Subtotal of cost to purchase sand or gravel $48,773
Cost of delivery of sand or gravel per yd 3 J $735 iy 3 4 Sk C 4
Subtotal of cost to deliver sand or gravel $36,579
Cost to Purchase and Deliver Sand or Gravel
2 SPREADING AND COMPACTING OF SAND OR GRAVEL LAYER
2.A
Labor and equipment cost per yd 3 to
spread sand or gravel
3
$1.52 /yd
c : -- -.


2.B
Subtotal of labor and equipment cost to spread sand or gravel
$7,565
2.C
Labor and equipment cost per yd 3 to
compact sand or gravel
$0.30 /yd 3
2.0
Subtotal of labor and equipment cost to compact sand or gravel
$1,493
2.E
Cost of mobilization and demobilization (flat rate)
$350
2.F
Cost to Spread and Compact Sand or Gravel Layer
$9,408
3 PURCHASE, DELIVERY, AND INSTALLATION OF GEOTEXTILE FILTER FABRIC
3.A Area of landfill 13,888.9 yd 2
3.B Cost of geotextile filter fabric per yd 2 $1.64 /yd
3.C Cost to Purchase, Deliver, and Install Geotextile Filter Fabric $22,778

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LANDFILLS LF-5
F
INSTALLATION OF DRAINAGE LAYER - Page 2 of 2
acuity Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1
4
PURCHASE AND INSTALLATION OF DRAINAGE PIPING 1
4.A Length of landfill 500.0 ft
4.B Width of landfill 250.0 ft
4.C Length of drainage pipe needed 1,500.0 ft
-,
4.0 Cost of drainage pipe per ft $2.70 itt
4.E Cost to Purchase and Install Drainage Piping $4,050
TOTAL COST OF INSTALLATION OF DRAINAGE LAYER $121,588

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LANDFILLS
Facility Name: COSTPRO CAP MODEL
Unit Name: LANDFILL CAP
1 PURCHASE AND DELIVERY OF TOPSOIL
1 .A Volume of topsoil required
1 .B Compaction factor
Volume of additional topsoil required
Total volume of topsoil required
Cost of topsoil per yd 3
Subtotal of cost to purchase topsoil
1 .C
1 .D
1 .E
1 .F
LF-6
INSTALLATION OF TOPSOIL - Page 1 of 1
Facility Sequence: 1 08/09/2004
Unit Sequence: 1 Form Sequence :
1 .G
I
Cost of delivery of topsoil per yd 3 J $7.35 /yd 3
r..

1 .H
Subtotal of cost to deliver topsoil
$21,267
1.1
Cost to Purchase and Deliver Topsoil
$60,763
2 SPREADING AND COMPACTING OF TOPSOIL
2.A
Labor and equipment cost per yd 3 to
.
spread topsoil
$1521d 3
Y
r r- -



2.B
Subtotal of labor and equipment cost to spread topsoil
$4,398
2.C
Labor and equipment per yd 3 to
compact topsoil
$0.30 /yd 3
2.D
Subtotal of labor and equipment cost to compact topsoil
$868
2.E
Cost of mobilization and demobilization
$350
2.F
Cost to Spread and Compact Topsoil
$5,616
TOTAL COST OF INSTALLATION OF TOPSOIL
$66,379
$39,496

-------
LANDFILLS LF-6
INSTALLATION OF TOPSC!L - Page 1 of 1
Facility Sequence: 1 08/09/2004
Unit Sequence: 1 Form Sequence: ( )
Facility Name: COSTPRO CAP MODEL
Unit Name: LANDFILL CAP
1 PURCHASE AND DELIVERY OF TO OlL U JCL 5 I F t) iu..
1 .A
Volume of topsQiI required
9,260.0 yd 3
1 .B
Compaction factor
0.250
1 .C
Volume of additional topucil required
2,315 0 yd
1.0
Total volume of t il required
11,575.0 yd
1 .E
Cost of Lupsuil per yd 3
$7.20 /yd
1 .F Subtotal of cost to purchase tcp il
1 .G
Cost of delivery of topsoil per yd 3 $7.35 /yd 3
1 .H
Subtotal of cost to deliver-topwil
$85,076
1.1
Cost to Purchase and Deliver T p OIl
$168,416
-..‘ — .- , c - ,.
j’i ! ‘ ,‘ -. .. - t ;..
2 SPREADING AND COMPACTING OF Tw uiL
2.A
Labor and equipment cost per yd 3 to
spread to i1
3
$1.52 /yd
2.B
Subtotal of labor and equipment cost to spread 1 pt ill
Labor and equipment per yd 3 to
compact topseil
Subtotal of labor and equipment cost to compact k nl $3,473
2.C
2.D
2.E
Cost of mobilization and demobilization
$350
2.F
Cost to Spread and Compact T.’%p il
$21,417
TOTAL COST OF INSTALLATION OF TOPSOIL
$189,833
$83,340

-------
LANDFILLS LF-7
ESTABLISHMENT OF VEGETATIVE COVER - Page 1 of 1
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1 Form Sequence: 1
1 SOIL PREPARATION
l.A
Area of landfill
125,000.0 ft 2
:
•..
.;
•
1.B
Area of landfill in thousand square feet
(MSF)
125.0 MSF
1 .C
Labor and equipment cost per MSF
$37.50 /MSF
1 .D
Subtotal of labor and equipment cost to prepare soil
$4,688
1 .E
Cost of mobilization and demobilization (flat rate)
$350
1 .F
Cost to Prepare Soil
$5,038
— ‘. t
2 SEEDING, FERTILIZING, AND MULCHING
2.A
Labor, material, and equipment cost per
MSF $64.50 /MSF
--
2.B
Subtotal of labor and equipment cost to seed, fertilize, and mulch
$8,063
2.C
Cost of mobilization and demobilization (flat rate)
$350
2.D
Cost to Seed, Fertilize, and Mulch
$8,413
TOTAL COST OF ESTABLISHMENT OF VEGETATIVE COVER $13,451

-------
LANDFILLS
Installation of Gas Collection System- Page 1 of I
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1 Form Sequence: 1
1 PREPROJECT ENGINEERING
l.A
1 .B
Mean depth of landfill requiring wells
Number of vertical gas collection wells
125,000.0 ft
2 wells

P
$89 /Well
1 .C
Labor and equipment cost per well for
initial determination of well placement
and field stakeout
1.0
Cost to determine well placement and field stakeout
$178
1 .E
Development of drawings
$270
1 .F
Engineering recommendations
$595
1 .G
Cost to Perform Preproject Engineering
$1043
2 EQUIPMENT MOBILIZATION AND DEMOBILIZATION
2 Mobilization and demobilization of drilling
rig and crew 435
3 WELL INSTALLATION
3.A Number of vertical gas collection wells
3.B Mean vertical well depth
3.C Total vertical boring depth
3.D Labor, equipment, and material cost per foot
associated with drilling and installation
of vent pipe $80.00 itt
3.E Labor, equipment, and material cost per well
associated with installation of well head
and fittings $921.86 iweII
3.F Cost to Install Gas Collection Wells $3,684
TOTAL COST OF GAS COLLECTION SYSTEM $5 ,1621
LF-1O

-------
LAN DFI LLS
Facility Name: COSTPRO CAP MODEL
Unit Name: LANDFILL CAP
1 STORM WATER SIDE SLOPE CONVEYANCE CONSTRUCTION
LF-12
Storm Water Control- Page 1 of 1
Facility Sequence: 1 08/09/2004
Unit Sequence: 1 Form Sequence: 1
1 .A
Length of side slopes requiring conveyance
125.0 ft
1 .B
Number of conveyances required
125
1 .C
Mean length of side slopes
0.0 ft
1.0
Total length of conveyances
0.0 ft
1 E

Labor and equipment cost per foot to
construct conveyances
1 .F Cost to Construct Conveyances
$4.90 itt
2 DITCH AND BERM CONSTRUCTION
2.A
Total linear feet of grass ditches to construct
2.B
Labor and equipment cost per foot to
construct grass ditches
2.C
Subtotal to construct grass ditches
2.0
Total linear feet of rip rap ditches to construct
0 ft
2 E
Labor and equipment cost per foot to
construct rip rap ditches
2.F
Subtotal to construct rip rap ditches
Total linear feet of concrete ditches to construc
2.1 Labor and equipment cost per foot to
construct concrete ditches
2.J Subtotal to construct concrete ditches
2.K Total linear feet of berms to construct
2.L Labor and equipment cost per foot to
construct berms
Subtotal to construct berms
2.N
Cost to Construct Ditches and Berms
$18,495
TOTAL COST OF STORM WATER CONTROL $18,495
2.H
2.M
$0
$18,495
$0
$0

-------
LANDFILLS
LF-13
SURVEY PLAT- Page 1 of 1
Facility Name: COSTPRO CAP MODEL Facility Sequence: 1 08/09/2004
Unit Name: LANDFILL CAP Unit Sequence: 1 Form Sequence: 1
1 Area of landfill 125,000.0 ft 2
2 Area of landfill in acres (minimum of 1) 2.9

3 Labor and materials cost per acre $1 ,075 /acre
TOTAL COST OF SURVEY PLAT $3,118

-------
LANDFILLS
FacIlIty Name: COSTPRO CAP MODEL
Unit Name: LANDFILL CAP
Number of units requiring certification of
closure
Cost of certification of closure per unit
TOTAL COST OF CERTIFICATION OF CLOSURE
1
2
LF-14
CERTIFICATION OF CLOSURE - Page 1011
Facility Sequence: 1 0W0912004
Unit Sequence: 1 Form Sequence: 1
$4,000

-------
RACER ESTIMATE
FORA
PUMP-AND -TREAT
REMEDY

-------
Work Breakdown Structure
Groundwater Extraction Wells
drill eight wells @ 85’ through alluvial deposits
install casing for 65’ per well
install screen for 20’ per well
install eight well pumps @ 15 gpm each (120 gpm total ststem)
other well appurtenances
Air Stripping
install stripping tower
packing
controls
pump/tank/piping
other
Vapor Phase Carbon Treatment
install treatment unit
controls
Treated Groundwater Disposal
excvate trench
install piping

-------
Technology Parameters Report
Technology Name Groundwater Extraction Wells

-------
Technology Parameters Report
Technology Name Groundwater Extraction Wells

-------
Technology Parameters Report
Technology Name Air Stripping

-------
Technology Parameters Report
Technology Name Carbon Adsorption (Gas)

-------
Technology Parameters Report
Technology Name Discharge to POTW

-------
Technology Parameters Report
Technology Name Discharge to POTW

-------
Project Cost Detail Report
(with Markups)
Folder: RCRA
Project
Name: Pump & Treat
ID: RACER GW Project
Location: MARYLAND STATE AVERAGE, MARYLAND
Modifiers: Material 0.9888 (Modified)
Labor 0.9683 (Modified)
Equipment 1.0055 (Modified)
Category: None
Report Option: Fiscal Year
Description: Eight Extraction Wells; Air Stripping; Vapor Phase Carbon Treatment; Po rW
Disposal
Site
Name:
ID:
Type:
Pump & Treat
Pump & Treat
None
Phase Element
(Markup Template)
Direct Cost
General
Conditions
Overhead
Sub
Profit
Prime
Markup
on Sub
Prime
Profit
Risk
Owner
Cost
Markup
Total
Totai
Pump & Treat (Capital) $295,142
(New Standard R4 Template)
$17,813
$29,520
$0
$0
$22,261
$0
$0
$69,594
$364,736
Totai Site Cost $295,142. $17,813 $29,520 $0 $0 $22,261 $0 $0 $69,594 $364,736
Escalation $11,744
Escalated Site Cost $376,480
Cost Database Date- 2003
Cost Type User-Defined
Print Date. 8/17/2004 1:32 19 PM
This report for official U.S. Government use only.

-------
Technology Detail Report
(without Markups)
ACTOf k \1VELL’
Unit of Material Labor Equipment Extended Cost
Assembly Description Quantity Measure Unit Cost Unit Cost Unit Cost Cost Override
33010101 Mobilize/DeMobilize Drilling Rig & Crew 1.00 LS 0.00 792.59 2,062.44 $2,855.03
33020303 Organic Vapor Analyzer Rental, per Day 18.00 DAY 108.87 0.00 0.00 $1959.60 D
33109660 5000 Gallon Single-wall Steel 1.00 EA 4,152.96 1,217 01 180.39 $5,550 36 0
Aboveground Tank
33170808 Decontaminate Rig, Augers, Screen 14.00 DAY 102.93 0.00 0.00 $1441 08 0
(Rental Equipment)
33220112 Field Technician 113.00 HR 0.00 18.73 0.00 $2,116 30 0
33230103 6’ PVC, Schedule 40. Well Casing 360.00 LF 3.78 3.80 9.90 $6293.27 fl
33230157 2” Pitless Adapter 8.00 EA 177.86 0.00 1552 $1,547.06 0
33230203 6’ PVC, Schedule 40, Well Screen 160.00 LF 8.60 6.34 16.50 $5,030 29 0
33230303 6” PVC, Well Plug 8.00 EA 57.90 9.91 2578 $748 71 0
33230534 4” Submersible Pump, 15-20 GPM, 81< 8.00 EA 1,781.87 0.00 000 $14,254.96 0
Head <=160, 3/4 hp, w/ controls
33231130 Air Rotary, 8” Dia Borehole 672.00 LF 0.00 31.24 81.30 $75,629.50 0
(Consolidated), Depth> 500 ft
33231172 Split Spoon Sample, 2” x 24”, During 68.00 EA 39.33 0.00 0.00 $2,674.45 0
Drilling
33231182 Furnish 55 Gallon Drum for Dnll Cuttings 9800 EA 71.69 0.00 0.00 $7,025.42 0
& Development Water
33231186 Well Development Equipment Rental 8.00 WK 216.55 0.00 0 00 $1,732 38 0
(weekly)
33231403 6” Screen, Filter Pack 160.00 LF 7.19 5.75 14.95 $4,462 78 0
Cost Database Date: 2003
Cost Type User-Defined
Print Date: 8F1 6/2004 1 2902 PM
This report for official U S Government use only.

-------
TechnoIo Jetail Report
(without Markups)
)(T .ACTIc$ WELL
Total Technology Cost $142,448.82
Cost Database Date 2003
Cost Type. User-Defined
Print Date 8/16/2004 1:2902 PM
Assembly
Description
Quantity
Unit of
Measure
Material
Unit Cost
Labor
Unit Cost
Equipment
Unit Cost
Extended
Cost
Cost
Override
33231813
6” Well, Portland Cement Grout
41.00
LF
8.90
0.00
0.00
$364.86
0
33232103
6” Well. Bentonite Seal
8.00
EA
33.42
35.67
92.81
$1,295.17
0
33232206
Restricted Area, Well Protection (with 4
Posts & Explosionproof Receptacle)
8.00
EA
512.69
297.49
1 68
$6,494.85
0
33260425
1” PVC, Schedule 80, Connection Piping
400.00
LF
0.34
2.09
0.00
$972.76
0
This report for official U.S. c3ovemment use only.

-------
Cost Database Date: 2003
Cost Type User-Defined
Print Date: 8117/2004 10 10.52 AM
Technology Detail Report
(without Markups)
Assembly
Description
Quantity
Unit of
Measure
Material
Unit Cost
Labor
Unit Cost
Equipment
Unit Cost
Extended
Cost
Cost
Override
18020321
6” Structural Slab on Grade
180.00
SF
2.50
2.19
0.17
$875 38
0
19010206
3”, Class 200, PVC Piping
200.00
LF
0.86
5.26
0.40
$1,303.10
0
19040622
1,000 Gallon Horizontal Plastic Sump with
4” NPT Connection
2.00
EA
1 656.24
311.58
0 00
$3,935.64
0
33129905
10 Gallon Bypass Chemical Shot Feeder,
Floor Mount, 150 Lb ASME
2.00
EA
1,399.44
706.09
0.00
$4,211.06
0
33130706
Install Air Stripper Tower, 1’ -3’ Diameter,
21’- 30’ High
2.00
EA
0.00
4,051.79
600.56
$9,304 69
0
33130737
Internal Parts for Air Stripper, >= 20’ High,
per Foot of Tower Diameter
3.00
FT
4,918.57
0.00
0.00
$14,755.70
0
33130738
1” - 3.5” Packing for Air Stripper Tower
177.00
CF
15.47
0.00
0.00
$2,739.02
0
33130741
Electrical Controls for Air Stripper
2.00
EA
4 ,059.02
1,500.24
99.21
$11,316 94
0
33130791
3.0’ Diameter x Height, Prefabricated,
Fiberglass Reinforced Plastic, Air Stripper
Column/Shell Only
60.00
FT
59328
0.00
0.00
$35,596.80
U
33231306
High Sump Level Switch for Avoiding
Overflow
2.00
EA
211.14
153.85
0.00
$729.98
0
33290124
150 GPM, 5 HP, Transfer Pump with
Motor, Valves, Piping
4.00
EA
4,066.43
2,050.09
0.00
$24,466.06
0
33310113
1,500 CFM, 12’ Pressure, 10 HP, Blower
System
2.00
EA
2,295.65
625.67
0.00
$5,842.64
0
Ai Tf& PVif 4
Totai Technology Cost $11 5,07700
This report for official U.S. Government use only

-------
VAPOR ?RA 3E cM ?,or’1
TechnoIo Jetail Report
(without Markups)
\/f Po12
CA SoN4:
Total Technology Cost $21,473.23
Cost Database Date 2003
Cost Type User-Defined
Print Date. 8/1712004 1.29:58 PM
Assembly
Description
Quantity
Unit of
Measure
Material
Unit Cost
Labor
Unit Cost
Equipment
Unit Cost
Extended
Cost
Cost
Override
18020324
12 Structural Slab on Grade
9000
SF
4 91
3 12
0.41
$759.95
0
33021501
Saturation indicator
2.00
EA
44.50
000
0.00
$88.99
0
33131981
Dual Bed,1000CFM Series/2000CFM
Parailel2000 Lb Fill each
0.00
0.00
S20.413.17
0
33310209
Pressure Gauge
42.07
0.00
$211.12
0
1 00
EA 20413.17
2.00
EA
63.49
This report for official U.S. Government use only.

-------
Technology Detail Report
(without Markups)
VOT\N D t ’V ’P L-
Unit of Material Labor Equipment Extended Cost
Assembly Description Quantity Measure Unit Cost Unit Cost Unit Cost Cost Override
17010107 Medium Brush, Medium Trees, Clear, 1.00 ACRE 0.00 3,751 95 2,976.25 $6,728.20
Grub. Haul
17030259 Cat 225, 1 5 CV. Soil/Sand, Trenching 139.00 CY 0.00 0.41 0.54 $132 69 0
17030260 Cat 225,1.5 CV, Soil/Sand, 10’- 20’ Deep 13900 CV 0.96 1.36 1 81 $573.75 0
Trench Box, Trench
17030272 Pull Trench Box, Cat 225, 1.5CY, 139.00 CV 0.48 1.36 1.81 $50724
Soil/Sand, Trenching
17030401 950, 3.00 CV, Backfill with Excavated 135.00 CV 0.00 0.52 0.68 $161.22 0
Material
17031001 Wellpoint for Trench, Install & Remove 3.00 LFHD 60.25 0.00 0.00 $180.76 0
<500’, 1 Month
18050402 Seeding, Vegetative Cover 1.00 ACRE 3,370.25 76.85 54 73 $3,501.83 0
19020126 6’ PVC Pipe Sanitary 500.00 LF 2.45 4.37 1.89 $4,357.05
Total Technology Cost $16,142.76
Cost Database Date 2003
Cost Type User-Defined
Print Date. 8/16/2004 1 3549 PM
This report for official U.S. Government use only.

-------
EXCEL ESTIMATE
FORA
DRUM STORAGE WAREHOUSE
CLOSURE

-------
Work Breakdown Structure
for Closure of a Drum Storage Building
1 - Inventory Drums - 6,000 maximum in permit
2 - Dispose of Drums (6,000 drums permitted)
- dispose of solids drums (3,500 solids drums maximum permitted)
- load drums for onsite transport & disposal (in permit if capacity available)
- transport onsite - need alternate pricing for offsite transportation
- unload onsite/dispose in landfill - need alternate $ for offsite disposal
- dispose of liquids drums (2,500 liquids drums maximum permitted)
- bulk drums’ contents into tankers for offsite T&D (required by permit)
- transport to offsite disposal facility
- dispose at offsite disposal facility
- decon/salvage one-half of the empty drums for re-sale (1,250 drums)
- shred one-half of the empty drums (1,250 drums)
- load drums
- transport to onsite shredder
- shred drums
- dispose onsite - need alternate $ for offsite T&D of shredded drums
3 - Decon Drum Storage Building (17,500 SF)
- wash floors and lower walls
- rinse floors and walls
- dispose of decon liquids (including sampling and analysis)
- take wipe samples of floors and walls and analyze
4 - Other Direct Cost Items
- Level C & D protection
- health and safety planning and inspections
- site supervision
- certification
- surveys
5 - Indirect Costs
- preconstruction design
- general site management
- corporate G&A
- profit
- contingency

-------
Peg. I at 7
Squeaky Kleen TSDF - Sample Closure Cost Estimate
14 -Sep.04
For omotst u Ontp
I
5
S
S Drum Storege Uifl b1g
d
Urittol
Eatejided
Ba at P i ejil Otejrititie . br tn-leszse (Savt 8250*0
F ’ Esthiejte 4 Q
10*1
EaftoaM
t -t o P?Ith Rd&-o (IA -& 4 ’
(wa
- -
- -
90}.1 lila, I It
I bwej25yVenlmalem
559000 - TvOntoly ver25aIem
oa
2400
ej
ev
an
esa a
I I AJ
5973
0 9-ta
-es 73
si.am
61 . 4W
zI-my
pruó t rat. - 0* pan • amaeg 01 ram ówTde*aIte . 1St a I0.ittht 0*ekhiow
6 00001m.O -— — 5l0 ... . ._ Olftfl)woa
I,IIII,. .I — l ha. R .h . .f 0
lem aw a lu uoajr 0
112 Load Solids Dims - alte L II I
10*0*
Ii iat;ti TratICf (40-ton)
5-
ev
$3854 $ T14
:I LL J
I
-
rvth n ala -dO
3500ówoaO
*toi 8. RSIMJP
4adegnsflsr -
p. 9-171 m In 03-104)103)
B7SOPiraevO Saittelraew- 175010925
--• - -
; _ _ .__.._ _
;;-___.;____;
R7 511 Pa.0 51
I l,15t 5250w.
HiS 10910
Jasi 010110 — qu 0 11010910 — - - - — -
on
,ds
oRSS
010101
21580
ISubI . Load Drums Onsite L’FIU
13 Tta 1 Diums to Onsile Ltel
Read Tmolra (4 a 2. 30-teit)
Dli v.,
Flathed Trader (40-ten)
5 l 0 l - TnsI I DH00 to Q3510 LFIII
14 Unload Oneto - Onelte Ul Idl
Soiled Lobra
Fodddt (one tall
Aebod Trailer (40-ion)
-Unload Dons CI Onade 1.7111
I 5(a) O00Ite La,01Idl D eaaI
ro
97
e7

21
2
2
175
97
07
11010
iws

i

5905

i
teas
Imwe
drama
017 mti
eu’ooi
oa
I
$30051
$30151
sir s51

I
o SC4
$17
$17851

I
510141
5I. I

f
$esl
$8551
$3951

I
$8,795
$14141
$1S62

I
25
2556

625
$356

:
-
:
0001
p II5la .05 C I I I I 1-lIt. (15601
3300 dninta 0 90 diuatllaad - 430 loath 0 Os 0*0*btI -
3 thone 0 0) dtlaitl’cad • 430 ItiethO 05 -
3500 diwlIa 0 00 diwiviead - 438 IOede• 05 to,de -
WOdiJde3l 1910.40 138C19 RS&8UP p 9-171 Oem limo 25.19-0100)
3500 diana 0 40 dnm0*w. 975 ICIJIa 0 2 alIwew •
9500 diuma 0 40 diime4tw. 875 tue. 0 1 tfllalaew.
3500 ditensO 40 dii nsAw. 875 bairn 0 1 inlakzew -
estimate -0) Ier andse 0a51. )wo lee alternate bid item I 5(5( on imon S
I o Wa
I
I I I109
1 00 4 P 1
I
I Io0* ’Y
219 Iwo I erajlWt ptlea tern 01 590 -400-7 a mJ
21$ Imum I loaded loba late
219 teal I eq l piba torn 01 580-400-6600)
I
-215125056 diTI0*H t 15,1*10 7 15 8w
1750 bail [ loittlit ege I i-die Imtei rate • RSMIBC. p 489
575 bail J Wtoit RS8VBC p 25 (ba Item 01580-400-3030)
975 hoWe ] Iptp,tee RSMIBCp 25(0* Item 01590400.6600)
(0* — - $3 OiFdiwn
eel -56 9erae o,deatub
0i to0* Coal (Solids Diurne)
Subt-OeLozd laO sg.s a t
( foI hsseinbbes 12 8ev 15)
3500
then
drums
$0 ot 4
I
$8151
$01
$0!
971.5351
$3
80
58,562
3800 thins
- 0*&iOonsite boa utL , 0 . r drg. aM &ede* O0* 01 diunonad e
m 0381 for 0i91tedl I0aa1 of diummed eoltea
SIMr
,p 489
4000)

-------
Pagn 2017
Squeaky Kleen TSDF -Sample Closure Cost Estimate
14-Sep04
Fat OfOclal Usk Only
T0. lt0. o
II
IllS I
]121
1250 1
ana
av
IU. 00
av
ww a t
ewre
wwm
EatS
Sal at
-
sin i
n_cal
—
5 0 0
. a
5 l0 .
&
S a7 5
an
50
25 0yJ
-50j 20
U
a
U
1.0 Ovum Storage B g (ccnrd)
9to Item
%ieaagr
••
PI’an
EWazded
PlIes
Fs )y
Esfh 01e -
SaIls al Pm jW 1 and CuanliSes fat tMeslse Gc’/t Estarate
FeailPi Salami. Ba&s
ln .lioiise Gcv1 PT Rd. .. . . (w - ’4’. .d)
CU. J U &.pa 0 1W - —
S l2.
I
•lJUl 10 15 — CUIIIOSO WICWI 1,10111. FIU I , 1rOUIIIVI S I S C 14011,1. Wa 1515115144 01N
- - - - I C 1511015 l 115 1W149 CW1Il ISSI U 4414 1
lvdLnbar
Pu, b.g Eqv nat4
—I

IOWO - Bthaneflr. 312.ShuinsO 2wdtslDew - 6250tew
an a’ma — a w, w — ala. Inim 01 1 W1WCUW 414.a ins.
wotebos,a rate -RSk50Co
,S1 plIes RS&VtJPp 9-171 us. Inn a-1001wJ
ekT,r-5 0OO0sUor .
-
1 .RSM33Pp 25 eUatnOl85O-40O69CO)
De on Ovums
1 i I
1250 gums
ISMvUP p 9-167(35-170809) fat 50% ci diurns
Sal age Diners
I - RuC (bi. Lii. sOn Tsnba
I
$555
5ll
1250 diume
aI Salvage vatoe aifowatle (Imitly 0 $Satm fat 60%)
aIn ntlo ,iiM s Wilt ea avaltaSto
ragot In 5 .O00 Taniceis
585.33
252 08
2500 diners 0 80 dirVtanta - 278 loads 0 750 neSalata • 608333 mIles
4S$8UP p 9-174(0207) Si SOlid, at 50 iO munds
Sitl - Tmr Dig Uq.Ith Oflaite
$85.33
S 08
Dilate Org Liqutos Disposal
1055 1 Cost. Lkj
Th
-

111
47.&
5 ,7 1. 8 7
legend sf at of $1 8 n . near ki RSlaeana Page 9-605 (33-i9-727 W7274)
2500 divine 0 55 gek as - 137500 ga a
SSf S I 25 , to h i s. .J
ised avg-SI 80 RSM’UP -$135 and 33 49
SWt .OlfateOras*Llq Dkpaeal
SW ,t Assemblies I 6 lieu, 18)
&
5247$
$388.81!
St7l.87
O.2O
oi5w end cifalto T&D of orgatic ilth
h i e
489

-------
Squeaky ICleen TSDF - Sample Closure Cast Estimate
14-Sep04
P.geScf7 ForomelatUsbOrdy
1.0 Onsit Stcra09 Btd (conrd)
rIlditem
—
BaSIS d Pm s1as aislQuaiithies in-boc.e Goe’t Eslirnate -
-
-
Meseuj
1J
Pnoa
Eatcicled
Piles
F&ft
FyEslbicit .Bacist

.9 Lea yDirna Ire Shredder
Slated Laber
Fcdddl
id Trailer (40-las)

—
— •j
— SasaS
—
:
736
J
il
:
i
I
—I
$0
- —50
50
: s0
xo iteirste.80ówmhw(dai aUersleSIh5 umsO RSMS.Wp 9-171.33-19.0103) hrateftrfldea wty
- 1250 0 60 iansftw • 158 bows 0 I wddlasw • 156 bows ase birdS 0-Crater + ate bo rate - i boBC. p 490
1250 ddaiis 0 03 dnanslhr - 150 bows 0 I wdtebew - 158 iasua a,*r RSMIBC 33 Phi. dean 0159400-3300)
1250 degie 0 80 djuins.lir ISO hews 0 I uunftsdcsw • 158 tciu,s s l ctee RSMIBC p 25 (lIne kern 01590.400.6600)
— e a i a t 4 iwatavulIasla
Treacipi Dims toOnalie Slv
Trsator (4x 2 .30 .tan)
D,Iver_______________
lerd Trcilef (404cr)
to Onsita ShT 5Ss
— —
i
7 i
7 bouts

)
%3g
S
:
—

i
:
-
40
:
iOdeSIIisI ISle .05 boilil fis isidle tiaval Silete bUSS
80 - 156 bode 0 05 bow • 70 boils e t bi RSMIBC P.25 (tile kern 01590-400-7300)
1250 drums 0 80 dnmsload - 156 leads 0 05 bowth • 78 bows locoad leSs isle RS9*BC p 499
1250 Owns 0 80 drianflead - 156 bode 0 05 Ii.wafb - 78 Ii.u,s e 1 RSMIBC p 25 (Ire kern 015904006000)
no . UrciiiW uu4I iiuI aveibate
(hIred En *y Onans
5b0r
— —

D8
.
,r idlm rate - 00drwnsIt v (.. the lute of firS Owns 0 ASMUP p 9-171 33-19-0103) no yaathneta forUde add.ly
1250 desie 0 80 drimisfle — 156 bOws 0 1 wiltaUSew - 158 haw ens IOIIdB newsIer + ale helpea rate - &90C. p 409
1250 delile 0 80 drijnsAv — 158 hew. 0 I wiltabew— 158 hews eqi4il RSM 1 BC p 33 (lisle loan 01590.400.2060)
1250 Owns 0 80 drume.lw • 156 hews 0 1 wIhaSbsw - 158 hews esdet pile. RSMOC p 25 (fine kern 01590400.6600)
— - IUTIII* urtli available
teed Trailer (404cr)
leload Empty Drums
1
bow.
bowl
0 11 11w
S
50
5979

-
50
:
1 wit. Drum Slvadcibg
•.abar
Cf Ol
(hiete Dram
—

125 boWs

— —
5258 Sl

$ 60

:
50
:
-
irodn .100 0wiwfltez RSMIJP p 9-155 (tete den 33 -I3-24(
w. 0 100 Oumailw• 12.5 bOws 0 2 umtebew • 250 bows
1250 Owns 0 100 OuhnuTv - 12.5 bows e 401

yes1ni.f
abi
e i rs
rate - RSMIBC, p 499
9-1 (33-l3-26
Ideate
p) Oreate Shred Onmi Ompi
Ooet ealunste - $0 Is emalte depo l. tweever, See aiteanate bat kern I 13(b) en p e 6 no b$0yc.tbiwte buds aatM&
ad Coat (Shredded Drums)
Oici1teSlv dD itn sal
ubr AsSentefles 1 9 IMu I 13(a ))
i 5 r
1250 drums
jt
580’
9
I

50
S i
50
1250 OuTs 0 5) lbsldnjrn • 12.5 lo is 0 I tor Y - 125 CV eslesne 1 CP -751; 1 CV - 2 I -10 tc,s
le 09,11 09e09ig ajat

-------
Squeaky Kleen TSDF .Sample Cinaure Cost Estimate
l$-Sep 4
Pigol olT FerOffIclalUseOnly
0 Dnuii Sterage Bldg (conrd)
Item
— —
Ir T
‘Apaswp
— r
Puce
Exterded
Puce
Faailty
Esfgr,afa
Bias of Produrdlon ard Quantities icr tn-house Govt Eshmate
yBibmaffi8asIs (
ln.hcu Govt Pamg RL a (unitaichod)
Decon Gon Star Bldg (small)
ltUIpd Labar
— —
3333
508
— e.,am
iiro cn late - 105 SF111 Ior2 -çie,scn arew RSMIUP p 9-107 ne Item 35-17-0813)
17500 SF 0 105 SFI?v - 1857 bows 0 2 wiltebauw • 3333 howl
y - 15 100a1 0 fIat SMW l .5er05w
late • RSMIBC. p 499
Ins Washer
Vac
- Deca,i Dun Star Bldg t)
1997
1687 bows
17500 ii
S
$1685

$15
$ 06?
68331
$956?
17500 SF 0 100 SFflir - 1687 bows 0 1 wEalteew - 1687 bourn e *?t pit RSMIUP p 9-168 (t I m Item 33-17.0816)
17500 SF0 150 SFAV- 1687 bows 0 1 uirstelarew. 1997 bows p ’Ipiir RSMIBCp 2S( mltemO1590.400-7655)
l I nnA4 l wilt pd c e - $0 661W
I Damn Ones Sloe Bldg (nec .)
—
pmal m late - 106 SFflTto, 2-person mcw RSMtUP p 9-107
r-9913) y set- IpICOsIe 505 satirIc, Ipc,aew
SklWd Labor
ups Washer
i ac
• 06680 Dnn Star flme)
33 bows
1 bows
1 bows
17 •V
$38
S
$15
$1

1T .
$4600
53 087
52,370
.a6 ?
1 7500 SF 0 105 SFI11 1667 bouts U • 3 11001$ t99 15001611,6858 - I b%’8C. 0499
17500 SF0 105 SF111 • 1687 hams 0 ur’- 1687 baum . dgt pies RSMISJPp 9-160 (ttnedem 33-17-0518)
17500 SF0 lOG SF111- 1687 bows 0 wdt • 168? howe e ’t pi RSMIBC p 25 flew ltemOlSOO .400-7655)
isovup tIll iIm -009900
1 Damn Water Ssnq’JOl tose
esh-tidan
OC Alatyas (Bl’A 624)
e Water aaal
- D .o Water San61,Vlspaas
— •i

7
Il if
e s
$1
31
Th
$2
$1.
$4
5250
55,750
5 ,080
520t0
sa 50on ml. • 05 twshon 4e tar Iwo tedm late semi as f y ’. I 5 ly - OSieIewip tar I w1. m e l -
140 smup 0 05 hv errp - 70 bows 0 2 wiltaftisw - 140 baum two iabare,s ref. — RSMIBC. p 499
700000 gals 0 5050 gaVaan61 - 140 am ene1 dceI plI RSM,UP 09-28 (tIm Item 33 .02-ISIS)
17500 SF 0 2.5 56VIW5 - 437500 gasoim + 15 gavsthbae - 268330 gals Iedht wEfta tIsalmi p, : vol 04 9950F(87 Guicance)
on owupariat. i M i mdl pita. available
I Wtye Samities
pic c8oei rate-Os bouda J far two terda based icon CcstPro. Ibote phm 25% far wall area fa y 8 8 5-06 fwsfsaup I-o. 1. winS- SI heIT P
ed,tcian
bows
538
5635
178 emup 0 05 hvlsamp — 86 bows 0 2 unhtn ew — 175 hours two teda
Anatyda (SW 5035)
- PCS WtyifOedast Situp
SI
St
$
$3.
$404
52500
5 2
21975 SF 0 1000 SFhornp - 175 aanydea atinh$ied pdon RSWAC• p 2-33 (tam Item 33-02-1720)
tall Asoembhles 114 Svu 117)
17
81
$38.F
- S2 744
deonidamaintion aid easipOig

-------
Pigs 5017
Squeaky iCleen TSOF - Scenple Closure Cost Estimate
14-Sep .04
For Offlcl.i Uá Only
Ii U Ones SIng. Bldg (emEd)
I
- r
Eates d
.
Fashfy
Bass 01 Prn jd i .iilauaratms te bi4suse Go /I Edheata
Fesh& Esthr f Seas (bfdmdj
Ithd tIers
•
Meaewe
Price
Prics
Es* r eS.
•
hr-horse Go/I Pnorç Ref erences (widatidead)
P7% Usage & H&S PIeri*
[ usage. Level 0
[ ! Usage. Level C
LJ’ & Sak$yOlIcer

s t ern isior.
i: i
l v aar
I a th 5 i cn

[ ‘ ree r
I 1aI
[ tef - Cerlil lcalion
AssemblIes 118 Owu 1 51)
rn
U

1999
._ P
300
laws
•
hews

laws
O0

$59 a
-‘fl’
$650
:
$300
j 2

•
— .

J

9
53.598
$50.J
Daxi
Sf500
5760
• 8 5O
-
•
—

5200
5300
S7 d00
L, d CO 50% lard OeSO% for fatal ner-orçe Iii focal taste H8SP 015% 01 ,ea .s , In
19991 lawS 0 0 lu y. 2499 da I 0 50% D dave • 1249 da
- 1099.1 laws 0 B ls y. 2499 dave 0 60% •C da’i • 1249 da t.
19991 laws 0 15% laws - 300 laws
Fcrensn 02511. and Sr , 010% ci foist r saawei*cey hours for en tasks
19991 laws 0 025 lulls - 4998 laws
19991 laws e 0.1 lIfts - 1999 laws
.
:
- 19991 laws 0 0015 lulls - 300 Ins,
• 19991 laws 0 0015 lifti - 300 Inns
health S saleiy anr-4. heo... aid ceeltffcebom
y eat HASP- IOweatn 0 5753e V -60 as
‘10% 01 tsar-awe Iii hr Level DM96 ta y $lWdayl
1011.01 ns.a In hi Level C Med t ygdae $25Ida
healthS efyofl1cer l v i priced ill 5% of far-awe hru
fo Fawias Pus. Siwe -SOles 0575
oreinen laws priced at 25% 01 ranaiweidsay hours
sçe,veCr hairs iviced 0110% of ran.sl eivbeuy laws
. /&Q 8Pu50S75 8tii0575
hours priced at 15% of Isa1 -a el laws
efIC2I laws gi d 8115% 01 nenaweivicoly laws
11.0 Drum Storage B 1d9 Total $4965721 5276. 113
1 Pefcant Odterent ial 100 0%I 55 6%

-------
Pegs 6sf 7
Squeaky Kleen TSDF - Sample Closure Cost Estimate
14-Sep 4
F c c Officlel Ue Onty
Ds l
- ---.-
S
w a n u
20812
3500 fi
at -
Na
n ’s
ma e
thus
N.
Na
n ’ s
50 it
am o
n ’ s
‘V S
a,-
1420.150
.11 ea
-14. 5 13
a
-511.7I
14
20
14
50
— 3 3.250
50
—50. 281
00W 00555
2800
ae S
50 than! ow load
ray cmIlw,s na (IWiim ffi
bi -1 10u94 G t Pdthtg Refefeimas .te d)
------it
— -
2 1
—— — I
wa -
1.5 Dnim Stetegs Bldg (conrd)
i tt e n St9f .A. aaftm .
B a t San
OO th ’ s
W i
—
UF11
Puss
Eatanded
PuSa
.
F f -
FN.rafe
Bulsol Prcthulon end O ,antBea 1w In-hams 0on t Estimate
n a ..n ..
isamamscfteItayaSfBu - * -
,tOI50hIfl 5tef ceSIt e cmi
Off ide
ti
$15069 -
sa2s o : 1-
- - -

RSWJPP e17al00ofl.$I5 ;;.... . . . .,,
RSIvIUPP 9-1B8433-19-7250t.$9a nmi
Bus_____
0
0redeO ul
-
Dffllta SoUth Onus Otelossi
C
.
- -
1 ) at-site Oe u d Onus!
sajnie same effete - yss fcc O6iey maledats — 750 intles ‘t 20 to ’S pcc load
s 1wefVSIte oasf
Tre a,tatan
ad
;
-
- - - - —a--—.-
-
lotorefload 0 750 n esfbkI
.ISMIUP p 9-204(33-19-7250) — $1600 0n
an__
.
S 50- Orete Studded Dums
—
If -05510 ScUds Onus!
5 Dlaposal
QUade Sivedded Onus! 0150
13(a) Qiatte Dl ssaI
letoiff - OfIaIte SleddDninisDflp
4501
14 .
5•
(riles
5 ,5
in
us it
5114 U
‘we
— I
514 51
w
35.451
50
5
.a qol
. l
M i
20
M i
20
M i
20
U
4508 miss
15 5 t a
.wa 2
I1.0fhu 5t0cB eTd1 I I I I 5017 I I W I I I
IPeme ’dD’ffe,w ut taJ I I I I iooo J I 297 %I I I

-------
Pags7of 7
Squeaky Kleen TSDF - Sample Closure Coal Estimate
14 -Sep 4
cor Otnelel Use Only
1.0 Orusn Storage BuIlding
o Coal Sornoucy
-
cost Catagoty
Pei ent
c i Obact
•
Eithnated
Coal
Fa a t ’ty
Eat1ma
Cost
Cost Range
E CtM IYDU C tCO St
3917.524 :
t im ItilhICO CoslslProf IL
Site Coats
7 55
$68814
50
Range 10 1 1am 5% 1010% (reduced (torn 15% to 30% tinge to refleO petlal ngitzte ci frdheil ilts mats bi the direil 00 51 tIne hurls) - (no (adh ltyeathnate)
Cml Coistactor OSMlome Off
350%
$32.1 13
Sf3642
Range hi S cm 3% 106% (fadhtya 5% GM eIqref8ea)
Pre .Conatjrjctbl Oe51gn øst
5 59
345. 57 5
50
Range 1 0 ( 1cm 5% 1010% (iu I yestimate)
Ei iki. Duflng Conetiuction
150%
$13750
39
Range ha (loin 1% 103% (no fadhlti,osImata)
O..w4 In . .4. D..liI
50%
359.639
50
° — I. •
a oiiq
- , — t
- - -- -
xe
si ;
•otal Sal Coat. Drum Star Bldg
11,137.732
5786 474
loon,
$11377 3 --
u i
I M S
P( ’T,sella 1
- --- —
0101 PotentIal Coat. Drum Star
86.47
Cost References
RSMI*C refers to the RSMeans Enwavvnental RenredaUm Coat Data . Aasembkea. 2003 Edition
RSWUP refers to the RSMearu 5,y 451 Retnediatloti Cost Data - Uret Pnoi. 2002 EdItion
RSMIBC referS to the RSueans euadIng Constiuctiori Cost Data. 2063 Edition
RSWSWL ret era to the RSMeana Srte Work inst Landaoapfrig Coil Data. 2003 EdIllan

-------
EXCEL ESTIMATE
FORA
CONTAINER STORAGE AREA
CLOS URE

-------
Work Breakdown Structure
for Closure of a Container Storage Area
1 - Inventory TankersfTanks
2 - Empty/Dispose of Tanks/Tankers
- empty/dispose of tankers (12 maximum permitted)
- empty tankers for onsite disposal (in permit if capacity available)
- onsite aqueous treatment - may need alternate $ for offsite disposal
- empty/dispose of tanks (8 tanks or 12,000 gallons maximum permitted)
- empty tanks using existing pumps
- onsite aqueous treatment - may need alternate $ for offsite disposal
- demolish tanks/piping/pumps
- onsite disposal of tank debris
- load debris
- transport to onsite disposal area
- dispose onsite - may need alternate $ for offsite T&D of debris
3 - Demolish CSA (12,500 SF)
- decon CSA
- demolish CSA debris
- onsite disposal of CSA concrete debris
- load debris
- transport to onsite disposal area
- dispose onsite - may need alternate $ for offsite T&D of debris
- soil sampling & analysis
4 - Other Direct Cost Items
- Level C & D protection
- health and safety planning and inspections
- site supervision
- certification
- surveys
5 - Indirect Costs
- preconstruction design
- general site management
- corporate G&A
- profit
- contingency

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Page I of 8
Container Storage Art.. I Example
7-Dec.2004
For Official Use Otity
10 CSA No I
Basis of P,oduclron end Quantities
ho ln4iouse Estimate
Basic Closure Activities
Direct Costs
Estimated
Quanbly
unit cf
Measure
Unit
Price
Extended
Price
Fa bty
Estena?e
Fa y Estimate Basis (itahazed)
tn-Ilouae GovI Pnaris Relereitces (unitalidsed)
(I 1 Inventoly Venficstbl
haters,
ll.aborer
,_ -- -
— —I
ISu bto fa l - lnven i myVenh.cat.o n
‘
IISi t Assen tthes I I ltu I 11
Rn. tess.a
601 bows
I I
em
5214I
I
339 301
5336 1
- I ___I
5 526 1
$2501
eci.
l
siias.
piOdi rates 15 mtnflanlce, or rotofl 30 ,iilttilank two peisorra requked I tits esi fera141 leslie fetal is em4whwon.pesswi
is
30 bowS is
so bows
60 howe
524
524
•
a .wi. . .w, .aiw .. .i, .asw - a a.. - - - loaded labor rale’04 RSM1MC p -
- -,
12 Isritrars e 0.25 lvflardcer - - loaded labor rate i04 RSMIMC p
riles nwowyu. s en wiisa axs.aw .s.im sewn sac.. was In.,. tie, a.naas .seai ranaew 0 540 SOft., a.., —- 0 538 lOt.)
5I201
I (letS iaeer leis I S 6 wirsiawes is eniTUflUO mug tauurer
91e 5 wt - avefan&
2 Empty l2Tankeil
katiorer
Ii
6 i 5 5 I n
iTank - -- — - — -
lS ub -w npiyia
12
38
01
raw
howi
hours
9W is
-
$1801
• ‘ irn a
Ta,ita.al l a.lenM
)
$8505
I
3
---
—
—
—.---
Ii ‘ ‘•• —-. In tatesers
tOnsite kiu Treat - Tankers
l(Swi
“—•‘- -•- lit. Tankers
1 3)
raw
60155
emisie
oats
261 :
$2
$2
——
55.131 1
su.IxxJ,
tQlsivl,
07
R I
RI
— I
as.
preEn rate 1,650
65000 65te 0
getet. ,sndep p 9171
1650 geisAw -
(33-19.0101), max 12 5K.get tankers pwmiittsd at GSA 1
364 hours 0 2 undsl ew 727 flours
flo faofllyestlniatej
two laboreisi . RSWdI
6000055150
1650 eelsftw •
364 hours 0
1 wi5a ew
254 bowi
eqisu ’t price RSMJt
60000 eals 0
- - -
384 bouts 0
0 uisialaew
00 hours
* -
Imu wstpitce -
.
5 ai
—
govi eatsilata -$8 15 Non. itovevsr. see alIenate bal Item 1*4 on enov 8 - as 0 1 1 5 1 10 tSatiY65il S)icSisiI
65000 gs w limed ormute laclIby wit p of $0 I5lgaten
SWLV I
50, 1 11 1
I
$90001
I iw .w.,nwahts is . .! ... ,.nII ma.
15 0
524
9 171 (33.19.0108)
4 Empty S Tanks Contents
l ibo ,e,
‘umping Eguipmerd
145
72
‘ m l x v
l x
bows
s al is
uSO
$393
$82.5
ax see
$5.71’
S&54
$18.00
53
SO
as
SiB ,ow
I
F
S t. Empty Tanks’ Contents
I
p

_
-
$1026
.—‘ . . — — . . . U —.—.— — ..._—
risM
I—
.,Isa — an ( I S aM sI
Onaite .nqissesx
..a.anc . saul . , , .
Sutit Assemblies 14 1 ) 1w 1 5)
isiasel
as iS
—
swiss
,25
claim
518XC
matte t,eatmer1)of 1q60 Wastes trOin lanka a4eeflt to trsalmenit s Waen I
5 (a) Onaite My, Treatment
T,nhsan i . Tanks
gou ’Iesb inste ‘.50 ls t gatlon , hQwetsr, see alt6mate bid item I 5(b) on pageS
-——— 5— 5___ I——S . - . -.— 5 ... __ — 5. 5 •
plod’s rate — 1.650
— rainlop P 9.171
(33.19.0101). 51514(5) i5lC. tanks — 130,500 gde
721 hours 0 2 urittalaew 1455 hour,
lie larablvestmnatepirewit td
Iwo lsberw ,, RSMIMC p 624
120000 • 0
1660 gal sflw -
- - —
- -
727 lx 0
I
727 hours
- 9.171 (33.1 10 5l

-------
PaguSof a
Container Storage Area No. 1 Example
7 .Oec .04
F OflIdlal U.. Only
i 0 CSA No I Base 04 Pmdethon aid auanbses for In-house Estimate
Basic Cloawe divrtiee Estimated that 01 ($41 Extended FaOfay FadhIy Ealuriefo Basis aldrad)
06e01 Costs Quamity Measure Price PrIce Eshtrisla lfl4lauae Govt Pt P.ln- (utlItal lctzed)
16 Sled Tank Demabon
No 01 Tw*.01Cspa01 dA,ealWei l5
$1764
n-ts
.xodn rate 250 SPite (len 4 lB Ol Ol 42 IC 2 IB pp 3-213.3). 1 CF delirIa per 36 SF0 1 d .C an lyeaBanata - S5 .0OO lank and 40 Iwa 10151
*20960 guBSrs 5000 SF Tank. 272 CF 0 500 LIaCF • 111111 LBs ea0riabd weigts of eteel deeds - 500I F
Laborer
E menl C rersIon (MeOuni)
Excavalor
95
lanes
hours
hours
$3936 $3
$507 $3
$6550
98
52
8960SF 0 250 SFflanir 360 lisur. 0 3 imilslasw - 9501mw. RSAVUP 9 . .La Crates (see L4SIIMGISIWSCISIWSEI
9000 SF 0 250 SFflmur 320 hours 0 wiBSlorew - 640 hours loaded labor rate RSM/MC. p 560524
8000 SF 0 250 SFIhow 3t0 Imuis 0 1 wits/raw • 3201mw. ecp fl peas RSIWBC p 19 (01590.200-0150)
Metal Shears AttadinenI
Cow Altadinrent
Loader
hours
hours
hours
$3000
$1615
$2525
50
98
6000 SF 0 250 SF/how 32.0 hOwl 0 1 wata/rew - 320 Isium eqtZl p1100 EPA T&M 00fltraol rate
8000 SF 0 300 SFfliour 320 twa 0 1 wsta/aew - 3 0 hours eqidel c90e RSMOC p 20(0 1590.2000045)
8000 SF 0 250 SFfliou, 300 hours 0 1 wilts/blew - 320 hates 519*11 pIca RSMIBC p 21(OISYO.200-4810)
Ya,d Crates
WabIcig E19 ae01
50111-Sled lent Derirolition
8000
twa
1mw.
SF0
$81
$8
$17 5
50
0000 SF0 250 SFflw 320110w. 0
8096 SF 0 250 SFflw 32.0 lanes 0
0*01 lank sullace area denved from tank aid OSWER 94
1 wits/blew - 320 hoiss eqi*1t peas RSM/BC p 27 (lIne Item 01590000-2500)
w its/nw 320 lanes eqi tp RSBSBC p 26(O1S9O.400.7100)
00.8 Vol 3. peQe 5.5 rsi owuratrabte rem/up ursi ped available lot Usa new
1? Tank Pqaag Demolition
EebmatedP lpb e q len e th
Laborers
909 prodn tale -20 IF/hr. randjp p 3-10(16.01.962110827) Ira 2i4 metal peat, assume 100 LFRank on s .te laahIy antanals - f of Ifs/demo
Olai*aO IOOLFlIaflk. 800LFO 4LbtF • 3200L B 5
808 LF 0 B) IF/hour 400 hour. 0 2 wsts/ ew - 8001mw. p
hours
n/S
939 $3.1
it O
50
Weldeeg Ec apwer4
Sets’ AS Tanks P 0 eig Demolition
I 8 Tank Pwi Demolition
40
hours
LF0
$806
$433 $3,485
98
SO
800 LF 0 20 LF/ho r 400 Irate. 0 1 wets/new - 400 hours eqi,lt
an1A0
i rs -i - I F/ xTroST (see RSMIUP p 3-I I, 18.01.0634 aId 18.01-0836) assume I pero pe lank
pica -7700)
I ir new
ae l i ly sebnble - t s/total r,o coal
Estimated Puri Totals
j
nra
n / h
tankS 0 I pnpBSnk - 8 par 0 260 Lb/pme - 2000 LEa estimated w i of punts - 2501 /p t arp
Laborers
Weldrrg ElUlnienI
Sell -AU Tanks Paint Demolition
tO
8
hours
hours

$39 $425
5805
s
-
584
:
59
s
— purrps 0 I pwrptv 80 howe 0 2 witS/new - roo hours loaded labor rate 4/RSM /MC p 524
pwtlpa 0 ‘I pnr Ylv 60 1mw. 0 1 w iltS/aew • 80 hauls eqt t p 1100 RSMIUC p 26(01510400-77001
— evo rsmhio ural pece - $217/ P ian o

-------
Pagaaof 8
Container Storage Area .10. 1 Example
7-Dec-04
Far Official Usa Only
Basis of Prothadion aid Quantities loi In-house Estenate
Estimated Unit at Unit Extended Fwirty
Ouarthty Measure Price Price E timete
Fac y Estimate Eaas f dJ
In-house GoVt Pnceig Relerences (unula d)
Debris
-
iothiCtiefl rate -15 OVfliour. RSMIBCp 42 (tine liars 02225-730-30
I
no a 1’Ie lacihlyeirjuriste
“ “ taI(de’no a_f
(Medkim)
CV)
Demo Debris
- 09
09
08
09
14
laura
-i


5507
25
514 a
—
—

— - 141 CV 0 15 CVIIv - o 9 liaws 0 I wstalaew
— - 141 CV 0 15 CYIIW 09 laura 0 1 w Islcrew •
— - 141 CV 0 15 CYdir - 00 luw 0 1 witlstisaw -
- 141 CVO 15 CVdhr 00 hours 0 1 witlalorew
:
09 runs loaded labor rate RSMIMC.
o 8 hours loaded tailor rate RSMIMC,
09 laura aqpatl RSMIBC p 21 4
09 laura aO l au RSMIBC p 22
rsnitbp unit price -$15 7WC
page 524
590 -... ...0 ’48 10)
0-5400)
aew
- Or_fe Lid
2.30-ton)
CV)
to onaite Lbs
04
04
04
14
hours

hours
v ’
30
1Tha
‘ “
—
— - Oth 1 rate -05 laura for on-ate travel
— - 14 I CV 0 20 CYiload - 07 loads 91 05 lunlftV -
— - 141 CV 0 20 CVIload 07 toads 0 05 1unstb
— - 141 CV 0 20 Cyiload - 01 loads 0 05 lwsItr , -
:
- s suMe taa ’i
04 hours erpitol x
04 faw loaded labor
04 laura ecpI i ’t
w i r areMe
mtarra’-
‘ Ia ) no co st
0 ’7 )
0-5400)
tile
Demo Debris
(MedIum)
09
09
hours
• “ 30
$501
— -
—
— -
ll0 n rate 15 CVfllOw RSM 8C p 42 (line 115111 5-130 ’3080)
141 CV 0 15 CYta , - 00 hOurs 0 1 wnitslorew
141 CY 0 15 CVII1I 00 laws 0 1 wnrtalbrew -
no taoist , ’
09 laura loaded labor 18
09 hOurs
ale- p _ I oqotaI a’rro mot
C, page 524
C, page 524
CV)
Demo Debris
09
09
14
hours
i
!
5252
‘‘jj $
:::
— - 141 CV 0 15 CY11V 09 hours e 1 wstsfaew -
— - 141 CYO 15 CYfla • 09 laura 0 1 ursts/wew
:
09 laws ec jIpl xau
09 laura eqwpl peon
ron au -
21(01590-200.4810)
22(01590.200-5400)
..,. 31CV for larger orew
Diaponid
D xisat
141
CV
$0
-
50 -
govt esluriate — 10 1cr onsite theposal. however see alternate bid Item 1 1304 on p 6
141 CV
10 a ’e ‘a r
no cost ter watts 8
estimate - p_f Ct total no cost
sposal of denahibon debris
0I altat
1 6tliru 112)
51876
50 -
:
(wastllnnsa)
(2,500-get)
624)
2381
1190
119’)
119(1
lOll
tO U
hours
i i
flours
hours
flours

539 31’ 59.35
$861 $1,030
5391 5484
$2960 $8524
537 2’) 937
520400 52,04
ode01Ion rate - 105 SFIht for 2-pence aew MUP p 9-152 (me tam 33-17-0813)
$1.28) 12500 SF0 105 SFI1v 1100 hours 0 ° unltslcrew
50 - 12500 SF 0 105 SFAv- 1190 hours U I wnrt&aew
50 - 12500 SF 0 105 SFlhr - 1100 bows U wiltabew
50 - 12500 SF0 105 SF111’- 1190 laura U unitsbew
50 - 100 sarep 0 05 ht!sanlp - 50 hours U - u n lfslaew
50 - 100 areas 0 1 sarn larea - 100 san ea
-
temI i r est 40 hours b-one tech 91 $5Oisiour
2381 hours Iwo laborers, rate RSMIMC p 524
1190 hours etslOl Me RSMIBC p 25(01590.400.8310)
1190 hours eisnpi price RSMOC p 25(01590.400.1655)
1190 hours eq-p” pr’ ‘ — 25(01590.400.7620)
100 hours ff 5_fL.. p aiw rsle (99-21.06190+55% OH
p 9-28 (tIne Item 33.02-1618)
1 (wanilvnnse)
500000
125011
$0 025(i 51.25

50
12500 SF 0 4 gaVel - 591100 gallons
:
IS vat 04 ESVSF (1987 Guidance)
renirsp till price - as s.iISF for personnel ordy

-------
Pege4ol a
Container Storage Area No. I Example
7-Dec-04
For afloat U.. Only
10 CSA Ne 1
Basis at Produdton and Ouarthlies Isi b i4 i euse Estunata
0asl Closwe Activities
Deed Costa
Eshmaled
Quantity
Unit 01
Measwe
thaI
Pma
Exlendsd
Prt.e
Faailty Faah4r Esbowie 6aaas (isailamd)
EaSntafa liWlouse Govi Pn Q Relerer s (uP ” . ’ t )
I
4 ri n,stIsh CSA I
to,
r,., . ’ Inn CV I
raii Oebn s i to Omit. L SU
Tmder 150 CVI
l i eiH S
news
J , .
floUr’
howl
torn ’ .
new ’
tarn ,.
owes
1 5
h our.
c v a
, 8
n o ..
hog a
t.y U
I 1 1JtS
ho..
Owns
heura
UT U
UT
e n.
iou
oss
118
ala
634
56
em
1 50
ens
$14
SR
S
I
S
£
SI
SI
1’
4
.,,nfn rat. - & CVA. haada, 1ie50flR7c21lyV20i10 n 37I• IT leshr r4 I d .1504.1 cya2lous I bo9htaami . 59 14F (or 12 .500 SF a , .! 40 IN’IJts total
Ste, sse dswntianmaho dernatilun. arld on.ita debrb sh joral
insw or w
12500 SF U
lee,.’ Ot U
inmm CF U
1 5 0oU or
ggna cv a
4000 L V U
4430 CV U
am u UT U
4430 CV 0
400 U UT U
4530 CV U
250 SFitieur
250 SFflIour
250 SFfllojr
IS CYAv .
IS UTIW a
15 CYiIW —
500 haul U
oUU 110115 U
500 hell. U
sea era.,,., 5001101,8 U
243 RFM ,a,,
430 0I It1011
i eva , ,.
15 UTIOI.
15 CYflv.
400 u LI 0 15 CYflar - so a how. e - -
C
ur .w ew.
Ufl I O43 SW
uruisrorew
u ew
1000 hour.
1W U OwlS
500 11000
1118 1100 15
50 e 11011.
309 110013
RSMIBC a
I .‘ ...ni rat.,. I n
41111 i10.ae
so u floutS
500 ho..
008 mUis
30 glUt,.
1118 11011 15 I uquipi poor PISMIDU p
w.4 .sIkw. 11 S Inn in, ,w. .I. Sm,.4
4430 CV U
mm u UT
4630 CV U
so CvAnad
110 UYIIOI1O.
431 0403 U
631 load, U
am
05
110 125113
ii a lieu,.
bore l
VItt U 5tOi(M adRflfl)
ii cHammerAttach(1,2001)
Nadin nt
—
I
50
-


- - - - u’ RSMItWCO IIipO10tO Crews (See MSHMO1SIWSC SIWSE)
---- --- — - .--- ---- --- - • . . .- -:;
- — Ir — -. —- .w ,.w .a - -
—
12500 SF0 250 SFftirajr SOOtie.n U w.— -. 500 hOu r. I esiitpt • 25 0.0345 1
Cq.ew5
remolish CSA I
ad Cello Demolition o. r.
labo, , ,
500
!I
JI
25 I

I
:
— - S0bhouisU
-
Ictitatlon 13t. 15 CVmow p 42 (tine item 02525.730-3C I
- - - - .a, anws ._
uridsttsew. 0-4610)
. -- - - ... .. , ; . , . ... 25 0.7700)
1 colTicarit SI. le, this orew
. srat . laau iryee .I lmate . f
toadedlaboirate RSM9AC.caqe524
udDeerato t (Medium)
— - .
sad Cone Demo Debts
—
p
a
.
:
- - - - . - -- - - loadedlabonrate
- - - - - - nm . .. , a, e 1pl1os RSMIBCD 21(01590.500.4610)
— —- — — . ——- .—— — .—_——— — —
141 I 1 C ltlr. .1 10 018W
1 •I
lrador(4x2 .30-ton)
—
—
5
5
33
‘
—
.
.
—
—
no — ‘ — ._., I .— ..
- 0n, 1 1 i40lin. e ttxlce RSMIBCp 25(01590.400-7300)
-— . t aieRSMlMCpaqe524
-
Jres De Sdst.cr s iteLIW
— I
83
.
.
- — e I RSMOC p 25(01590-200-5400)

1u.--..--,.-...- a -..
I_____
—
:
-- -U.--
-
,
50
25
I
n .Deb ii s
— I
—--
I
:
lDthu1s0 , tn.a1
- -
:
----—- - -- - I 0 0 c o e lI o r0fls11ad t05al01defl 1 0l i t i efldet i1S -
- -
—
‘lMadtamt
rrrnse 1111 CVI
ml Onsit.DebnaDlscos.l
-Docile Detor 0 fli .aI
I ASS fl63I6S1 13IIvU1 151
moju
I
a
I
a
1 01 1W
1•
S.
542.
.4
05 lUtirelbin
arodii01on rat. • IS CVThouc fl0a 00 ’.. n . . . . . . fl Sfl Wa,flS I . ._ . . . _ . . . . . l . - . —
a u . n . . . w
- — -- U In’..’
- — - - loaded labor rate RSMIMC. p90.524
U ,uI.. ,liu.I , . — — - — ,. ,. RSItt’MC, p.....
urulslo,ew • so a llOl15 e 1 1ce RSMIBC p 21 (01590-200-481(9
so g hours U
• -: .. - -
-.•-...- - - a., —.— — . -.-—. ‘ I laebtv ealuIUta 465 CV a tons (02 tans ,CYI
4is 1 U UT
118 50104004503
T.d,niaan
T0 VOC & Metals Anelysra
- ‘D ’
I
10 °I
100
hourS
.amp
—
I
$50 7411
$561 00J
I
i
$501
$aSI(4
67.1171
5250
£ 5X
a. ..an,a.a
*00 wrip 0 05 hd.alqu - 50 hOw. 0 2 pe ,a ew. 100 howe
100 alas 0 I san ’aiea a 100 sanQes
190010 IUSUTip U)JSUII. IUfllSiisJ 1501 U 5011Th
RSM ’UPp 10-8 avq held erer rate (99-21.0402) + 55% OH
wui1 bcaI p ASMIUP p 9.33 (Ieie item 33-02.1705)
00 no1 5ara11e rseV l ( 9 lint o, available
(SuSt Aasernbliesl 19111nJ1 19)
100
eaQ
$71171
$7,lIfl
53.850
iaIaam 4mgatCSANo I

-------
PaguSof 8
Container Storage Area No.1 Esnmple
1-Dec-04
For Official Use Only
I 0 CSA 140 1
Uses of Prodieegnalal Ouanbties lot In-house Estimate
Basic Closure Actauties
Direct Coals
Estimated
Quantity
UnU 01
Measure
UnIt
Price
Eatended
Price
Fealty F ly EdnrOte Bees (i1 . i .e
Eslimete In-house Govt Pnceig References (wittahozed)
— -‘--..—.-..-v
IPFEU Ca O S -Le..elD
IPPE Usane - Level C
ISaieiv Engineer
I f l ub I
II 11 otee,vemri
i:’ ’
32i
loll
91 1
‘71
ice I
-
dens
noure
le i e r S
ticura
$1000
eps no
33109
Sec 1
5597;
— —- - rrc lfldnea r.ar,lr
1 0u .Muual 9LJ1 51011
I_
—
5 91 i eC5 1
—— — — -
T
II 92
i ,encai
IS. .bhgel -
liSubI Assemblies 1 20 Urn. I 221
ICI
Ia :
I — .-
noure
Sal
5336
526.018 1
$339
$2541
-.—--—i
5 1.20 5 1
$4,452 (
so
su
5I.ti
.——--- uncos——-- -
tOBS4heusaO
8 hr/day-
l357dateO
25%Oda e -
339 date
IeeS4haweO
U hr/dee—
I3S7davs@
75%Cdsvn —
l OIBdans
iou, C nows 0
25% teAs-
iOfieflCfl U 957. sic oigiv U
louse ,cuts U
271 Plows
ho 651- 50%IE0% sj*t over 600 Ills. Sills Ierb(ASP
55% of ,cn-ei tea In Level 0 (used laoktypdae Sb/day)
$25 /dsv%
iieeeur p ItLO l -
524
Llvel (. U 157. 1 — - 8515555
40
33
$150471
--
:
-- 30
- - - - 10% c i tc ial resI.açotvealy howe lot Ca tasks
: 10854 0 2714
- — - - - - 1085 jioure
r saMyesfu n ote - Oh,s daotIse 8 o c t50 ills fevn
zutside foreman rate from RSMT4C p
F%SMIUPp iueangrate+ss euDo-neaocgu.si.wcot )
I S O
: -
Me&).e o f e ne.52 SOfnIai
- 10854 tinuiS? 0015 brAs 183 hours
hShoAC p 24,518 rdea 125% AAE otisad (33-330104)
I SO
15.4091
% 9011
—-.-—-I
% 54 i o
89.93 5I
S ei
952
c i
er
852
Ui 15 1 15 -
•—‘ -• I 5%0I ’ —’- ’— —— - — —’ —— —aa lease
10854 155111 U
163 hours
.A& l sotaadla3-330114l
110 CSA No 1 IDirect C CCI I Total Basic $ 139.50h1 I 5109,2101 I
1 PercentDtffe,enhal I I I I I000%I I 783%! I I

-------
Pegs 8 of B
Container Storage Area No.1 Example
7-Dec-04
For omcIal Use Only
I 0 GSA No I BasIs al Produulion end Qualkbes for Iri-twuse Estimate
Altasnata amer. ACIrdi8es Eatimatad hut 01 Urat Extended FaoMy - FICIIty Estariafe ( .ta asd)
lAnd
II mum..
i t)
I— .,—.. ‘__ 4•
ISut it - Ottolo Tar*Jranker Liqa TaO
104 £105 1a 1
I — - —
INst Dirt - 01101 1 Tank LioustS DISEI
12
Ist
1&u
Wa
oats
m
oars
rVa
93 UI
as
93
,tla
xce,s
9568.80
w
.942.310
- ees .Jas
an
as
an
St
St
an
a
I 05(b) Chat. Liqa T&D
- -
Trar Tanks8 TankcrsL
• - -
-

-
-
)
t
- Isasine nearest oil-site d ond f y 0500 aides. tankers - 5.000 o eaois
120 0 005a 1 10u 1S
•e en - .ms, eno - 500 milesft , 18000 uirtle.
180000 aa rs
ai IadJ4y eat Inlate to, hits aoiMty
• eankrecos letbaeoweameaaa.,. r ... .lank x(soe02)
ISMAJP p oi. . . ...wr r. . .. - - - .
ISMIUP p 9-205(33-19-7275) stabd Randtiit bulk Sqates
- - —. -.
ISubI .011541 Tank Liq Dsqaoaal
—
—
-

I
•
—
9 3
pine
—
-
112(b) OlIsde Tank Debris T8O
sstsuno nearest oft-site oanl lankly 0 100 m8es (or non-has metal debris
15 CYItoad - 09 tiade 0 100 ltat.eItrts, 939 lilIes
141 CV
‘to ( oedty .slhnata tortilla a01usit .
SI0UP p 9-174 (33-19-433te) bulk e waste
ISMAJP p 9-204(33.19-7270) r Itmz bulk eoi,d waste
085111 Troriqaistation -
Offal. 0l iaalI -Tank Debris
Side - Otleita Lariditti Drsclsclids
93
141
CV
5
$1.31’
$151
:
50
$0 -
Rental’.
I to Omit. Trartstistebisi
nta
na
li la
-$80
50 -
‘se rane3
III OLkloethri
rile
lila
We
-$i
$0 -
,eepaqe3
I 1 e) eO oad
lila
lila
lila
8
50 -
see pa e3
Side - Omits Tank D.ta. . D. smal
-915-
50 -
INel Oft - Otisile Term Dedes
5 1.441
:

-------
Pege7ot B
Container Storage area No. I Example
7-Dec-04
Fat OlItclaI Use Only
, 0 CSA Not
Base c i PrOde ,on slat Quail
055 Ba ln-hasme Estimate I
Alternate Closure Actrudres
Direct Coats
Estimated
Ouai46 .
that of
Measure
(inS
Pnat
Extended
Pus
F63Sty
Estimate
F tyEstitrarte stasis 1tabazaa)
lfl-house Govt Ptl Reterel a (w1lta ed) -
(
I 16(0 1
et iii . Tiaitc.vwtalw. - (t.w, flalS.
I,Iq lnr aa.acmc.sma. .
1_rime
I IS
I 17
I 1 5 1 5 1
13 1 4
463(1
l i la
lila
nis
‘rules
c v
634
asS 0
seas
deal
-e e c
- --- --—
—
-
-
=
TT-
611.50 1
—
alaue
lute - OnSite COnC Debris Ulososal
ei Dill - Charts Conc Deters DrapI
n /a
‘v s
n /a
n/s
‘vs
n ’s
- 6 3.0 1 1
at
4&csl
s o
as
63
as
63
as
as
so
IS
ieci nd
slosh 1574515 ar
see earsi 4
.s. .nansd
see nes 4
essume nearest cit-site 0 cs1 fselat 050 rules (at non-has
sonata deters
‘ho tyeStiflrsta ( tlPS MI)’
463 0CY 0 - _
--_--
su .. sy .
RSMIUPP9-174(33-19 0Q06)tsdeh sZeOIatwSStO
ifl,..._.r..i — — n .l — e.,......ai -
I 0 CSA NO 1 TOtal Alternate - - -
Peqce ntD rlte rent.at I 1000% 148% -

-------
Container Storage Area No. I Example
7 .Oec .04
Page 801 8 For OflI lal Use Only
1 0 CSA No
Total Coal Summary --
cost Category
Percent
of Olrect
Cost
Estimated
Coat
Facility
Estimated
- Cost
Coal Range
Direct CostalAitarnats DisPosal
: 5 1 0 0.2 1 1 1
‘his Indirect Coals Prold
fe Adeuty I . erit Costs
700%
552.423
W
!tar e is train 5% to 10% (reduced (ma, 15% (030% ran. to rotted palliat 4we of indirect ada osats in (Its direct coal line items)
‘.efll Ccrdrador GSAIHorne Office
4(23%
539956
-
$546 1
ttange us iron, 3% (06% (Note Faoi4y adds 5% G8A el aitsea)
Range us train 5% tO 10%
Dean. Costs
600%
5 4 .9 3 4
-
W
p.enony DurIng Constuuction
200%
$14978
- W
Range is iron, IS to 3%
enereI Contractor Prold
600%
$44034
S I t
Range is iron, 45(08%
,dlrect CoatalAttemata Disposat
2500%
5187.21
55.46!
Jubtatal I O.CSAN0I
5 836.12 1.
: $1 14.67.
Plus Contingency
1000%
893.61 : 51 1.467
:
rotal t0-CSANo I
$1.02 ,74 : S 120.I31
:
Percent Dillerenlial
: P22%
Coal Ratemace.
RSM1AC ,ete,s to the RSM. n, Remefflalian Cool Data Assmyedes . 2004 EditIon
•RSM.UP• isle., to the RSt.ieans Enwann,entat Remedat.an Coal Data Unit Prtee 2004 EdItion
RSMJ%4C refers to the flSMean , Methar.ceI Coat Data. 2004 Edilitra
•RSM20C refers to the AStoeans Buitdiuig Construclion Cost Data. 2003 Edition
RSM,SWL retain to the ASMeans Wed and tandscapng Cost Data . 2003 Edition

-------
CONTACT INFORMATION & REFERENCES
COSTPRO Training: Steve Jeffords, Tetra Tech EM, Inc., 303/312-8892
COSTPRO Software/Manual: Bob Stewart. USEPA, Region 4, 404/562-8886
RACER Training & Software: Dave Feiertag, Earth Tech, Inc., 303/224-6756
RSMeans Cost Books: 1-800-334-3509
General Cost Estimating Support Bob Stewart, USEPA, Region 4, 4041562-8886
Bob Maxey, USEPA HQ, 7031308-7273
Price Deflator Site: www.bea.doc.gov /
RCRA Cost Estimating Regulations & Directives:
40CFR264.142& 144
40CFR265.142& 144;
OSWER Directive 9476.00-5 (Jan’87)
OSWER Directive 9476.00-6 (Nov’86)
Interim Guidance for Financial Responsibility for Corrective Action: September 30, 2003

-------
Bankruptcy

-------
Financial Assurance and Bankruptcy
Diana Saenz
EPA Office of Regulatory Enforcement
saenz.diana@epa.gov
December 7, 2004
Bankruptcy Law and Environmental Law;
Different Statutory Objectives
Environmental Law
• Compliance on-going obligation; investigations, __________________________________________________________
liabilities, and solutions are long term
• Hold companies responsible for past acts
Bankruptcy Law
• Provide debtors a fresh start
• clams handled through a Plan of Reorganization
Payments approved by Bankruptcy Court
Bankruptcy PrIncIples
• Fresh start for the debtor , -1 , ,/ .41c&t. ‘tA — ic ,- ” J ) L . tc 1 e .€ -
• Maintenance of the status quo __)(4) O M 4’ # ‘
• Filing creates an “estate” that indudes all property of
the debtor
• Orderly liquidation and distnbution to creditors
• Fair and equitable tieati’nent of similarly situated
creditors ___________________________________________________
• Maximum recovery for creditors
• Reorganization or rehabilitation for business
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements oii EPA. States,
or the regulated community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and ,nay nor necessarily reflect the current position of EPA
1

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Key Provisions in the Bankruptcy Code
• Bankruptcy Estate (11 U.S.C. § 521) —
• Autoniatic Stay (11 U.S.C. § 362) ‘ -Q-tt1Z ô , )
• Pnonty of aaims (11 usc. § 507)
• Secured Status (11 USC § 506)
• Abandonment (ii u.s.c § 554)
• Asset Sale (H u.s.c § 363)
• Plan of Reorganization (Ii U.S c § 1129)
• Disdiarge (11 u.s.c. § 524)
Start of the Bankruptcy Case: Petition
Filed
• Debtor fll:s
• Schedules of assets and liabilities ). 7. & _ 4 C /
• Statement of Financial Affairs FA
Debtor continues to operate its business as a
Debtor-in-possession or “DIP” - 4 - ..t- 4 _ - __ -- - - / ‘
Debtor Files a Ch. 11 Petition in U.S. Bankruptcy
Court
• Automatic Stay Imposed — 11 U.S.C § 362
• Prohibits creditors from pur5uIn9.. eyment from the
or acts to
possess or control assets of the estate The
bankruptcy proceeding is the forum to pursue
payment of claims.
• Purpose is to provide a breathing speii to debtor and
preserve the status quo among creditors.
This document is intended to provide guidance to EPA staff It does not crease any legally binding requirements on EPA. States.
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation ofRCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
2

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-- (y
.1 — -—
c:I ,1’ u 42’
4 L
LI
This document is intended to provide guidance to EPA staff it ilocs not create any legally binding requirements on EPA, States,
or the regulated community, and does no! create any rig/it or hc,ie/iz. substantive or procedural This document is not a complete
representation of RCRA or ofEPA ’s regulations and vie is. and ina 1101 necessarily reflect the current position of EPA
( / -e
Bankruptcy Code: Pot ice and Regulatory Power
Exception to the Automatic Stay 11 U.S.C. §
362(b)(4)
• Exception for actions to enforce a governmental
unit’s police and power, including the
enforcement of judgme th than a money
judgment
• Actions to enforce compliance may proceed
• Administrative proceedings may continue
A The crux o Ihi provision is that the debtor has a
7 continuing obligation to comply with environmental
laws even though compliance will require the debtor
to expend funds
Continuing Compliance Obligation Throughout
Bankruptcy Process 28 U.S.C § 959(b)
• courts have uniformly relied on 28 U sc § 959(b)
which requires a trustee or debtor-in-possession to
“manage or operate” the property in its possession in
compliance with state laws and federal laws
• To the extent a debtor continues its business
operations while in bankruptcy it must comply with
all federal and state environmental laws
Environmental Laws — RCRA and Bankruptcy.
• Finanoal Assurance Regulations Notice to EPA
40 CFR § 264 148(a)
EPA regulations require that an owner or operato
q rantor providing a coroorate guarantee, must
notify EPA wi iiñ 10 days if named a debtor —
3

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Environmental Laws — RCRA and Bankruptcy
• Incapadty of Financial Institutions: 40 CFR
§ 264.148(b)
• If the issuing institution providing a trust fund, letter
of credit, insurance, or surety bond goes into
bankruptcy, receives a suspension or revocation of
authonty to act as a trustee, the owner or operator is
deemed without required FA and must secure
alternative compliant FA within 60 days
Environmental Laws — RCRA and
Bankruptcy
• Financial Assurance — Insurance
provided for closure or post-dosure
§ 264.143 (e)(8):
Insurer may not cancel polIcy
during debtor’s bankruptcy, except for
failure to pay the premium. f
— 1 -f-
j 2 f 2 Jtj , /0 / 1
40 CFR § 264.143 Financial f4ssurance for Closure-
Insurance
(e) (8) The policy must provide that the insurer may
not cancel, terminate, or fail to renew the policy
except for failure to pay the premium.. Cancellation,
termination, or failure to renew may not occur and
the policy will remain in fufl force and effect in the
event that on or before the date of expiration . (iv)
the owner or operator is named as a debtor in a
voluntary or involuntary proceeding under Title 11
(Bankruptcy) U.S. Code.
This document is intended to provide guidance to EPA staff Ii does 1101 create any legally binding requirements on EPA. States,
or i/ic regulated community, and does not create any rig/il or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current p05 1 11011 of EPA
4

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(
e 4 -
. i - ’- ?7.’i)li ii
- -r ci
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
Bankruptcy Caselaw - Incapacity of Surety
Company: Requirement to Replace Financial
Assurance
• Safety-Kleen v. Wvche . 274 F 3d 846 (4th Or, 2001)
• Court ruled in favor of SC DHEC that RCRAfi!i noaJ
assurance requirements are an exception to the
automatic stay. __ . ..—————
Safetv-Kleen v. Wyche ,
274 F.3d 846 (4th Cir, 2001)
• The court stated that, flnanoal assurance regulations
serve
• 1) the pnmary purpose of deternng environmental
misconduct
• 2) to promote environmental safety in the design and
operation of hazardous waste faolities
Safetv-Kleen v. Wyche ,
274 F.3d 846 (4th Cir., 2001)
The court must distinguish between situations in
which the state acts pursuant to.
police and regulatory power” and
situations in which the state acts merely to protect its
status as a creditor
Court will apply the pecuniary purpose test to make
,, this determination —_._.———-—
5

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Bankruptcy Caselaw - Pecuniary Purpose Test
• The distinction can be made by looking to the
purpose of the law. If the purpose is to
promote” ublic safety and welfare” or to
“effectuate Pu IC policy” then the e* ë tion
• T1 i4thCir. in S-K noted that, “many laws
have a dual purpose of promoting public
welfare as well as protecting the state’s
pecuniary interest’.
, , - -:. 1 -
ci t -& QjiL)
Injunctive Obligation versus Monetary Claim
• The Bankruptcy Code provides that a claim is (a) a
nght to a money payment, or (b) the nght to an
equitable remedy for breath of performance if the
breach gives nse to a nght of payment
J. EPA’S regulatory compliance obligations are not _____________________________________________________
/‘ claims because the debtor is required to perform,
( is no payment on a debt
/ , 9cJ7/
Bankruptcy Caselaw _____________________________________
Bickford v Lodestar Enemy Inc . No 02-498 JMH (E.D
KY Feb 17, 2004)- Incapacity of Surety Company
• D Crt holds that enforcement of bonding
requirements fall Wit olice and r UI tory
oower exception to th auto
• Bonding requirements are directed at public safety
concerns by providing an incentive against sloppy
mining operations and protecting the public against _________________________________________________________
dangers of unreclaimed land.
This document is intended to provide guidance to EPA staff It does no! create any legally binding requirements on EPA. Stales.
or the regulated community, and does no: create any right or hciiefi: subsza,itive or procedural 7/us document is not a complete
representation of RcRA or ofEPA’s regulations and views. and mai not necessarily reflect the current position of EPA
6

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Injunctive Obligation in Bankruptcy/ RCRA
Cleanup
• In re Torw co Electroni . 8 F. 3d 146 (3rd Or 1993),
cert denied, 114 S. Ct 1576 (1994)
• Cleanup obligation is an ongoing regulatory
obligation that runs with the waste; former owner
liable, emerged from bankruptcy
• RCRA has no nght to monetary recover in the
statute - bankruptcy courts interpret this as an
obligation that cannot be discharged
Property of the Estate 11 U.S.C 541
• Estate is created upon the filing of the bankruptcy
case
• Indudes all legal and equitable interests of the
debtor in property. Also proceeds of or from
property of the estate, tangible or intangible property,
and causes of action 541(a)(1)(6)
• An insurance policy is generally considered property
of the estate -
• EPA secured interest 40 CFR § 264 143(e)(4)
Bankruptcy - Priorities of Claims
• Highest Pnonty - Secured Status § 506
• A claim is secured only to the extent of the value
of the property. [ Perfected Liens; Insurance
Proceeds; Setoff § 553]
• Pnority claims must be paid in full before lower
pnonty darms are paid ______________________________________________________
• Claims of equal pnonty are paid pro rate
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA s regulations and views, and may not necessarily reflect the current position of EPA
7

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Bankruptcy - Priority of Claims — Administrative
Expense
Administrative Expenses are the actual and
necessary costs of preserving the Estate” § 503
§ 507 -
Attorneys fees
• Compliance/ costs of doing business - ,- ,
• Preservation of Debtor owned propert — hld c . ’C& ° —.
• Post.Pet on!
Ban kruptcy - Priority of Claims - Overall
• Pnonty Claims: Secured then Administrative Expense
• General Unsecured aaims
• Subordinated aaims (Chapter 7 pre-petition
penalties)
• Equity Interests (stock)
Treatment of Different Financial Assurance
Mechanisms held by a Debtor Owner/Operator in
Bankruptcy ___________________________________________________
• Letter of Credit c f.,S .JA
Trust Fund
Insurances _______________
Financial Test
Corporate Guarantee (Is Guarantor inch 11 )
This document is intended to provide guidance to EPA staff it does not create any legally binding requirements on EPA. States.
Or tile regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
8

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Bankruptcy Caselaw: Financial Assurance
• Letters of Credit
• InreWarEapleConstructionCo . 283BR 193(SD
W. Va. 2002)
Letters of credit give state direct rights that are
not property of the estate _______
Bankruptcy Caselaw: Liability of Surety
• Illinois v Environmental Waste Resources . 782 N E
2d 291 (III. App. 3d., 2002)
• (1) Automatic stay did not apply - the state was not ______________________________________________________
attempting to enforce a money judgment against
EWR
• (2) Surety contracts are to be strictly construed - the
contract on its face sets the maximum liability of
Union Paofic (Surety) at approximately $1 24 million,
Surety will not be discharged from liability on the
contract until it has paid out an aggregate amount
equal to the penal sum on the bond.
Bankruptcy Caselaw - Surety Bond. Property of
the Estate
- InreWarEaaleConstructionCo.283BR 193(SD
W Va. 2002) ___________________________________________________
• Surface mining performance bonds are property of
the estate but letters of credit give state direct nghts
that are not property of the estate ___________________________________________________
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA ’s regulations and views, and may not necessarily reflect the current position of EPA
9

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Bankruptcy Caselaw Insurance
In re Eauinpx Oil Co. , 300 F 3d 614 (5ffi Cir 2000)
Proceeds for third party insurance policy covenng oil
spill remedration costs were property of the estate
because such policies were analogous to fire policies
rather than liability policies whose proceeds would
orcirnanly be payable only for the benefit of those
harmed by the insured.
Distinguish RCRA Subtitle C Closure and Post-
Closure Insurance
• Because the PA exerts control in directing the insurance
payments and because the debtor does not have an automati
nght to receive the insurance proceeds, a RCRA FA insurance
policy is distinguishable from those at issue in Eauinox
• Insurance policies may be considered property of the estate,
but EPA will be treated as secured creditor for the insurance
proceeds.
Language Required by RCRA Subtitle C Closure and
Post-aosure Insurance Policies gives EPA Control in the
Release of Insurance Proceeds § 264 151(e)
• (1) The insurer pays out on a policy at the direction
of the PA (and to parties that the PA specifies);
• (2) Rh may withhold reimbursements if the PA has
reason to believe that the closure costs will be
significantly greater than the costs of the policy;
• (3) owner or operator may request reimbursement
for partial closure only if the remaining value of the
policy is sufficient to cover the maximum cost of
closing the facility
This document is iniended to provide gwdance to EPA staff It does not create any legally binding requirements on EPA. Slates.
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA s regulations and views, and may not necessarily reflect the current position of EPA
10

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Bankruptcy Caselaw - Insurance
In re Allied Products Corp. , 288 B.R. 533 (Bankr N D
I II. 2003)
Debtor cannot buy back liability insurance
policy without adequately protecting daimants
who might have a right to recovery under the
policy
SC DI-IEC v. Commerce and Industry Insurance
C , 4th Cir. June 8, 2004 2004 WL 1244270
• RCRA provides for direct action against a guarantor
providing financial responsibility to an owner or operator,
in the event of the owner or Operator’s bankruptcy, and
for a daim ansing from conduct for which financial
responsibility is required. 42 USC § 6924(t)
• Court determined, based in part on the particular
language of a state law and a questionable interpretation
of RCRA, that the provision could not be used to recover
directly from a third party insurance policy for CERCLA
daims “spnnging from past deanup efforts.” The Court
left open the possibility of a recovery for claims related
to “present and future threats”.
Bankruptcy Caselaw: Failure to Provide Financial
Assurance
• Cumberland Farms. Inc v Florida Deoartment of
Environmental Protection . 116 F 3d 16 (1st Cir,
1997)
• UST owner and operator was required to maintain
financial assurance regardless of bankruptcy
Penalties for financial assurance violations are an
allowed administrative expense claim
This document is intended to provide guidance to EPA staff It does 1101 create any legally binding requirenielils on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
11

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Challenges in Bankruptcy: Other Issues
This document is intended to provide guidance to EPA staff It does not creole any legally binding requirements on EPA. States.
or the regulated community, and does no: create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
• Accesstolnfom,ation
• Question 17
• Schedule C
• Abandonment
• Asset Sales
Information on Debtor
• Included in Debtors bankruptcy filing is a Finanoal
Disdosure Form required under the Rules of
Bankruptcy Procedure
• Question 17: Environmental Information —Debtor is
required to list the name and address of every site
which the Debtor has received notice in wnting by a
governmental unit that it may be liable or in violation
of an environmental law.
Abandonment of Property of the Estate: 11
U.SC §554
• A trustee or party in interest may seek to abandon
property that is burdensome to the estate. The party
that is seeking the abandonnient must first give
notice to all interested parties and the court will hold
a hearing.
• A number of trustees and debtors•in- possession
have sought abandonment when the cleanup costs of
the property exceed the property’s as-clean value
12

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Bankruptcy Caselaw — Abandonment:
Midlantic National Bank v. NJ Deo’t O f Envtl Prot .
474 U S 494 (1986)
• Supreme Court held that abandonment should not be
permitted in violation of state law except on conditions
that insure the protection of public health and the
environment
• However, the Court also stated that abandonment
should not be prevented by state laws that are not
reasonably calculated to protect against “imminent and
identifiable harm”.
Abandonment - Considerations
Cases decided after Mudlantic range on whether and
under what circumstances contaminated property
may be abandoned (Ch. 7 and Liquidating 11)
• Considerations by the Court indude’
• (1) immediacy of the harm,
• (2) duration of the cleanup (long term vs short term),
• (3) availability of unencumbered assets in the estate
Abandonment
• Rare in Reorganizing Oi 11
• On confirmation, in a reorganizing Ch. 11, abandoned
property revests with the estate property - all owned
by newly emerged corporation.
This docu ment is intended to provide guidance to EPA staff ft does not create any legally binding requirements on EPA. States.
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation oJRCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
13

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Asset Sales 11 U.S.C. § 363
Things to look for
• Sales to Buyers Free and Clear of Successor
Liability
• Exduded Assets
• Assumptions of Liability
Disclosure Statement and Plan of
Reorganization
• Remain Vigilant — Debtor may charactenze
settlement terms differently in the Plan.
• Things to Look for
• Discharge Language
• Vesting Free and Clear Language
• Exculpation and Limitation on Liability
• Release of Non-Debtors
• Feasibility
Bankruptcy Caselaw - Plan of Reorganization Qtic
Gas & Electric Co v. People of the State of California .
350 F 3d 932 (9th Or 2003)
• PG&E proposed a plan that would be illegal under CA
utility law, under the theory that the bankruptcy code
allows for a broad preemption of “nonbankruptcy
laws .
• Proposed Plan would impact numerous federal and
state laws (ie., envtl permits)
• gm Or: Nonbankruptcy law Is expressly preempted by
a Reorganization Plan only to the extent that such
law relates to financial condition
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA. States,
or the regulated co?nn:unity. and does no! create any rig/Il or benefit, substantive or procedural This docu neni is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
14

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Bankruptcy Code: Requirements for the Plan
• Proposed in Good Faith and not by any means
forbidden by law § 1129(a)(3)
• Feasibility — Not likely to be followed by another
bankruptcy filing and Reorganization § 1129(a)(11)
• Feasibility — Provides adequate means for
implementation § 1123(a)(5)
• Complies with Code, treats like dams similarly
§1129(a)(1) §1123(a)(4)
• Pays Admin Exp In full §1129(a)(9)
Consequence of Confirmation of the Plan
• Discharges the Debtor from ali claims that arose pnor
to confirmation
• Revests property from the estate to the Debtor
• Binds all parties to the terms of the Plan (regardless
of how these parties may have voted on the Plan)
‘ itc t- e 7 i2eJ - a (4 4-pr- - -
In re CMC Heartland Partners , 966 F.2c1 1143
(7th Cir. 1992)
• When a reorganized debtor emerges from
confirmation as the owner of contaminated property,
its liability spnngs anew based on the reorganized
debtor’s status as the current owner under
environmental I ______________________________________________________
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RGRA or ofEPA’S regulaiions and views, and may not necessarily reflect the current position of EPA
15

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Filing aatms
• Proof of Claim Bar Date — For Government parties
this us a minimum of 180 days from the date the
Debtor filed for bankruptcy. § 502(b)(9) cLe . ,J _ .-
• Administrative Expense Application —
• Debtor may object to claims — begins a daim
objection process
• Estimation of Claims — Court will determine claim
amount through Estimation Hearing (where waiting ______________________________________________________
fOr liquidation amount of claim would delay
administration of case). §502(c)
__- Q L
• www.uscourts.gov
• Amencan Bankruptcy Institute (ABI)
• www.abiwortd.org
• Bankruptcy websites - Company Inf 9 mation
• www bankruotcvdata corn 2
• www trumbullarouo corn
-Th
• EPA and DO) Bankruptcy workgroup with contact
assigned for each Region.
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
16

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Trust Funds

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TRUST FUNDS
RCRA Subtitle C Closure and Post-Closure
Finanoal Assurance Training
Seattle, WA
December 7-10, 2004
AP C ,. dPA P. E! PAo M,.PA.p .T p
Goals
• Enhance your understanding of financial mechanisms
as a means of demonstrating financial assurance.
• Discuss the challenges of working with vanous
finanoal mechanisms.
• Offer some tips for ensunng success
• Request your feedback to improve the training
matenals.
RA..t EPA PA . lS A... . raSp
- ii Scope of Presentation
• RCRA Subtitle C Requirements
• Subpart H, 40 CFR 264 and 265
• Closure and Post-Closure Care
• Third Party Liability Coverage
• Combination of presentations, case study exercises, ______________________________________________________
and panel discussion
CPA A.C0, ...d P..ICI..... EPA fl . . .&SA.. . ... T, .k,I .
This document is intended to provide guidance 10 EPA staff It does nor create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA c regulations and views, and may not necessarily reflect the current position of EPA
1

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- j Key Points
• The Basics..
• Challenges & Tips for Success
• Case Study Exercise
Fiesta Chemical Company, Inc
• Final Thoughts
• Panel Discussion
LA *I.CO..atd P..,CLAse. EPA PA nSS A..,nn. b.InAq
The BasiCs: What is a Trust Fund?
• A Trust Fund us an agreement between three
parties.
• Party 1 = the Grantor = the Owner/Operator
• Party 2 = the Trustee = the Financial Institution
• Party 3 = the Beneficiary = the Regulator
•. C C1 . PiCs ICApis . ..
The Basics: What is a Trust Fund?
• For purposes of financiai assurance, the Grantor (or
owner/operator of a RCRA Subtitle C facility)
transfers funds to the financiai institution.
• The funds are held in trust for the purpose of paying the
closure/post closure expenses
• The Grantor no ionger has ownership of the corpus
of the Trust.
• The Trustee manages and administers the trust for
its designated purpose.
tS COn,.wd P,a.a EPA PLAnS M•..n• TaMPA S
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit. substantive or procedural This document is not a complete
representation ofRcRA or ofEPA’s regulations and views, and ma ;’ not necessarily reflect the current position of EPA
2

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- The Basics: What is a Trust Fund?
• Relatively low nsk mechanism for the Regulator:
• Funds are immediately available for use by the Regulator.
• 4, the Trustee is only obligated to pay out up to the
amount that is accumulated in the trust at the time of
dosuref post-closure
• High cost mechanism for the Company:
• Company must deposit u the current estimated
dosure/post-ciosure ts unto a rust Fu
• Trustee typl lly will charge additional fees for the
administrative semces it provides.
‘ i i 7. f,2’I
U
- The Basics: Howa Trust Fund Works
• The finanoal institution must be authorized to act as
a Trustee.
Trust operations are regulated and examined by an
outade regulatory agency (e g, Office of the Comptroller
of the Currency)
• The Trust Fund can not be recalled or revoked
without the written consent of the Regulator.
• The text of the Trust Agreement must be identical
to the wording under 40 CFR 264.151(a).
The Basics: Required Documents
In addition to providing an onginally signed copy of the
Trust Agreement, the Company must provide
Schedule A = Lists the faalities covered by the fund with
current dosure/post-dosure cost estimates,
• Schedule B = Lists all transfer of funds (or property) to
establish the trust fund, and
• A certification acknowledging the Company’s corporate
status.
Trustee must send an statement to the Regulator...
confirming the value of the trust fund
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
she regulated community, and does not create any right or benefit, substantive or procedural This document is no: a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
3

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..
A ,l a1 Lt
/ cLw
6i-
This document is intended to provide guidance to EPA staff Ii does not create any legally binding require?nents on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This docu,neni is not a complete
representation 0JRGRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
- The Basics: Pay-In Period
• Payments into the Trust Fund are equal to:
• (CE-CV)+Y,where
• CE Current dosure md/or post-dosure estimate
• CV=CurrentvaiuatjonoIthetru stfur id
• Y Numerofyearsremaintnginthepay-inpenod
• Company may accelerate payments into the trust.
• Pay-In Period: Twenty (20) years or the remaining
operating life of the facility as estimated in the
dosure plan, whichever is shorter.
I0
- The Basics: Pay-In Period (continued)
- Requirements for permitted facilities are nearly
identical to those for intenm status facilities.
The exceptions for permitted facilities are:
• Pay-In Period Tem of the initial RCRA permit or the
re ngJdJa wb (beyens h
• lust Agreement Submitted at least 60 days pnor to first
receiving waste
• Initial Payment & Receipt Made prior to waste first being
received
•CmadPaI ..fl T..S1
- The Basics: Change(s ) lfl Costs
• The Company must update Schedule A and submit it
to the regulator within 60 days.
• If cost estimates increase, the Company must:
• Deposit sufficient funds so that the value of the Trust Fund
equals the current cost estimates, or
• Obtain alternate financial aasurance to cover the shortfall.
• If cost estimates decrease, the Company may
request that the Regulator release the funds in
excess of the current cost estimates.
.C00.. flAFk.dS*a.. I*b 12
4

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L 4 #7_aJL
This document is intended to provide guidance to EPA staff Jr does no: create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCR.4 or of EPA ‘.c regulations and views, and may not necessarily reflect the current position of EPA
— The Basics: Drawing on a Trust Fund
After beginning dosure, the Company may request
reimbursement for expenses from the Regulator.
Regulator exercises judgement in determining which (if
any) expenses are reimbursable from the Trust Fund
Regulator can withhold reimbursement from the Trust
Fund If it believes that costs of closure/post-dosure may
exceed the current value of the Trust Fund.
If the Company does not perform dosure/post
dosure, Regulator may direct payment from the
Trust Fund to pay for such activities.
IA SU.CO...a* P..ICIn.,. EPA FA,..SIS A....T,.Ws
- Liability Requirements
• Trust Fund for Liability Coverage (see complete reguiremm
at §264 147 (j) and §265 147(j)]
• Wording must be identical to §264 151(m)
• Must be fully funded (i.e., no pay-in penod is allowed)
- Challenges
• Accurate and current cost estimates for dosure and
post-dosure are essential to ensure that the Trust
Fund is appropnately valued.
• There is a nsk that the Trust Fund will not be fully
funded when money for dosure/post-closure care is
needed, if the Company is allowed to pay into the
Trust Fund over time.
5

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11, 1
&u
1 2 )
t 4M
T
a,
Mr Cl, /57 ( :t ) - I LL t7 -
2 w- -
-t L L L)
4 e t
e; 1 ,e
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not crease any right or benefIt, substantive or procedural This document is nor a complete
representation oJRCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
Challenges (continued )
• Trust Funds can be the most costly alternative for
the Company.
Requires it to set aside the full amount of current
estimated costs of future closur post-ciosure care
May constrain its ability to finance alternative
investments
• The Trustee may draw from the Trust Fund, if the
Company is unable (or does not) pay the necessary
adminis abve fees.
Tips for Ensuring Success
• Proofread all documents to ensure the Trust
Agreement conforms to wording requirements.
• Establish and maintain contact with the Trustee
managing the Trust Fund.
• Place the onginaI, signed document(s) in a safe
place (i.e., a fire-proof safe) with no public access.
S .C T .. . Il
Tips for Ensunng Success (continued)
• Remember :
• Only the Regulator authonzes the Trustee to make
payments from the Trust Fund
• Only the Regulator can aiter or recali the Trust Fund.
• The Company (not the Regulator) is responsible for
paying all administrative fees
• The Company can, however, direct how the Trust
Fund is invested.
6

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Case Study Exercise : Fiesta Chemical Co.
• Problem Set 1 : Calculate the first installment
payment into the Trust Fund.
Suggested Time 10 minutes
• Problem Set 2 ’ Review the draft Trust Fund
Agreement. Outline your areas of concern (if any)
and highlight any additional information you might
want to request.
• Suggested Time: 20 minutes
A CC.n — P ice.. EPA PP..W lana.T. U
Case Study Exerase : Fiesta Chemical Co.
• Problem Set 3 ’ Determine how the updated post-
dosure cost estimate report and annual Trust Fund
valuation changes the scheduled installment
payment.
• Suggested Time. 10 minutes
• Problem Set 4 ’ Does Fiesta Chemical company, Inc.’s
Trust Fund provide you with adequate financial
assurance for purposes of closure and post-dosure
care?
• Suggested Time 10 minutes
Ls.A c • p• — d P ’CJnw• Enck..,sAaw.... 1.
Final Thoughts -
• As with all mechanisms, the Regulator must:
• Monitor the ñnanciai status of the Company the ______________________________________________________________
financial institution
• Act quickly if there is the slightest indication of financial
distress
• Ensure the Trust Fund is updated to reflect jg
closure arid post-dosure cost estimates
• If the Regulator is not careful, administiative fees
can (and do) erode the value of the Trust Fund.
En CO..nS P.lCisw. EPAFI.a.SA... TS.p 2 ’ __________________________________________________________________
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not creote any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
7

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TRUST FUND: CASE STUDY
FIESTA CHEMICAL COMPANY, INC.
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA. States, or the
regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA regulations and views, and may not necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Table of Contents
I. Background 3
II. Problem Set 1: Closure and Post Closure Cost Estimate Report 4
Ill. Problem Set 2: Trust Fund Documentation 8
IV. Problem Set 3: Updated Trust Fund Cost Estimate Report and Fund Valuation 24
V. Problem Set 4: Conclusions and Recommendations 29
VI. Problem Set 5: Individual Payment Exercises 32
RCRA Subtitie C Closure and Post-Closure: EPA Financiai Assurance Training 2

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the
regulated Comniuiiuy, and does no! create any right or benefit, substantive or procedural This document is no! a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
Trust Fund: Case Study
Fiesta Chemical Company, Inc.
Background
On September 1, 2003, EPA Region Z sent a letter to Fiesta Chemical Company, Inc. rejecting its
insurance policy with Asta Baby Insurance Limited as a viable means of demonstrating financial
assurance for closure and post-closure care at its Party Central, Inc. and Sugar Bowl Industries
facilities. In part, the regulator made its determination because the post-closure care period for both
facilities will last beyond the commutation date of the insurance policy (i.e., January 1. 2005).
As the regulator, you stipulated that the company must put an alternative financial assurance
mechanism in place immediately. In response, Fiesta Chemical Company, Inc. agreed to establish a
trust fund equal to the amount of the company’s current estimated closure and post-closure costs.
However, Fiesta Chemical Company, Inc. asked that the regulator allow the company the flexibility of
funding the trust fund in two installments. The first payment would be made on October 1, 2003, and
the second payment would be made on October 1, 2004, two months prior to the commutation date of
its insurance policy with Asta Baby Insurance Limited.
The following documents were submitted for your review by Fiesta Chemical Company, Inc. for
purposes of complying with the trust fund requirements, and in keeping with the timeline for reporting
requirements under Subpart H of 40 CFR 264.
• A report itemizing the current estimated closure and post-closure costs for Party
Central, Inc and Sugar Bowl Industries, as of August 31, 2003.
• A draft Trust Fund Agreement between Fiesta Chemical Company, Inc. and
National Bank, Inc., dated for October 1, 2003, including Statement A and
Exhibit A. Pnor to formaltzing its Trust Fund Agreement with National Bank,
mc, Fiesta Chemical Company, Inc. submitted the copy to EPA for its review
and comment. EPA received the draft on September 10, 2003.
It is important to note that you have already researched National Bank, Inc. Your research reveals
that National Bank, Inc. has the authority to act as a Trustee, and its trust operations are regulated
and examined by a Federal (or State) agency You verified your findings with the Comptroller of the
Currency in the Trust Division of the U.S. Department of the Treasury, and you contacted the bank’s
President to confirm this information.
RCRA Subtitie C Ciosure and Post-Closure: EPA Funanciai Assurance Training 3

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Closure and Post-Closure Cost
Estimate Report
Problem Set 1 :
With the information and worksheet provided, calculate the first installment payment into the Trust
Fund.
Documents for your review include:
> Closure and Post-Closure Cost Estimate Report, dated August 31, 2003 (page 5)
> Answer Table I (blank template to assist in your review)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post•Closure: EPA Financial Assurance Training 4

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Closure and Post-Closure Cost
Estimate Report
Table 1: Current Estimated Closure and Post-Closure Cost Report
for Party Central, Inc. and Sugar Bowl Industries
U.S. EPA Identification
Number of Facility
Name of Facility
Address of
Facility
Closure and Post-Closure
Cost Estimate as of 8131/03
DED-1 23-456-789
Party Central, Inc.
Marshfield,
USA 98765
$1,500,000
DED-987-654-321 Sugar Bowl Industries Marshfie ld,
USA 98765
TOTAL
$800,000
$2,300,000
Note: Assume that the closure and post-closure cost estimates itemized in this report are current, and that you
agree with them
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 5

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Answer Table 1, Closure and Post-Closure Cost Estimate
Report
All payments are calculated using the formula:
CE-CV
Y
Where:
CE = the current cost estimate
CV = the current value of the trust fund
Y = the number of years remaining in the pay-in period. In this case, number of years equates to
the number of installment payments between the signature date of the Trust Fund Agreement
and the commutation date of Fiesta Chemical Company Inc.’s insurance policy.
What is Fiesta Chemical Company, Inc.’s first installment payment on October 1, 2003?
CE =
CV=O
Therefore:jt 0
‘E-CV = $ /./. 5 ....
Y 2
Assume that the signature date of the trust fund is October 1, 2003.
iot3°
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 6

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Trust Fund: Case Study Answers
Fiesta Chemical Company, Inc. — Answer Key for Table 1, Closure and Post-Closure Cost
Estimate Report
All payments are calculated using the formula:
CE-CV
V
Where:
CE = the current cost estimate
CV = the current value of the trust fund
Y = the number of years remaining in the pay-in period. In this case, number of years equates to
the number of installment payments between the signature date of the Trust Fund Agreement
and the commutation date of Fiesta Chemical Company Inc.’s insurance policy.
What is the amount of Fiesta Chemical Company, Inc.’s first installment payment on October 1,
2003?
CE = $2,300,000 = (Current (updated) cost estimate)
CV = $0 = (Current (updated) value of the trust fund)
V = 2 = (Number of payments remaining until the insurance policy can be commuted)
Therefore:
CE - CV = $2 ,300.000 - 0 = $1,150,000
Y 2
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 7

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
Problem Set 2 :
Review the draft trust fund agreement provided by Fiesta Chemical Company. Outline your areas of
concern (if any) and highlight additional information you might want to request from the company.
Use Answer Table I to organize your thoughts. A copy of the regulatory wording for the trust fund
agreement is attached.
Documents for your review include:
> Draft Trust Fund Agreement between Fiesta Chemical Company, Inc. and National
Bank, Inc., received September 10, 2003 (Note, you should assume that the Trust Fund
Agreement will be formally signed on October 1, 2003) (page 9)
> Answer Table 2 (blank template to assist in your review)
> Regulatory Wording for Trust Fund Agreement and Certificate of Acknowledgement,
as specified at 40 CFR 264.151 (a) (page 19)
Recommended Review Time 20 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 8

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
Draft Trust Fund Agreement and Attachments
Trust Agreement, the “Agreement,” entered into as of October 1, 2003 by and between Fiesta Chemical
Company, Inc., a Marshfield, USA corporation, the “Grantor,” and National Bank, Inc incorporated in the State
of Elsewhere, 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 authonzed 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 distnbutions 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 wnting, 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.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 9

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
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 pnncipal 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
A any of their affiliates as defined in the Investment Company Act of 1940, as amended, 15 U.S C.
) ..J8Oa -2 (a), shall not be acquired or held, unless they are secunties or other obligations of the
(J .fr 4 I 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 distnbution 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-1 et seq., including one which may be created, managed, underwntten,
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 authonzed 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 secunties 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
RCRA Subtitle C Closure and Post-Closure: EPA FinancIal Assurance TraIning 10

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
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 secunties are part of the Fund;
(d) To deposit any cash in the Fund in interest-beanng 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
govemment; 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 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 junsdiction 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
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 11

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
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. 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 18 Choice of Law. This Agreement shall be administered, construed, and enforced according
to the laws of the State of Elsewhere.
Section 19. 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 wntten
The parties below certify that the wording of this Agreement is identical to the wording specified in 40 CFR
§264.151(a)(1) as such regulations were constituted on the date first above written
Karen Tyler
Vice President and CEO, Fiesta Chemical Company, Inc.
Karen Tyler
Thomas Rhodes
President, National Bank Inc
Thomas Rhodes
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 12

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
SCHEDULE A
Fiesta Chemical Company, Inc.
do Hip Hop Poste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
Regulated Facilities:
EPA ID No. DED-123-456-789
Party Central, Inc.
Marshfield, USA 98765
Closure and Post-Closure Cost Estimate: $2,300,000
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 13

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
EXHIBIT A
Fiesta Chemical Company, Inc.
do Hip Hop Poste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
All orders, requests, and instructions by the Grantor to the Trustee shall be in writing, signed by such
persons as are designated below
Karen Tyler Vice President and CEO
Edward Murphy Treasurer
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 14

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Answer Table 2, Trust Fund Documentation
Document Reviewed
Issue(s)/Points of Consideration
Questions /Additional Information to
Request
Trust Fund
Agreement
6’ “ 7— I.- j d

>
.
r
‘-
Schedule A
>
>
>
.
.
—
Schedule B
>
>
—
Exhibit A
>
.
Certificate of
Acknowledgement
—
>
P
P

RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
15

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Trust Fund: Case Study Answers
Fiesta Chemical Company, Inc. — Answer Key for Table 2, Trust Fund Documentation
Document
Reviewed
Issue(s)/Points of Consideration
Next StepslAdditional Information to
Request?
Trust Fund
Agreement
The Irrevocability and Termination
clause were not included in the Trust
Fund Agreement. This clause
guarantees that trust fund can not be
changed or recalled without the consent
of the regulator, National Bank, Inc.,
Fiesta Chemical Company, Inc.
There is no reference in the draft
Agreement stipulating that both
installment payments must be received
by January 1, 2005 Because National
Bank Inc. need only provide the amount
of funds accumulated in the trust fund
for closure and post-closure expenses, it
is integral that both installment
payments be made prior to January 1,
2005; that is, the date when the policy
can_be_commuted.
A corrected, originally signed duplicate
Trust Fund Agreement containing the
Irrevocability and Termination clauses
Although the Trust Fund Agreement
does not formally require such
language, the regulator should require
that financial assurance is maintained
continuously.
Schedule A
Schedule A of the Trust Fund
Agreement lists only one facility — Party
Central, Inc.
- The Closure and Post-Closure Cost
Estimate report lists total closure and
post-closure cleanup costs of $2.3
million for two facilities, Party Central,
Inc and Sugar Bowl Industries
- It is unclear what accounts for the
discrepancy between the Trust Fund
Agreement’s Schedule A and the
closure and post-closure cost report It
may be that Sugar Bowl Industries was
simply overlooked, or sold, or closed
The regulator should follow up with the
facility to confirm Sugar Bowl Industries’
status.
Based on the regulator’s findings, Fiesta
Chemical Company, Inc must submit a
revised Trust Fund Agreement, with fi
requisite attachments.
Schedule B
- Schedule B, which proves the transfer
of funds to establish the trust fund, . a.

Company, I
- It may be that this Schedule was not
provided, as Fiesta Chemical Company,
Inc. had submitted only a of the
Trust Fund Agreement.
Nonetheless, the regulator should be
careful to note the absence of Schedule
B in its response to Fiesta Chemical
Company, Inc. and insure that the final
Agreement includes a completed
Schedule B.
Exhibit A
Exhibit A is fine as drafted, no issues
were identified
. No follow up action is necessary.
RCRA Subtitle C Closure and Post.Closure: EPA Financial Assurance Training 16

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Trust Fund: Case Study Answers
Fiesta Chemical Company, Inc. — Answer Key for Table 2, Trust Fund Documentation
Document
Reviewed
Is
sue(s)/Points of Consideration
Next Steps/Additional Information to
Request?
Certificate of
ent
This document, which verifies the
company’s corporate status, was not
submitted by Fiesta Chemical
Company, Inc.
It may be that this Certificate was not
provided, as Fiesta Chemical Company,
Inc. had submitted only a draft of the
Trust Fund Agreement.
Acknowledgem
Nonetheless, the regulator should be
careful to note the absence of the
certificate in its response to Fiesta
Chemical Company, Inc. and insure that
the final Agreement includes a
completed certificate.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 17

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Trust Fund: Case Study Answers
Fiesta Chemical Company, Inc. — Answer Key for Table 2, Trust Fund Documentation
Formal Receipt of Deposit Letter
National Bank, Inc.
123 Federal Road
Stonefield, Elsewhere 56789
October 5, 2003
Ms. Karen Tyler
Fiesta Chemical Company, Inc.
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
Subject: Formal Receipt of Deposit
Dear Ms. Tyler:
This letter acknowledges the receipt of $1,150,000 in cash on October 1, 2003 for deposit into the
Fiesta Chemical Company, Inc. Trust Fund Account Number A-12345.
Sincerely,
Thomas Rhodes
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 18

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
Regulatory Wording for Trust Agreement,
as specified at 40 CFR 264.151 (a)
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
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 19

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
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-1 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 secunties held in the Fund in its own name or in the name of a nominee and to hold
any secunty 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 secunties 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;
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 20

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
(d) To deposit any cash in the Fund in interest-beanng 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 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 resignaUon 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
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 21

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
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 appropnate 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.
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)(1) as such regulations were constituted on the date first above written
(Signature of Grantor)
(Title]
Attest
[ Title]
[ Seal]
[ Signature of Trusteel
Attest
[ Titie]
[ Seai]
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 22

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Trust Fund Documentation
Regulatory Wording for Certificate of Acknowledgement,
as specified at 40 CFR 264.151(a)
State of
County of
On this Idate], 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 hen his name thereto by like order.
[ Signature of Notary Public]
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 23

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Updated Trust Fund Cost
Estimate Report and Fund Valuation
Problem Set 3 :
In response to your recommended changes to the Draft Trust Fund Agreement, Fiesta Chemical
Company, Inc. resubmitted corrected documents that meet with your approval. Further, the company
submitted a corrected, originally signed duplicate Trust Fund Agreement, including all requisite
schedules and exhibits, dated October 1, 2003.
Nearly a year later, on September 15, 2004, you receive a current (updated) closure and post-closure
cost estimate report, as well as a trust fund valuation confirmation from National Bank, Inc. Review
the information provided to determine its effects on Fiesta Chemical Company, Inc.’s next scheduled
installment payment.
Documents for your review include:
> Current (Updated) Closure and Post-Closure Cost Estimate Report, dated August 31,
2004 (page 25)
> Annual Trust Fund Valuation Confirmation from National Bank, Inc., dated
September 14, 2004 (page 26)
> Answer Table 3.(blank template to assist in your review)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 24

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Updated Trust Fund Cost
Estimate Report and Fund Valuation
Table 2: Current (Updated) Estimated Closure and Post-Closure Cost Report
for Party Central, Inc. and Sugar Bowl Industries
U.S. EPA Identification
Number of Facility
Name of Facility
Address of
Facility
Closure and Post-Closure
Cost Estimate as of 8/31/04
DED-123-456-789
Party Central, Inc.
Marshfield,
USA 98765
$1,500,000
DED-987-654-321
Sugar Bowl Industries
Marshfield,
USA 98765
$1,000,000
TOTAL
$2,500,000
Note. Assume that the closure and post-closure cost estimates itemized in this report are current, and that you
agree with them. Further assume that these estimates are current, and therefore do not need to be adjusted for
inflation.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 25

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Updated Trust Fund Cost
Estimate Report and Fund Valuation
Trust Fund Valuation Confirmation
National Bank Inc.
123 Federal Road
Stonefield, Elsewhere 56789
September 14, 2004
Ms. Karen Tyler
Fiesta Chemical Company, Inc.
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
Subject: Annual Trust Fund Valuation Statement
Dear Ms. Tyler:
As of September 1, 2004, the value of the Fiesta Chemical Company, Inc. Trust Fund, Account
Number A-12345, is $1,250,000.
This value reflects an increase of $105,000 due to investment income and a decrease of $5,000 due
to fees.
Sincerely,
Thomas Rhodes
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 26

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Answer Table 3, Updated Trust Fund Cost Estimate Report
and Fund Valuation
All payments are calculated using the formula:
CE-CV
V
Where:
CE = the current cost estimate
CV = the current value of the trust fund
V = the number of years remaining in the pay-in period
Fiesta Chemical Company, Inc.’s first installment payment on October 1, 2003:
CE = $2,300,000
cv= $0
V = 2years
Therefore:
CE - CV = $2.300,000 - 0 $1,150,000
V 2
What is the amount of Fiesta Chemical Company, Inc.’s second installment payment
on October 1, 2004?
CE =
CV =
Therefore:
CE-CV= $ = $
V
RCRA Subtitie C Closure and Post-Closure: EPA Financial Assurance Training 27

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Large Group Discussion, Conclusions and
Recommendations
Problem Set 4 :
In light of your findings, discuss whether or not Fiesta Chemical Company, Inc.’s Trust Fund provides
you with adequate financial assurance for purposes of closure and post-closure. What (if any) are
your next steps in dealing with Fiesta Chemical Company, Inc. 7 Use Answer Table 4 to organize your
thoughts. Be prepared to discuss your findings and recommendations with the larger group.
Documents for your review include:
> Answer Table 4 (blank template to assist in your review)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post-Ciosure: EPA Financiai Assurance Training 29

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Answer Table 4, Conclusions and Recommendations
Question 1: Does the Trust Fund provide you with adequate financial assurance for purposes
of closure and post-closure at the Party Central, Inc. and Sugar Bowl Industries facilities?
Yes No
Question 2: What (if any) are your next steps in dealing with Fiesta Chemical Company, Inc.?
>
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 30

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Individual Payment Exercises
Problem Set 5 :
Review and complete the two example payment exercises. The parameters of these exercises extend
beyond this case study, however the worksheets provide additional in-depth payment examples.
Documents for your review include:
> Installment Payment(s) Worksheet Examples
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 32

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Installment Payment Worksheet Examples
Example 1 :
Assumptions
> The facility has interim status
> The trust fund covers closure only
> The remaining operating life of the facility is 25 years
> The current closure cost estimate is $80,000
> The inflation factor is 1.15
Calculations
For the first payment,
CE =
Cv =
Y=
The ref ore
CE-CV = $__________ = $
V
To compute the second payment, assume that the value of the trust fund is only $3,150 after the first
year (the trust’s investments were not very successful). The second payment is calculated as follows:
CE =
Cv =
Therefore:
CE-CV = $___________ = $
V
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 33

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Trust Fund: Case Study
Fiesta Chemical Company, Inc. — Installment Payment Worksheet Examples
Example 2 :
Assumptions
> In Year 1, the facility has interim status
> In Year 2, the facility obtains general status with a 10-year permit
> The remaining operating life of the facility is 15 years
> The total current cost estimate is $150,000
> The inflation factor is 1.11
Calculations
For the first payment,
CE =
Cv =
Therefore:
CE-CV = $___________ = $
Y
In the second year, the facility is in general status, and a new pay-in period will apply. The pay-in
period is equal to the shorter of the remaining operating life of the facility or the term of the initial
permit. The second payment can be calculated as follows:
CE =
Cv =
Therefore:
CE-CV = $______________ = $
Y
RCRA Subtitle C Ciosure and Post-Closure: EPA Financial Assurance Training 35

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This document is intended to provide guidance so EPA staff It does nor create any
legally binding requirements on EPA, States, or the regulated community, and does
not create any rig/it or benefit, substantive or procedural This document is not a
“oniplete representation of RcRA or ofEPA’s regulations and views, and may ?iot
‘essarilv reflect the current positron of EPA
Trust Fund
Low
Risk
Financial Assurance Mechanisms
0•
High
Risk
RCRA Subtitle C Closure & Post-Closure December 2004
How it Works:
A Trust Fund is an agreement between three parties One
party (the Grantor) transfers assets to a trust that a second
party (the Trustee) holds and administers for the benefit of a
third party (the Beneficiary). For purposes of financial
assurance, the owner/operator of a Subtitle C facility (“the
Company”) is the Grantor It transfers funds to a financial
institution, which acts as Trustee. The Regulator is the
Beneficiary
The funds are held in trust for the purpose of paying
expenses related to closure and/or post-closure
Essentially, the Company deposits funds into the Trust to
cover the current estimated costs of closure/post-closure
epending on the situation, the Regulator may allow the
mpany to deposit funds in phases. The schedule and size
payments depends on. 1) the value of the trust fund at the
time; 2) the current cost estimates subject to financial
assurance; and 3) the period of time over which payments
are to be made A trust fund may be used in combination
with other financial assurance mechanisms
The Company usually pays a fee for the administrative
services provided by the Trustee These fees will vary
depending on the financial institution For example, the fees
may be lower if the Company uses other services at the
institution
Although the Trustee is empowered to invest the funds held
in trust, the types of investments are limited by the RCRA
regulations and sometimes by state law. Investment income
accrues to the trust fund At the Regulator’s discretion, this
income may reduce the required payments of the Company
If the Company does not perform closure or post-closure,
the Regulator may direct the trustee to release funds to
another party that is authorized to conduct the activity.
Cost to the Company
Medium
o - h
7
7 _____
Whats Required:
The Trustee must be qualified — authorized to act as a
trustee Its trust operations must be regulated and
examined by a federal or state agency [ see
Resources fact sheet].
The text of the trust agreement must be identical to
the wording under 40 CFR 264.151(a).
o The Company must provide the Regulator with an
originally signed copy of the trust agreement. It must
be signed by the Company the Trustee.
o The trust agreement must be accompanied by: 1)
Schedule A listing the facilities covered by the fund
with current cost estimates; 2) Schedule B showing
transfer of funds (or property) to establish the trust
fund, and 3) a certificate of acknowledgment that
meets the requirements of the applicable state’s laws.
o The trust fund must be irrevocable; that is, it can not
be changed or recalled without the written agreement
of the Regulator.
o At least 30 days before the anniversary of the
establishment of the trust fund, the Trustee must send
an annual statement to the Regulator confirming the
value of the trust fund
What Happens if...
The Company is opening a new facility?
o The trust agreement must be submitted to the
Regulator at least 60 days before initial receipt of
hazardous waste. Also before waste is received, the
first payment must be made into the trust fund and a
receipt must be submitted to the Regulator
o The first payment into the fund must equal the current
cost estimates divided by the number of years in the
pay-in period. The pay-in period is the shorter of
either 1) the term of the initial RCRA permit, or 2) the
remaining operating life of the facility.
o Annual payments must be made by the Company no
later than 30 days after each anniversary date of the
first payment
The Trustee enters bankruptcy or loses its authority?
o The Company must make arrangements for a new
trustee or other financial assurance within 60 days.

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What Happens If...
(Continued)
The Company accelerates payment into the trust?
o The Company may accelerate payment or deposit the
full amount at the time the fund is established.
o The Company must maintain the value of the trust
fund at no less than what it would be if annual
payments were made.
The cost estimates change?
o The Company must update Schedule A and submit it
to the Regulator within 60 days.
o If the cost estimates increase to an amount greater
than the value of the trust fund, the Company must
either: 1) deposit sufficient funds so that the value of
the fund equals the current cost estimates; or 2)
obtain alternate financial assurance to cover the
shortfall.
o If the cost estimates decrease, the Company may
submit a written request to the Regulator to release
the funds in excess of current cost estimates
The Company requests cost reimbursement?
o The Company must submit itemized bills to the
Regulator. If the Regulator decides that the expenses
are justified, it can instruct the Trustee to reimburse
the Company.
o However, if the Regulator believes that the maximum
cost of closure and/or post-closure will be significantly
greater than the value of the trust fund, it can withhold
reimbursements.
The Company transfers or sells its facility?
o The trust fund does not automatically transfer to the
next owner or operator. The new owner or operator
must provide alternate financial assurance
o The Regulator should not authorize the Trustee to
release funds until the transfer or new financial
assurance is in place.
Why it Works:
o Regulators are provided with funds that are
immediately available for use if the Company fails to
perform or pay for required closure/post-closure
activities.
o The Regulator is in control of disbursements from the
trust fund account at all times.
o Trust funds are designed to provide full coverage of
current estimated costs of closure and post-closure.
o Trust funds are a relatively low risk financial
assurance mechanism for the Regulator. The trust
can be cancelled only if the Company, the Trustee,
and the Regulator sign an agreement.
o Trust funds are not with out risk. For example, there is
the risk that the trust may not be fully funded, if the
Company is allowed the flexibility of paying over time.
Challenges:
o Accurate and current cost estimates for closure and
post-closure are essential.
o In the event that the trust must be drawn upon, the
Regulator is limited to the amount of funds that have
accumulated in the trust to date.
o The Company is responsible for Jj administrative
fees up until the time closure begins. If the Company
is no longer in operation, or does not pay the Trustee
the requisite fees, the Trustee may draw from the trust
fund. In such cases, the value of the trust fund is at
risk of falling below current cost estimates.
o Trust funds can be the most costly alternative for the
Company Essentially, the Company is required to
set aside the full amount of current estimated costs of
future closure and/or post-closure care Doing so
may constrain the Company’s ability to finance
alternative investments.
u The Grantor (or Company) has the ability to direct
how the trust fund is invested, while the Regulator
does not.
Tips for Ensuring Success:
o Proofread all documents to ensure that the language
is comprehensive, precise, and conforms to the
wording required by the Subtitle C regulations.
o Place the original, signed document(s) in a safe plac
(i.e., a fire-proof safe) with no public access.
o Establish and maintain contact with the Trustee
managing the trust fund.
o Ensure that the financial institution has the authority to
act as trustee and is regulated/examined by an
appropriate federal or state agency [ see Resources
fact sheet]
o In the event the Company (or Trustee) changes its
name, experiences a merger, or is sold, the Regulator
should ensure that all financial documents reflect the
current legal name of both the Company and the
Trustee. The Trustee should issue a ‘rider’ or
‘amendment’ to the trust agreement stipulating such
changes
o Remember, the Regulator is the sole beneficiary of
the trust fund The Regulator is not responsible for
paying any administrative fees All fees are the
responsibility of the Company
o Only the Regulator can authorize the Trustee to make
disbursements from the trust fund. Similarly, only the
Regulator can alter the terms of the trust agreement
and/or recall the trust fund
RCRA Subtitle C Closure and Post-Closure: Trust Fund

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RCRA SUBTITLE C FINANCIAL ASSURANCE
CHECKLIST DOCUMENTS
Trust Fund

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
TRUST FUND INFORMATION
Company Name: _________________________________ EPA ID #:________
TRUST FUND: A trust fund allows an owner or operator to set aside money in increments according to a
phased-in schedule (known as the pay-in period). At the end of the pay-in period, the facility
will have enough money set aside to cover its financial assurance costs, and will have funds
specifically earmarked for closure, post-closure care, and liability requirements.
TRUST FUND COVERS: U CLOSURE U POST-CLOSURE CARE
U THIRD-PARTY LIABILITY-SUDDEN ACCIDENTAL OCCURRENCES
U THIRD-PARTY LIABILITY-NONSUDDEN ACCIDENTAL OCCURRENCES
TRUSTEE NAME:
TRUSTEE ADDRESS:
TRUSTEE CONTACT PERSON/TITLE:
TRUSTEE CONTACT PHONE NO.:
TRUST FUND INSTRUMENT NO.:
TRUST FUND EFFECTIVE DATE:
NUMBER OF YEARS REMAINING
IN PAY-IN PERIOD:
CURRENT VALUE OF TRUST FUND:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
TRUST FUND INFORMATION
Company Name: _________________________________ EPA ID #:
SOURCE DOCUMENT/DATE: _____
CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENT/DATE: _____
POST-CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENT/DATE: _____
ANNUAL AGGREGATE AMOUNT
SUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
NONSUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
CURRENT VALUE OF TRUST FUND:
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
TRUST FUNDS FOR CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U 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)(1); 40 CFR §265. 143(a)(l)]
U [ ] Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR §264.1 43(a)( I);
40 CFR §265.143(a)(1)]
[ J Is the trust agreement accompanied by a formal
certification of acknowledgment? [ 40 CFR
§264. 143(a)(2); 40 CFR §265.1 43(a)(2)]
U U Does the trust fund use wording identical to that
specified in 40 CFR §264.151(a)(l)? [ 40 CFR
§264. 143(a)(2); 40 CFR §265.1 43(a)(2)J
U U Has a copy of the trust agreement been placed in the
facility’s operating record? [ 40 CFR §264.143(a)(l);
40 CFR §265.143 (a)(1)]
U U] 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
§264.1 43(a)(1); 40 CFR §265.1 43(a)( 1)]
U If the pay-in period is not yet complete, have
subsequent payments been made within 30 days after
each anniversary date of the first payment? [ 40 CFR
§264. 143(a)(3); 40 CFR §265.1 43(a)(3)]
U If the “pay-in period” is complete and closure cost
estimates have changed, is the value of the trust fund
at least equal to the amount of the current closure cost
estimate, or are other financial assurance mechanisms
used to cover the difference? [ 40 CFR
§264.143(a)(6); 40 CFR §265.143(a)(6)]
Reviewed by: _____________________________________________
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
TRUST FUNDS FOR POST-CLOSURE CARE
Company Name:_________________________________ EPA ID#:____________
YES NO QUESTION COMMENTS
[ J Li 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
§264.1 45(a)( 1); 40 CFR §265.1 45(a)(1)]
U Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR §264.145(a)(1);
40 CFR §265.145(a)(l)]
U Is the trust agreement accompanied by a formal
certification of acknowledgment? [ 40 CFR
§264.145(a)(2); 40 CFR §265.145(a)(2)]
LI Does the trust fund use wording identical to that
specified in 40 CFR §264.151(a)(1)? [ 40 CFR
§264.1 45(a)(2); 40 CFR §265.1 45(a)(2)]
J Has a copy of the trust agreement been placed in the
facility’s operating record? [ 40 CFR §264.145(a)(1);
40 CFR §265.145(a)(1)]
U 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
§264.1 45(a)( 1); 40 CFR §265. 145(a)( 1)]
If the pay-in period is not yet complete, have
subsequent payments been made within 30 days after
each anniversary date of the first payment? [ 40 CFR
§264.1 45(a)(3); 40 CFR §265.1 45(a)(3)]
LI If the “pay-in period” is complete and post-closure
cost estimates have changed, is the value of the trust
fund at least equal to the amount of the current post-
closure cost estimate, or are other financial assurance
mechanisms used to cover the difference? [ 40 CFR
§264. 145(a)(6); 40 CFR §265. 145(a)(6)]
Reviewed by: _____________________________________________
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
TRUST FUNDS FOR SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCES
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Has a copy of the trust agreement been placed in the
facility’s operating record? [ 40 CFR §264.147(j)(l);
40 CFR §265.147(j)(1)]
U (J Is the trustee an entity that has the authority to act as
a trustee and whose trust operations are regulated arid
examined by a federal or state agency? [ 40 CFR
§264.147(j)(2); 40 CFR §265.147(j)(2)]
U] [ ] Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR §264.147(j)(I);
40 CFR §265.147(j)(1)]
U Have all required payments into the trust fund been
made in full? [ 40 CFR §264.147(j)(3); 40 CFR
§265. 147(j)(3)]
U U Does the trust fund use wording identical to that
specified in 40 CFR §264.151(m)? [ 40 CFR
§264.147(j)(4); 40 CFR §265.147(j)(4)]
Reviewed by:
Date:

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Bankruptcy: Case Study
Greenway Chemical Corp. — Table of Contents
Background 3
I I. Problem Set 1: Sienna Chemical Services 4
Ill. Problem Set 2: Azul Treatment Services 7
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 2

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This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is no: a complete
representation of RC ’RA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
Problem Set 1 :
Review the attached abandonment motion from STACT Services Corporation. Consider:
(1) What do we know about this property?
(2) What are our potential concerns?
(3) What are some of the problems with this effort to Abandon?
(4) What actions should the Agency take?
Use Answer Table 1 to organize your thoughts and recommendations. Be prepared to discuss your
findings with the larger group.
Documents for your review include:
> STACT Services Corporation Abandonment Motion (page 4)
> Answer Table I (blank template to assist in your review)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 3

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefIt, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may no: necessarily reflect the current position of EPA
Bankruptcy: Case Study
Greenway Chemical Corp.
Background .iq ) dtL V 4 ”e,_,
Green-way Chemical Corporation and 23 wholly-owned subsidiaries filed voluntary petitions
for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. § 101 et. seq.
(the “Bankruptcy Code”) on February 1, 2004 in the United States Bankruptcy Court for the
Northern District of Illinois. These cases are jointly administered. The Debtors continue to
operate their business and manage their properties as debtors-in-possession pursuant to §
1107 and 1108 of the Bankruptcy Code.
Green-way ChemicaL Corpc rativi, is a holding company that owns directly or indirectly, a
series of industrial services companies that operate throughout the Midwest and Southeast
United States. Green-way Chemical Corporation is divided into two primary groups: (1)
Sienna Chemical Services and (2) Azul Treatment Services . Sienna Chemical Services
operat flve RL;KA ermitted chemical ii ssing plants. Two of its plants in Michigan have
provided a corporate guarantee to demonstrate financial responsibility for closure. The
guarantee is provided by Sienna Chemical Services parent company, Green-way Chemical
Corporation (guarantor). Both the parent and the subsidiary filed for Ch pterJj Azul
Treatment Services owns and eralel TSD facility that holds a closure and post-cló ure
insurance policy provided by MIA Insurance Holdings. The policy is set to expire on March 31,
2004.
Azul Treatment Services files in the bankruptcy court an Emergency Motion for Order
Authorizing the Debtors and Debtors-in-Possession to Operate with Corporate Guarantee for
Environmental Closure Coverage.
Assume for this exercise that Green-way Chemical Corporation, Sienna Chemical Services,
and Azul Treatment Services fiscal year end is September 30, 2003 and that they did not
provide year-end financial information to the Regional Administer for the regulating agency


1DM O/0
/
I J
RCRA Subtitie C Closure and Post-Ciosure: EPA Financial Assurance Training 3

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Bankruptcy: Case Study
Greenway Chemical Corp. — Large Group Discussion, Sienna Chemical Services
Problem Set 1 :
As the regulator what steps should you expect Sienna Chemical Services or Green-Way Chemical
Corporation to take to ensure its compliance with the RCRA financial responsibility regulations?
What are your recommendations/next steps for moving forward?
Use Answer Table I to organize your thoughts and recommendations. Be prepared to discuss your
findings with the larger group.
Documents for your review include:
> Answer Table I (blank template to assist in your review)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 4

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Bankruptcy: Case Study
Greenway Chemical Corp. — Answer Table 1, Sienna Chemical Services
As the regulator what steps should you expect Sienna
Chemical Services or Green-Way Chemical
Corporation to take to ensure its compliance with the
RCRA financial responsibility regulations ? Also
consider any action you believe Sienna Chemical
Services or Green-way Chemical Corporation should
have taken to ensure its compliance
What are your recommendations/next steps for
moving forward?
.
—
.
>
.
)
,
p
p
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 5

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Bankruptcy: Case Study
Greenway Chemical Corp. — Large Group Discussion, Azul Treatment Services
Problem Set 2 :
What steps do you take in response to Azul Treatment Services Emergency Motion?
Suppose, Azul Treatment Services has paid its premium for the term of the policy and on March 1,
2004, MIA Insurance Holdings sends a notice of non-renewal effective April 1. 2004. What do you
do?
Use Answer Table 2 to organize your thoughts and recommendations Be prepared to discuss your
findings with the larger group.
Documents for your review include:
> Answer Table 2 (blank template to assist in your review)
e _
1
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 7

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Bankruptcy: Case Study
Greenway Chemical Corp. — Answer Table 2, Azul Treatment Services
What steps do you take in response to Azul Suppose, Azul Treatment Services has paid its
Treatment Services Emergency Motion? premium for the term of the policy and on March 1,
2004, MIA Insurance Holdings sends a notice of non-
renewal effective April 1, 2004. What do you do?
.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 8

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Bankruptcy: Case Study
Greenway Chemical Corp. — Answer Key Table 1, Sienna Chemical Services
As the regulator what steps should you expect Sienna
Chemical Services or Green-Way Chemical
Corporation to take to ensure its compliance with the
RCRA financial responsibility regulations? Also
consider any action you believe Sienna Chemical
Services or Green-way Chemical Corporation should
have taken to ensure its compliance.
Sienna Chemical Services was required under 40 CFR
264.143(f) to take several ste s
- Under § 264 143(f)(10) the guarantor must send
updated financial information to the RA within 90 days
after the close of each succeeding fiscal year. If the
fiscal year for Green-way Chemical Corporation
(GWCC) ended Sept. 30. 2003 GWCC should have
provided year end financiais to the agency by Dec. 30,
2003. This submission, the year end financials,
consists of the items in § 264.143(f)(3).
• If the guarantor no longer meets the requirements of
paragraph § 264.143(f)(1) [ guarantor must meet the
requirements and comply with the terms of §
264.143(f)(1) - (8)], the guarantor must send notice to
the RA of intent to establish alternate FA. The
guarantor must send notice of intent to establish
alternate FA within 90 days of the close of the fiscal
year j 264 143(0(6)]. The 0/0 and guarantor must
secure alternate financial assurance within 120 days
after the end of the fiscal year, or in our case March 30,
2004 [ 264.143(0(6)].
- 0/0 and guarantor were required under § 264.148(a)
[ Incapacity of owners or operators, guarantors, or
financial institutions] and § 264.143(f) [ terms of the
corporate guarantee; see also required language for
corporate guarantee provided in § 264.151(h), Recitals,
#6] to notify the agency of their filing for Chapter 11
bankruptcy
- The agency can require the 0/0 to provide alternate
Fk if the RA finds on the basis of the year end fiscal
reports or other information that the 0/0 no longer
meets the requirements of 264.143(0(1), the 0/0
must provide alternate FA within 30 days after
notification of such a finding [ 264.143(f)(7)]
What are your recommendations/next steps for
moving forward?
As the Regulator the actions to consider :
(NOTE: The following suggestions are considerations
only, each agency must use its enforcement
discretion to determine how to proceed.)
... Immediately file notice with the debtor (0/0 and
guarantor) that they are required to provide alternate
financial assurance as the guarantor no longer meets
the terms of § 264.143(f).
. File a Motion for Order in the bankruptcy court alerting
the court that the debtor (0/0 and guarantor) is
required to provide alternate financial assurance, that
debtor must have financial assurance - statutory and
regulatory requirement in order to operate TSD facility.
Without financial assurance, the debtor is operating in
violation of 28 U.S.C. § 959. EPA will pursue an
enforcement action. Motion will cite to both the 0/0’s
obligation and parent guarantor’s obligation to provide
alternate financial assurance.
— FA regs require that if 0/0 fails to provide
alternate FA, the guarantor shall provide alternate
FA. § 264.143(f)(10)(iii). If 0/0 fails to perform
final closure, the guarantor will do so or establish
a trust fund. § 264. 143(f)(1 0)(i).
0/0 (and guarantor), as a reorganizing Debtor-in-
possession continuing to operate, is required to
comply with all federal and state laws during the period
of reorganization, if even compliance will cost the
debtor money.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
6

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Bankruptcy: Case Study
Greenway Chemical Corp. — Answer Key Table 2, Azul Treatment Services
The Agency (through it’s Attorney General’s Office, through
DOJ, or through the U S. Attorney’s office - whichever
agency/department is appropnate) should file a Response
to the Emergency Motion for Order Authorizing the Debtors
and Debtors-in-Possession to Operate with Corporate
Guarantee for Environmental Closure Coverage. The
Response should highlight’
1. The debtor is seeking to operate a TSD facility without
financial assurance even though it is required by
federal and state regulations.
2 Request that if Court were to grant motion that the
Court include protective language, such as the
following;
“Nothing in this Order exempts the Debtors from
complying with federal and state environmental
laws, or prevents the federal and state
governments from enforcing such laws”.
3 Remind court of 28 U.S.C. § 959(b) of the Judicial
Code which provides that: A debtor in possession
must, “manage and operate the property in his
possession according to the requirements of the valid
laws of the State in which the property is situated” 28
U.S.C. § 959(b) ensures that “the general bankruptcy
policy of fostenng the rehabilitation of debtors [ will not)
serve to preempt otherwise applicable state laws
dealing with public safety and welfare” [ Saravia v
1736 18th Street, N.W Partnership , 844 F.2d 823, 827
(D.C. Cir. 1988)
Application of caselaw
• Cumberland Farms Inc v Fla Dep’t of Envt’l Prot .
1136 F. 3d. 16,20(1st Cir. 1997): In light of
Section 959(b), “debtors in possession....do not
have carte blanche to ignore state and local laws
protecting the environment against pollution.”
• Ohio v Kovacs 469 U S. 274. 285 (1985 :
“ [ Ajnyone in possession of (a) site - whether it is
[ the debtor) or another...-must comply with the
environmental laws of the State...Plainly, that
person...may not maintain a nuisance, pollute..., or
refuse to remove the source of such conditions.”
Suppose, Azul Treatment Services has paid its
premium for the term of the policy and on March 1,
2004, MIA Insurance Holdings sends a notice of non-
renewal effective April 1, 2004 What do you do ?
Notify insurer that they cannot cancel the policy, to do so
would be a violation of the financial assurance regulations.
- Under 40 CFR § 264.143(e) an insurer may not cancel
or fail to renew the policy, except for non-payment of
premium. Secondly under § 264.143(e) cancellation or
failure to renew may not occur in the event that before
the expiration date of the policy, the owner or operator
is named a debtor in a voluntary or involuntary
proceeding under Title 11 (Bankruptcy Code). Green-
way Chemical Corporation and Azul Treatment
Services filed for bankruptcy on Feb. 1, 2004 and the
policy was set to expire on March 31, 2004. The
insurer cannot fail to renew during the debtor 0/C’s
period of bankruptcy.
Insurer cannot cancel the policy without 120 days
notice and secondly there are no grounds for
cancellation: premium was paid in full. The automatic
renewal must provide at a minimum the option of
renewal at the face amount of the expiring policy (
264.143(e)(8))
- Seek to enforce Insurer to maintain policy, file notice in
Bankruptcy court as well. Alert court that debtor would
otherwise be operating in violation of federal and state
environmental laws.
Include in notice to bankruptcy court that Insurance
policy must be renewed and that Debtor is required to
continue to pay premiums. Cost of payment is allowed
business expense
What steps do you take in response to Azul
Treatment Services’ Emergency Motion?
(NOTE: The following suggestions are considerations only, each agency must use its enforcement discretion
to determine how to proceed.)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TraIning
9

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Bankruptcy: Case Study
Greenway Chemical Corp. — Answer Key Table 2, Azul Treatment Services
What steps do you take in response to Azul Suppose, Azul Treatment Services has paid its
Treatment Services’ Emergency Motion? premium for the term of the policy and on March
1, 2004, MIA Insurance Holdings sends a notice of
non-renewal effective April 1, 2004. What do you
__________________________________________ do ?
(NOTE: The following suggestions are considerations only, each agency must use its enforcement discretion
to determine how to proceed ) __________________________________________
• Safety-Kleen Inc. (Pinewood) v. Wvche. 274 F.3d
846. 866 (4th Cir 2000) EPA’s financial
responsibility regulations (40 C.F.R. Part 280
Subpart H) “serve to promote environmental safety
in the ... operation of hazardous waste facilities.”.
Also many states have issued their own financial
responsibility requirements which similarly protect
the public” “the primary purpose of South
Carolina’s financial assurance regulation is to deter
environmental misconduct and to encourage the
safe...operation of hazardous waste facilities”.
See also: Lodestar v Bickford 310 B.R. 70
(2004) (SMCRA regs.) - reclamation bonds.
4. Courts have rejected efforts by debtors to evade
financial responsibility requirements.
• Safety-Kleen Inc. v. Wyche holding that South
Carolina could shut down a financial responsibility
violator as an exercise of the state’s police and
regulatory power.
• Cumberland Farms . D.Crt affirmed the bankruptcy
court’s assessment of civil penalties based on the
debtor-in-possessions noncompliance during
bankruptcy with financial responsibility
requirements.
• Gillis v. California: 293 U.S. 62, 63-67 (1934)
Required a court-appointed receiver managing a
gasoline distnbutorship to obtain surety bonds
mandated by state law.
5. Court does not have the authority to exempt the
Debtors from complying with financial responsibility
requirements. Unless the court includes the language
the U.S. has provided, the Debtors could argue that the
Bankruptcy Court has authorized them to operate as
providing financial assurance through the financial test.
regardless of whether the debtor satisfies the
applicable requirements for financial test.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TraIning 10

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BANKRUPTCY: CASE STUDY
STACT SERVICES CORP.
>-1?j .
This document is intended to provide guidance so EPA staff ii does not create any legally binding requirements on EPA. States, or
the regulated community, and does not crease any right or benefit, substantive or procedural This document is not a complete
representation of R RA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
Z4 e
A- AJd
/ 4 L&
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
I

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Bankruptcy: Case Study
STACT Services Corp. — Table of Contents
I. Problem Set 1: Abandonment Motion 3
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 2

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Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
Inre: §
§
STACT SERVICES CORPORATION, et a!. § Jointly Admin. Under Case No. 03-99999
§
Debtors § (Chapter II)
DEBTORS’ MOTION PURSUANT TO 11 U.S.C. § 554(a) FOR AN
ORDER AUTHORIZING DEBTOR TO ABANDON CERTAIN PROPERTY
IN SPARTANBURG, SOUTH CAROLINA THAT IS BURDENSOME TO THE ESTATES
OR OTHERWISE OF INCONSEQUENTIAL VALUE TO THE ESTATES
A HEARING WILL BE CONDUCTED ON THIS MATTER ON Q Q ER-l*
2003 AT 2:00 P.M. IN COURTROOM 400, 515 RUSK AVENUE, HOUSTON,
TEXAS. IF YOU OBJECT TO THE RELIEF REQUESTED, YOU MUST
RESPOND IN WRITING SPECIFICALLY ANSWERING EACH PARAGRAPH
OF THIS PLEADING. YOU MUST FILE YOUR RESPONSE WITH TIlE
CLERK OF THE BANKRUPTCY COURT WITHIN TWENTY DAYS FROM
THE DATE YOU WERE SERVED WITH THIS PLEADING UNLESS YOU DID
NOT RECEIVE THIS NOTICE IN TIME TO DO SO. IN THAT SITUATION,
FILE YOUR RESPONSE AS SOON AS POSSIBLE. IN ADDITION TO FILING
YOUR RESPONSE WITH THE CLERK, YOU MUST GIVE A COPY OF YOUR
RESPONSE TO THE PERSON WHO SENT YOU THE NOTICE; OTHERWISE,
THE COURT MAY TREAT THE PLEADING AS UNOPPOSED AND GRANT
THE RELIEF REQUESTED.
TO THE HONORABLE UNITED STATES BANKRUPTCY JUDQE:
STACT Services Corporation (“STACT Services”) and its affiliated debtors (collectively, the
“Debtors”), as debtors-in-possession, file this Expedited Motion Pursuant to 11 U.S.C. § 554(a)
For Authonty to Abandon Certain Property in Spartanburg, South Carolina that is burdensome to
the Estate or otherwise of Inconsequential Value to the Estate (the “Motion”) and, in support
thereof, respectfully state as follows:
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 4

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Le v- -
c c ’%3 /QL 4 . 4 J
e
,.-
TL

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Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
SUMMARY
By this Motion, the Debtors seek authonty pursuant to section 554(a) to abandon certain
property located at 4884 Route One, Spartanburg, South Carolina (the “South Carolina
Property” a true and correct copy of the legal description is attached hereto as Exhibit I) because it is
burdensome and of no value to the Debtors’ estates
JURISDICTION AND VENUE
I. This Court has junsdiction over these cases pursuant to 28 U. S.C. § 1334. This is
a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (0) The relief requested herein is
authorized under Bankruptcy Code section 105(a) and Bankruptcy Rule 9019.
2. Venue of the Debtors’ Chapter 11 cases is proper in this district pursuant to 28
U S.C. § 1408(1) and (2).
BACKGROUND
3. On May 2, 2003 (the “Petition Date”), the Debtors filed voluntary petitions
for relief under Chapter 11 of Title 11 of the United States Code, 11 U S.C. 101 et. seq.
(the “Bankruptcy Code”) These cases are jointly administered
4. The Debtors continue to operate their businesses and manage their properties as debtors in-
possession pursuant to § 11O7 and 1108 of the Bankruptcy Code
5. No trustee or examiner has been appointed in the Debtors’ jointly administered bankruptcy
cases. An official committee of unsecured creditors has been established.
6 Debtor, STACT Services Corporation, is a holding company that owns, directly or indirectly, a
series of industrial and metals services companies that operate throughout North America. The Debtors
consist of STACT Services Corporation, a Delaware corporation, with its principal place of business in
Houston, Texas, and 23 wholly-owned subsidiaries. There are two primary business units: (i)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 5

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Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
the Industrial Services Division and (ii) the Metals Services Division. Certain foreign subsidianes, captive
insurance related entities and inactive subsidianes are not debtors in these Chapter 11 cases.
7. The Industrial Services Division was recently created through the integration of the industrial
cleaning services provided by the former industrial Outsourcing Association and services formerly delivered
by the Environmental Services Division, including commercial and industrial waste collection, recycling,
processing and disposal, laboratory analytical services, container and tank cleaning, and emergency response
services. The Industrial Services Division operates in approximately 46 locations and has a significant
presence in the heavily industrialized regions of the Northeast, Midwest and Southeast United States.
8. The Metal Services Division provides ferrous and non- ferrous scrap collection and
processing services, brokerage and transportation and on-site mill services as well as processing and
distribution of steel products. The group is one of the largest providers of ferrous, scrap processing and
brokerage services in North America. The Metals Services Group operates at approximately 18 locations
with its operations concentrated in the Southeast United States, the Ohio-Pittsburgh corridor, and the Southern
Great Lakes Basin
9 The Debtors have been severely impacted by the general economic slowdown in
the industrial sector and the Metal Services Division has been affected by periods of low scrap prices.
10. The Debtors’ primary competitive strengths are: (i) a range of industrial
services, (ii) a strong safety record and (iii) skilled and experienced employees. In addition, the Debtors have
attempted to improve their profitability through key restructuring efforts. Notably, prior to the merging of the
industrial and environmental divisions in October 2002. the Industrial Outsourcing Association began the
process of divesting a portion of their Project Services Group. which was highly affected by seasonal demand.
The divestiture was completed on February 4, 2002. for approximately $12 million. The working capital of
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 6

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Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
the divested portion of approximately $26 million was retained by the Debtors. As a result of the Project
Services Group divestiture, the Debtors’ overall business volatility has been reduced.
11. The Debtors’ revolving loan agreement matured in March 2003 and while this loan
was extended until May 2, 2003, no further prepetition financing was available.
— 7
12. The Debtors have a number of strong core businesses and intend to reorganize
around those businesses which, together with rejection of certain burdensome contracts and leases and certain
other operational improvements, are expected to be the basis for a viable reorganization plan in which most of
the Debtors’ existing secured debt is converted to equity.
13. The Debtors’ consolidated revenues for calendar year 2002 were $700 million and
their consolidated EBITDA for the year ended December 31, 2002 was $24 million, As of the Petition Date,
the Debtors employed approximately 4,100 full-time employees, approximately, 1,000 of which are
represented by unions
RELIEF REQUESTED
14. Debtor, STACT Services Inc. is the owner and title holder’ of the South Carolina
property
15. There are certain environmental concerns associated with the South Carolina
Property that were in existence before the Petition Date.
16. The South Carolina Property consists of two tracts of land consisting of
approximately 45 acres and an adjacent parcel of approximately 108.308 acres lying in Greenville
County, South Carolina. The Debtors operated the two tracts consisting of approximately 45 acres in
accordance with state and federal law as a hazardous waste storage and treatment facility until September
‘This property is subject to a quiet title action initiated on behalf of the Debtor.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 7

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Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
2002. The third parcel is undeveloped property. Closure activities commenced in December 2002 and the
Debtors are expecting to receive final closing authonty from the South Carolina regulatory authorities.
17. Parts of the tracts support several structures. These structures have no economic
value and cannot be used by the estates. Included among these structures are: three buildings that consisted of
a office building, the former drum storage area and the former waste water treatment system. In addition there
are several trailers where the laboratory was housed, the storage trailers and a water pump system This water

18. As a consequence of the environmental concerns, the South Carolina Property is
burdensome to the estate or of inconsequential value and benefit to the estate and is therefore
eligible for abandonment under the Bankruptcy Code § 554.
19. In addition, the Debtors have been unsuccessful in their efforts to sell the South
Carolina Property.
BASIS FOR RELIEF REOUESTED
20. “After notice and a heanng, a trustee may abandon property which is burdensome
to the administration of the estate or is of inconsequential value and benefit to the estate.” 11
U.S.C. § 554(a).
21. Environmentally impacted property may be abandoned when there is no imminent
and identifiable harm to the public. Midlantic Nat v. New Jersey Dept. 474 V.S. 494, 106 S.Ct.
755 (1986); In re Shore Co., Inc., 134 B.R. 572 (Bankr. E.D. Tex. 1991); In re Anthony Ferranle
& Sons, Inc., 119 B.R. 45 (Bankr. D.N.J. 1990); In re FCX mc, 96 BR. 49 (Bankr. E.D. N.C. 1989); In re
Smith-Douglass, Inc. 856 F.2d 12 (4th Cir. 1988).
22. The South Carolina Property does not pose an imminent and identifiable threat to
the public.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 8

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Bankruptcy: Case Study
STACT Services Corp. — Small Group Discussion, Abandonment Motion
23 Failure to authorize the Debtors to abandon the South Carolina Property will result in a
considerable delay, jeopardizing the confirmation process thereby posing a potentially severe detnment to the
Debtors’ estates.
24. No previous request for relief sought herein has been made to this Court or any other court.
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 9

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Bankruptcy: Case Study
STACT Services Corp. — Answer Table 1, Abandonment Motion
What steps should have Sienna Chemical Services or
What are your recommendations/next steps for
Greenway Chemical Corporation taken to ensure its
moving forwards?
compliance with RCRA financial responsibility
regulations?
.
What do we know about this property?
What are your potential concerns?
__ 1 4J1 t€
What are some of the problems with this
effort to Abandon?
What actions should the Agency take?
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RCRA Subtitle C Closure and Post-Closure: EPA Financiai Assurance Training
10

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Surety Bonds

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SURETY BONDS
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This document is intended to provide guidance to EPA staff Ii does not create any legally binding requireme s on EPA. States,
the regulated community, and does no: create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure
Seattle, WA
December 7-10, 2004
Key Points
• The Basics...
• Challenges & lips for Success
• Final Thoughts
The Basics: What is a Surety Bond?
A surety Bond is a contract between two parties to
benefit a third party.
• Party 1 = the Surety Company (e g , Insurer or Bank)
Party 2 = the Pnncipal the Owner/Operator
• Party 3 the Obbgee • the Regulator
• The Surety provides its financial backing to the
Principal.
• The Pnncipal is pnmanly responsible But, if the Pnncipal
defaults on its obligations, as descnbed in the bond, the
Surety is responsible.
1

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—5 1 < ’
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete
representation of RGR.A or of EPA ‘s regulations and views, and mai not necessarily reflect the current position of EPA
- j The Basics: What is a Surety Bond?
For purposes of financial assurance, the Surety
guarantees that the closure and/or post-closure
obligations of the Principal will be met.
• The Surety reserves the nght to pursue reimbursement
from the Pnnopal for all funds paid on its behalf
m There are two types of surety bonds that are
acceptable under RCRA Subtitle c:
7. Financial Guarantee (or Payment) Bonds
( . Performance Bonds
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The Basics: What IS a Surety Bond’
• Financial Guarantee (or Payment) Bonds.
The Surety guarantees that it will pay out the race value
(or penal sum) of the bond into a Standby Trust Fund
• Acceptable at permitted g interim status facihties
• Performance Bonds
• The Su guarantees that it will perform the reQuired
5 $ activit Jay out the penal sum of the bond
• Only acceptable at permitted facilities
• cannot be combined with other financial assurance
mectianisn5
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The Basics: What is a Surety Bond’
• Moderate risk mechanism for the regulator’
• The regulator is guaranteed access to the full value of the
bond, But
• There is some risk that funds will not be available if the
company and the Surety face rinanoal distress at the same
time ,
• If the Surety maintains reunsurance, the Regulator may
have adds security
)( in ,pgj ’ Shanng of nsk among companies, Part of the
n assumed by other sureties in return for a part
of the prenum tee paid by the Pnnopal
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2

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- N .j The Basics: What is a Surety Bond?
• The cost to the Pnnapai us a function of its credit
worthiness (and financial solvency).
The greater the nsk to the Surety of having to pay out on
the bond, the higher the cost to the Principal
• Moderate-to-high cost mechanism for the Company:
• The Pnncipal pays an annual, nsk-based premium
• The Surety may require cash collateral and/or accelerated
premium payments to ersure the bond is fully funded
The Basics: How Surety Bonds Work
htto Ilfms treas ciov/c570/index.litml
U.S. Department of Treasur ç Orcular 570 fli’ &-ta ,osAs7o .
• The Surety must be certified and listed on Circular 570
• Acadia insurance Company (NAic
Business Address P0 Dos 9010, Wambmeh, NE 040985010
Phone (207) 772-4300 undewnung Umaiien b/ $3,102,000
Sur y Licerses f/ AZ, 0, cr, DC, cc, icy, Me, ND, na . rc,
NH, NY, OK, PA, RI, IX, lIT, VT, VA , incerporated in Name ______________________________________________
• Reinsurers also are lieted on Circular 570.
GE Rensurance Corporation (NAIC 22969) __________________________________________________________
Business Address 540W Nsnihwent Highway, Barnngtsn, IL 60010
Phone (847) 277•5437 undewnosg umitason W $82,341,000
RDAn, cos,n C ,,n 1
The Basics: How Surety Bonds Work
• A Standby Trust Fund is established with a qualified
finanaai institution. ___________________________________________________
a The face value of the surety bond must equal the
( )stimated costs of closure/post-dosure.
• The text of the bond must be identical to the wording
required at4O CFR 264.151.
• Financial Guarantee (or Payment) Bonds = §264 151(b)
• Pertorrnarce Bonds = §264 151(c)
as e c n .,= I
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
3

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA . States, or
the regulated community, and does not create any right or benefit, substantive or procedural This docu,nent is not a complete
representation oJRCRA or of EPA ¶ c regulations and views, and may not necessarily reflect the current position of EPA
/
The Dasics: Required Documents
• The Prinopal must provide the Regulator with the
signed copy of the
• The Surety bond should be signed both by the Su
and the Pnncipal. It also should list:
• Afi covered facilities with EPA ID Numbers and current
estimated dosure/post-closure costs.
• Theeffectivedateofthebond
• The total penal sum of the bond.
• The bond number and premium amount
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The Basics: Change(s ) in Costs
• The Principal must act within 60 days of a change in
cost estimates.
• If the cost estimates increase, the Pnncipal must:
• Increase the penal sum of the surety bond, or
• Obtain alternate financial assurance to cover the shortfall.
• If the cost estimates decrease, the Regulator:
• Should review documentation supporting the decrease.
• May appiove e reduction in the penal sum or the bond, if
the decrease in cost estimates is supported
The Basics: Drawing on a Surety Bond
• Financial Guarantee (or Payment) Bond
• Regulator determines pursuant to Section 3008 of RCRA that
the Company failed to perform in accordance with applicable
requirements
• Regulator issues a demand ietter to the Surety instructing it
to place the penal sum of the bond into the pre-established
Standby Trust Fund.
Demand iett should explain why the Surely is required to pay
Into the bust
• Regulator should notify the Trustee of the Standby Trust
Fund in athance of expected payments by the Surety.
Ii
4

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The Basics: Drawing on a Surety Bond
Performance Bond
• Regulator determines pursuant to Section 3008 of RCRA that ______________________________________________________
the Company failed to perform in accordance with applicable
requirements [ same as payment bond).
• Regulator notifies the Surety that the Company rails to meet
its obligations under the terms of the bond, and the Surety
may fulfill the obligations by __________________________________________________________
• Secunng performance vi accordance wth the closure/post-
doswe Øans, permit, or other aprlicabie RCRA requirements, or
• DeThbng the penal sum of the bond into the Standby Trust
Fund
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The Basics: Attempts to Cancel the Bond
• The Surety must send wntten notice of cancellation to
the Company the Regulator.
• The Surety can not cancel the bond within 120 days of
notifyIng the regulator.
• Company has 90 days to:
• Secure altemate finanoal assurance, and ______________________________________________________________
• Obtain the Regulator’s approval
• If the Company fails to do so, the Regulator can direct the ______________________________________________________________
Surety to pay into the Standby Trust Fund up to the amount
guaranteed by the bond
I S C ,n In n ‘4
Challenges -
• Accurate current cost estimates for closure and
post-closure are essential.
• Sureties only underwrite bonds in cases where they
do not expect to have to pay out (or perform). ________________________________________________
• Few sureties are willing to underwnte bonds for
environmental liabilities without: ___________________________________________________
• Substantial payment of cash collateral (as much as 95
percent), and
Accelerated premium payments (i e , over 2 io 5 years).
RWS Ca, , ,, ad ,n L I
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA . States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a co mplete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
5

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Challenges (continued )
• The Surety may secure only a small fraction of the
bond’s value, and pool (or reinsure) the remaining
amount.
Surety bonds are not without nsk.
• There is the possibility of the Surety and the Pnncipal facing
financial insolvency at the seine time
• The Surety’s reinsurers may not be listed on Circular 570
• With performance bonds, the Surety may not have the
expertise to properly perform closure/post-closure.
I’
Tips for Ensuring _ Success
• Encourage the Surety to include the optional nder that
automatically inaeases the face value of the bond to
reflect current cost estimates.
• Ensure that all documents reflect the current legal
name of both the Surety the Company
• When there is a transfer of ownership, retain the
onginal surety bond until such time as the new owner
provides acceptable financial assurance

- ‘i j Tips for Ensuring Success (continued)
• Place the onginal. signed documents, in a safe place
(i.e., a fire proof safe) with no public access
• Regularly check Circular 570
• Sureties that are Certified. Suspended, or Terminated
• Admitted and/or Certified Reinsurers
• State Insurance Departments
• Subscnbe to updates via E-Mail notification
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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
6

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- Final Thoughts
Surety bonds can be a relatively low risk option, but
the Regulator must.
• Regularly monitor the financial solvency of the Surety by
checking Circular 570
• Ensure the surety bond is updated to reflect current
estimated ciosure/post-ciosure costs.
• Act quickly it either the Company or the Surety show
evidence of finanoal distress.
• Few Sureties are willing to underwrite bonds for
large-scale environmental expenditures.
I,
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation oJRCRA or of EPA ‘s regulations and views, and may not necessarily reflect i/ic current position of EPA
7

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SURETY BOND: CASE STUDY
WASTE CLEANSING, INC.
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and vie t’s. and may not necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training I

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Surety Bond: Case Study
Waste Cleansing, Inc. — Table of Contents
I. Background 3
II. Problem Set 1: Response to Financial Times Article 4
Ill. Problem Set 2: Surety Bond Documentation 10
IV. Problem Set 3: Delisted from U.S. Treasury Circular 570 18
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 2

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any righi or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position 0/EPA
Surety Bond: Case Study
Waste Cleansing, Inc.
Background
Waste Cleansing, Inc. (WCI) manages and operates 5 commercial hazardous waste storage
facilities in EPA Region W. The total current estimated closure costs for the facilities are $25
million. The company satisfies its closure bond obligations by relying on a surety bond for all of
its facilities. The surety, Bastion Insurance Company, is listed on the U.S. Treasury
Department’s Circular 570 for surety companies approved to secure federal obligations. WCI’s
performance bond aut aticallyren wseacheaQa.July 1.
-
- /
/_
RCRA Subtitie C Ciosure and Post-Closure: EPA Financiai Assurance Training 3

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Surety Bond: Case Study
Waste Cleansing, Inc. — Large Group Discussion, Response to Financial Times Article
Problem Set 1 :
On December 15, 2002, you read an article in the Financial Times that quotes Chris Who, Risk
Management Specialist for Bastion Insurance Company, as saying that the insurer intends to
exit the surety market for environmental remediation. Mr. Who is further quoted as saying that
the exit strategy will likely occur over the next 18 months.
As the regulator, review the company’s performance bond and determine what actions (if any)
you would take in response to the Financial Times article.
Documents for your review include:
> Waste Cleansing Inc.’s performance bond, dated July 1, 1990 (page 5) (For
purposes of your review, assume that the bond is correct as worded)
> Answer Table I (blank template to assist in your review)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 4

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Surety Bond: Case Study
Waste Cleansing Inc. — Large Group Discussion, Response to Financial Times Article
Performance Bond
Date bond executed: July 1, 1990
Effective date: July 1, 1990
Principal: Waste Cleansing Inc.
Type of organization: Corporation
State of incorporation: Anystate
Surety: Bastion Insurance Company
Closure Amounts
Facility 1 EPA ID# 12345678 $5 million
10 Pine Dr.
Springfield, Anystate 03144
Facility 2 EPA ID# 87654321 $5 million
121 Green St.
Jackson, Anystate 36714
Facility 3 EPA ID# 45678765 $5 million
56 Oak Rd.
Nolan, Anystate 67809
Facility 4 EPA ID# 12344321 $5 million
78 Burnside Ave.
Hope, Anystate 45328
Facility 5 EPA lD# 90874365 $5 million
989 Lawn Dr.
Fairbank, Anystate 07896
Total penal sum of bond: $25 million
Surety’s bond number: A5467TMN7896
Know All Persons By These Presents, That we, the Principal and Surety 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 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
RCRA Subtitle C Closure and Post-Closure: EPA Financiai Assurance Training 5

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Surety Bond: Case Study
Waste Cleansing Inc. — Large Group Discussion, Response to Financial Times Article
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, then this obligation shall be null and
void, otherwise it is to remain in full force and effect.
The Surety shall become liable on this bond obligation only when the Principal has failed
to fulfiui 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 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 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 during the 90 days
following receipt by both the Principal and the EPA Regional Administrator of a notice of
cancellation of the bond, the Surety shall place funds in the amount guaranteed for the facilities
into the standby trust fund as directed by the EPA Regional Administrator.
The surety hereby waives 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 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 hereunder
exceed the amount of said penal sum.
The Surety may cancel the bond by sending notice of cancellation by certified mail to the
owner or operator and to the EPA Regional Administrator for the Region in which the facilities
are located, provided, however, that cancellation shall not occur during the 120 days beginning
RCRA Subtitle C Closure and Post-Ciosure: EPA Financial Assurance Training 6

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Surety Bond: Case Study
Waste Cleansing Inc. — Large Group Discussion, Response to Financial Times Article
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) receive(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 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.
In Witness Whereof, The Principal and Surety 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 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 OBabson
CEO Waste Cleansing Inc.
[ Corporate seal]
Corporate Surety: Bastion Insurance Company
754 Hanover Drive
Lawrence, Anystate 98706
State of incorporation: Anystate
Liability limit: $ 25 million
JJames
Jon James, CEO Bastion Insurance Company
[ Corporate seal]
Bond premium: $ 25 million
RCRA Subtitle C Closure and Post-Ciosure: EPA Financiai Assurance Training 7

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Surety Bond: Case Study
Waste Cleansing, Inc. — Answer Table 1, Response to Financial Times Article
Question 1: As The Regulator, What Actions (If Any) Do You Take In Response To
The Financial Times Article?
)
)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 8

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Surety Bond: Case Study
Waste Cleansing, Inc. — Small Group Discussion, Surety Bond Documentation
Problem Set 2 :
On February 15, 2003, Bastion Insurance Company notifies you of its intention to cancel WCI’s
$25 million bond. The date of cancellation is effective July 1, 2003. Review the regulatory
requirements for payment bond as compared to performance bond. Determine what the
requirements are with regard to cancellation of a payment bond as compared to a performance
bond. Highlight your next steps with respect to Waste Cleansing, Inc.
Documents for your review include:
> Answer Tables 2a and 2b (blank template to assist in your review)
> Regulatory Language:
Subpart H of 40 CFR Part 264.143 (b) Surety bond guaranteeing payment
into a closure trust fund. (page 14)
Subpart H of 40 CFR Part 264.143 (c) Surety bond guaranteeing
performance of closure. (page 16)
Recommended Review Time: 20 mins.
RCRA Subtitie C Ciosure and Post-Ciosure: EPA Financial Assurance Training 10

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Surety Bond: Case Study
Waste Cleansing Inc. — Answer Tables 2a and 2b, Surety Bond Documentation
Question 2a: Payment Bond
What are the regulatory requirements with
regard to cancellation of a payment bond?
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What are the regulator s next steps ?
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Question 2b: Performance Bond
What are the regulatory requirements with
regard to cancellation of a performance
bond?
O/O
What are the regulators next steps?
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/‘R S itle’ isure and Post-Closure: EPA Financial Assurance Training
— ____
11

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- &- I

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Surety Bond: Case Study
Waste Cleansing Inc. — Small Group Discussion, Surety Bond Documentation
Regulatory Language for Surety Bond Guaranteeing
payment into a closure trust fund, as specified at 40 CFR 264.143(c)
Payment Bond
(b) Surety bond guaranteeing payment into a closure trust fund.
(1) An owner r operator may satisfy the requirements of this section by obtaining a surety bond
which conforms to the requirements of this paragraph and submitting the bond to the Regional
Administrator. An owner or operator of a new facility must submit the bond to the Regional
Administrator at least 60 days before the date on which hazardous waste is first received for
treatment, storage, or disposal. The bond must be effective before this initial receipt of
hazardous waste. The surety company issuing the bond must, at a minimum, be among those
listed as acceptable sureties on Federal bonds in Circular 570 of the U.S. Department of the
Treasury.
(2) The wording of the surety bond must be identical to the wording specified in Sec.
264.151(b).
(3) The owner or operator who uses a surety bond to satisfy the requirements of this section
must also establish a standby trust fund. Under the terms of the bond, all payments made
thereunder will be deposited by the surety directly into the standby trust fund in accordance with
instructions from the Regional Administrator This standby trust fund must meet the
requirements specified in Sec. 264.143(a), except that:
(i) An originally signed duplicate of the trust agreement must be submitted to the Regional
Administrator with the surety bond; and
(ii) Until the standby trust fund is funded pursuant to the requirements of this section, the
following are not required by these regulations
(A) Payments into the trust fund as specified in Sec. 264.143(a);
(B) Updating of Schedule A of the trust agreement (see Sec. 264.151(a)) to show current
closure cost estimates;
(C) Annual valuations as required by the trust agreement: and
(D) Notices of nonpayment as required by the trust agreement.
(4) The bond must guarantee that the owner or operator will:
(i) Fund the standby trust fund in an amount equal to the penal sum of the bond before the
beginning of final closure of the facility; or
(ii) Fund the standby trust fund in an amount equal to the penal sum within 15 days after an
administrative order to begin final closure issued by the Regional Administrator becomes final,
or within 15 days after an order to begin final closure is issued by a U.S. district court or other
court of competent jurisdiction; or
(iii) Provide alternate financial assurance as specified in this section, and obtain the Regional
Administrator’s written approval of the assurance provided, within 90 days after receipt by both
RCRA Subtitie C Closure and Post-Closure: EPA Financial Assurance Training
14

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Surety Bond: Case Study
Waste Cleansing Inc. — Small Group Discussion, Surety Bond Documentation
the owner or operator and the Regional Administrator of a notice of cancellation of the bond
from the surety.
(5) Under the terms of the bond, the surety will become liable on the bond obligation when the
owner or operator fails to perform as guaranteed by the bond.
(6) The penal sum of the bond must be in an amount at least equal to the current closure cost
estimate, except as provided in Sec. 264.143(g).
(7) Whenever the current closure cost estimate increases to an amount greater then the penal
sum, the owner or operator, within 60 days after the increase, must either cause the penal sum
to be increased to an amount at least equal to the current closure cost estimate and submit
evidence of such increase to the Regional Administrator, or obtain other financial assurance as
specified in this section to cover the increase. Whenever the current closure cost estimate
decreases, the penal sum may be reduced to the amount of the current closure cost estimate
following written approval by the Regional Administrator.
(8) Under the terms of the bond, the surety may cancel the bond by sending notice of
cancellation by certified mail to the owner or operator and to the Regional Administrator.
Cancellation may not occur, however, during the 120 days beginning on the date of receipt of
the notice of cancellation by both the owner or operator and the Regional Administrator, as
evidence by the return receipts.
(9) The owner or operator may cancel the bond if the Regional Administrator has given prior
writtea. !!se edon_his receipt of evidence of alternate financial assurance as specified in
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 15

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Surety Bond: Case Study
Waste Cleansing Inc. — Small Group Discussion, Surety Bond Documentation
Regulatory Language for Surety Bond Guaranteeing Performance of Closure,
as specified at 40 CFR 264.143(C)
Performance Bond
(C) Surety bond guaranteeing performance of closure.
(1) An owner or operator may satisfy the requirements of this section by obtaining a surety bond
which conforms to the requirements of this paragraph and submitting the bond to the Regional
Administrator. An owner or operator of a new facility must submit the bond to the Regional
Administrator at least 60 days before the date on which hazardous waste is first received for
treatment, storage, or disposal. The bond must be effective before this initial receipt of
hazardous waste. The surety company issuing the bond must, at a minimum, be among those
listed as acceptable sureties on Federal bonds in Circular 570 of the U.S. Department of the
Treasury.
(2) The wording of the surety bond must be identical to the wording specified in Sec. 264.151(c).
(3) The owner or operator who uses a surety bond to satisfy the requirements of this section
must also establish a standby trust fund. Under the terms of the bond, all payments made
thereunder will be deposited by the surety directly into the standby trust fund in accordance with
instructions from the Regional Administrator. This standby trust must meet the requirements
specified in Sec. 264.143(a), except that:
(i) An originally signed duplicate of the trust agreement must be submitted to the Regional
Administrator with the surety bond; and
(ii) Unless the standby trust fund is funded pursuant to the requirements of this section, the
following are not required by these regulations:
(A) Payments into the trust fund as specified in Sec. 264.143(a);
(B) Updating of Schedule A of the trust agreement (see Sec. 264.151(a)) to show current
closure cost estimates;
(C) Annual valuations as required by the trust agreement; and
(D) Notices of nonpayment as required by the trust agreement.
(4) The bond must guarantee that the owner or operator will:
(i) Perform final closure in accordance with the closure plan and other requirements of the
permit for the facility whenever required to do so; or
(ii) Provide alternate financial assurance as specified in this section, and obtain the Regional
Administrator’s written approval of the assurance provided, within s after receipt by both
the owner or operator and the Regional Administrator of a notice oTcancellation of the bond
from the surety.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
16

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Surety Bond: Case Study
Waste Cleansing Inc. — Small Group Discussion, Surety Bond Documentation
(5) Under the terms of the bond, the surety will become liable on the bond obligation when the
owner or operator fails to perform as guaranteed by the bond. Following a final administrative
determination pursuant to section 3008 of RCRA that the owner or operator has failed to
perform final closure in accordance with the approved closure plan and other permit
requirements when required to do so, under the terms of the bond the surety will perform final
closure as guaranteed by the bond or will deposit the amount of the penal sum into the standby
trust fund.
(6) The penal sum of the bond must be in an amount at least equal to the current closure cost
estimate.
(7) Whenever the current closure cost estimate increases to an amount greater than the penal
sum, the owner or operator, within 60 days after the increase, must either cause the penal sum
to be increased to an amount at least equal to the current closure cost estimate and submit
evidence of such increase to the Regional Administrator, or obtain other financial assurance as
specified in this section. Whenever the current closure cost estimate decreases, the penal sum
may be reduced to the amount of the current closure cost estimate following written approval by
the Regional Administrator.
(8) Under the terms of the bond, the surety may cancel the bond by sending notice of
cancellation by certified mail to the owner or operator and to the Regional Administrator.
Cancellation may not occur, however, during the 120 days beginning on the date of receipt of
the notice of cancellation by both the owner or operator and the Regional Administrator, as
evidenced by the return receipts.
(9) The owner or operator may cancel the bond if the Regional Administrator has given prior
written consent. The Regional Administrator will provide such written consent when:
(i) An owner or operator substitutes alternate financial assurance a ctiorn
(ii) T e ions minis ra or re eases the owner or operator from the requirements of this
section in accordance with Sec. 264.143(i).
(10) The surety will not be liable for deficiencies in the performance of closure by the owner or
operator after the Regional Administrator releases the owner or operator from the requirements
of this section in accordance with Sec. 264.143(i).
RCRA Subtitle C Closure and Post-Ciosure: EPA Financial Assurance Training 17

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Surety Bond: Case Study Answers
Waste Cleansing, Inc. — Answer Key for Table 1, Response to Financial Times Article
Question 1: As The Regulator, What Actions (If Any) Do You Take In Response To
The Financial Times Article?
As the regulator, you should be troubled by the disclosures in the Financial Times
article.
The article suggests that Bastion Insurance Company is no longer going to underwrite
environmental remediation activities in the near- to long-term. As the regulator, you realize
that if Bastion decides to cancel the bond, and WCI is unable to post an alternate, acceptable
financial assurance mechanism, there is the risk that the company may not be able to meet its
closure obligations. Moreover, depending on WCI’s financial health, the company may find it
difficult to find an alternate financial assurance mechanism for the full $25 million within the 90
day period required by the regulations.
Accordingly, you should consider contacting WCI management immediately to discuss the
situation. By initiating this dialogue, you put the company on notice that you are aware of
Bastion’s decision to exit the surety market and are actively monitoring the situation.
Depending on your conversation with WCI, you may want to request additional information
from the company. For example, you may want to ask for a copy of WCI’s financial
statements for the most recent fiscal year. Alternatively, you may want to have WCI contact
the Surety and inquire as to the renewal status of the bond.
If you find that either WCI or the Surety are not responsive to your requests for information,
you may want to contact an Agency attorney and initiate proceedings for drawing on the bond
prior to the renewal date.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 9

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Surety Bond: Case Study Answers
Waste Cleansing Inc. — Answer Key for Table 2a, Surety Bond Documentation
Question 2a: Payment Bond
What are the regulatory requirements with
regard to cancellation of a payment bond?
(4) The bond must guarantee that the owner
or operator will:
(I) Fund the standby trust fund in an
amount equal to the penal sum of the
bond before the beginning of final closure
of the facility; or
(ii) Fund the standby trust fund in an
amount equal to the penal sum within 15
days after an administrative order to begin
final closure issued by the Regional
Administrator becomes final, or within 15
days after an order to begin final closure
is issued by a U.S district court or other
court of competent jurisdiction; or
(iii) Provide alternate financial assurance as
specified in this section, and obtain the
Regional Administrator’s written approval of
the assurance provided, within 90 days after
receipt by both the owner or operator and the
Regional Administrator of a notice of
cancellation of the bond from the surety.
(8) Under the terms of the bond, the surety
may cancel the bond by sending notice of
cancellation by certified mail to the owner or
operator and to the Regional Administrator.
Cancellation may not occur, however, during
the 120 days beginning on the date of receipt
of the notice of cancellation by both the
owner or operator and the Regional
Administrator, as evidenced by the return
receipts.
What are the regulator’s next steps?
The regulator must ensure that the surety
is not canceling the bond within 120 days
of notifying the regulator.
The regulator must ensure that the surety
has sent written notice of cancellation by
certified mail to WCI and to the regulator.
The regulator must ensure that WCI has
secured alternate financial assurance and
obtained the regulator’s approval for
these mechanisms within 90 days of
notice of cancellation.
The regulator may suggest replacing the
surety with a combination of financial
assurance mechanisms: corporate
financial test, trust fund, letter of credit,
and/or surety.
If the Company fails to provide alternate
financial assurance within the 90 days.
the regulator can direct the Surety to pay
up to the face value of the bond into the
standby trust fund. The regulator should
notify the Trustee of the standby trust
fund in advance of expected payments
into the trust by the Surety.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
12

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Surety Bond: Case Study Answers
Waste Cleansing Inc. — Answer Key for Table 2b, Surety Bond Documentation
Question 2b: Performance Bond
What are the regulatory requirements with
regard to cancellation of a performance
bond?
(4) The bond must guarantee that the owner
or operator will:
(I) Perform final closure in accordance
with the closure plan and other
requirements of the permit for the facility
whenever required to do so; or
(ii) Provide alternate financial assurance as
specified in this section, and obtain the
Regional Administrator’s written approval of
the assurance provided, within 90 days after
receipt by both the owner or operator and the
Regional Administrator of a notice of
cancellation of the bond from the surety.
(8) Under the terms of the bond, the surety
may cancel the bond by sending notice of
cancellation by certified mail to the owner or
operator and to the Regional Administrator.
Cancellation may not occur, however, during
the 120 days beginning on the date of receipt
of the notice of cancellation by both the
owner or operator and the Regional
Administrator, as evidenced by the return
receipts.
What are the regulator’s next steps ’
The regulator must ensure that the surety
is not canceling the bond within 120 days
of notifying the regulator.
The regulator must ensure that the surety
has sent written notice of cancellation by
certified mail to WCI and to the regulator.
The regulator must ensure that WCI has
secured alternate financial assurance and
obtained the regulator’s approval for
these mechanisms within 90 days of
notice of cancellation.
The regulator may suggest replacing the
surety with a combination of financial
assurance mechanisms: corporate
financial test, trust fund, letter of credit,
and/or surety.
It is unclear what recourse the
regulator has in the case of a
performance bond, as the Surety may
refuse to make payment into the
standby trust fund. And, instead, opt
to perform closure.
RCRA Subtitle C closure and Post-Closure: EPA Financial Assurance Training
13

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Surety Bond: Case Study
Waste Cleansing, Inc. — Large Group Discussion, Delisted from U.S. Treasury Circular
570
Problem Set 3 :
Assume that rather than cancel WCI’s bond, Bastion Insurance Company is delisted from the
U.S. Treasury Circular 570. Assess whether your actions might change; and if so, how they
might change.
Documents for your review include:
> Answer Table 3 (blank template to assist in your review)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 18

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Surety Bond: Case Study
Waste Cleansing, Inc. — Answer Table 3, Delisted from U.S. Treasury Circular 570
Question 3: What are your actions (if any) if Bastion Insurance is delisted from the U.S.
Treasury Circular 570?
,? 1
f
>*
>
>
RCRA Subtitle C Closure and PostClosure: EPA Financial Assurance Training 19

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Surety Bond: Case Study Answers
Waste Cleansing, Inc. — Answer Key for Table 3, Delisted from U.S. Treasury Circular
570
Question 3: What are your actions (if any) if Bastion Insurance is delisted from the U.S.
Treasury Circular 570?
A company is required to obtain approved alternative financial assurance within 60 days of a
surety entering bankruptcy or having its name removed from Circular 570. The regulator may
suggest replacing the surety with a combination of financial assurance mechanisms:
corporate financial test, trust fund, letter of credit, and/or surety.
Note, removal of Company from Circular 570 does not mean that the surety bond is no longer
valid. Rather, it means that the company is in violation of RCRA Subtitle C regulations.
RCRA Subtitie C Closure and Post-Closure: EPA Financial Assurance Training 20

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Low
Risk
coO
This document is intended to provide guidance go EPA staff It does not create any
legally binding requirements on EPA, States, or the regulated community, and does
not create any right or benefit, substantive or procedural This document is not a
rninplete representation of RCRA or ofEPA’s regulations and views, and may not
‘sarilv reflect the current position of EPA
Surety Bond
Financial Assurance Mechanisms
RCRA Subtitle C Closure & Post-Closure December 2004
How it Works:
A Surety Bond is a contract between two parties. One party
(the Surety) guarantees that the obligations of the second
party (the Principal) will be met. For purposes of financial
assurance, the owner/operator of a Subtitle C treatment,
storage, or disposal facility ( the Company”) is the Principal.
Through a surety bond, the Surety guarantees to the
Regulator that it will meet the Company’s closure and/or
post-closure obligations, up to the bond limits, if the
Company is unable to do so.
The RCRA regulations allow for two types of surety bonds.
The first type, performance bonds, are allowed only at
permitted facilities. With performance bonds, the surety
- irantees that it will either: 1) perform the requisite
ure/post-closure activity in accordance with the plan on
ialf of the Company; 2) pay out the face value of the
bond into a standby trust fund. Performance bonds can not
be combined with other financial assurance mechanisms.
The second type, financial guarantee (or payment) bonds,
are allowed at permitted and interim status facilities. With
payment bonds, the surety guarantees that it will pay out the
face value of the bond into a standby trust fund in the event
that the Company fails to perform as required under the
bond agreement, and the Regulator informs the surety of this
failure to perform. With either type of surety bond, the surety
retains the right to pursue reimbursement from the Company
for funds paid on its behalf.
Similar to a bank with a Letter of Credit, the Surety provides
the Company with its financial backing. In return for the
Surety’s guarantee, the Company pays an annual premium.
The premium is based on the face value of the bond.
Depending on the perceived risk that the Company will
default on its obligations, the Surety may require cash
collateral and/or accelerated payment of premiums to ensure
the bond is fully-funded by the Company
Cost to the Company
The cost to the Company of obtaining a surety bond is a
function of its credit worthiness (or financial solvency).
Emphasis is placed on prequalification by the Company
The greater the risk to the Surety of having to pay out on the
bond, the higher the cost to the Company. Essentially, the
Surety is not willing to underwrite a bond for a company that
is unstable or facing financial distress.
Finally, it is important to note that surety bonds are not risk-
free. The Regulator is guaranteed access to the full value of
the surety bond. However, the Regulator faces some risk
that funds will not be available to pay for closure and post-
closure should both the Company the Surety face
financial distress at the same time
What’s Required:
o The surety must be listed by the U.S. Department of the
Treasury on its Circular 570. The Circular can be
accessed at: http://fms.treas.ciov/c570/index.html .
u The Circular will list the maximum amount each surety
can guarantee under one bond. The Circular also will
list states in which each qualified surety is licensed. The
Circular’s footnotes include information on reinsurance.
Q The text of the surety bond must be identical to the
wording under §264.151(b)
o A standby trust fund must be established with a qualified
financial institution according to the requirements for
trust funds stipulated at §264.143(b) and §264.145(b) for
permitted facility closure and post-closure, and
§265.143(b) and §265.145(b) for interim status closure
and post-closure
o The face value of the surety bond must equal the
current estimated costs of closure and post-closure.
o The Company must provide the Regulator with the
surety bond and an originally signed copy of the standby
trust agreement. The surety bond must be signed by the
Surety and the Company.
What Happens If.
The closure/post-closure cost estimates change?
o If the cost estimates increase to an amount greater than
the face value of the surety bond, the Company must
either: 1) increase the amount of the bond; or 2) obtain
alternate financial assurance to cover the shortfall in
coverage.
M e d iu m

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What Happens If...
(Continued)
o The Company must act within 60 days of the change in
cost estimates.
o If the cost estimates decrease, the Regulator should
request and review documentation supporting the
decrease. If the decrease is supported, the Regulator
may approve a reduction in the face value of the bond.
The surety attempts to cancel the bond?
o The surety must send written notice of cancellation by
certified mail to the Company to the Regulator.
o The surety can not cancel the bond within 120 days of
notifying the Regulator.
o The Company has 90 days to secure alternate financial
assurance obtain the Regulator’s approval.
o If the Company fails to provide alternate financial
assurance within the 90 days, the Regulator can direct
the Surety to pay up to the amount guaranteed by the
bond into the standby trust fund.
The Regulator wants to draw on the bond for closure
and post-closure care?
o For payment bonds, the Regulator must make a
determination pursuant to section 3008 of RCRA that the
company has failed to perform in accordance with the
applicable requirements, and issue a demand letter to
the Surety instructing them to place the face value of the
bond into the pre-established standby trust fund. The
demand letter should explain why the Surety is being
required to pay into the trust on behalf of the Company.
o For performance bonds, the Regulator notifies the surety
that the Company has failed to meet its obligations
under the terms of the bond, and the Surety may fulfill
the obligations of the Company either by: 1) securing
performance of the closure and/or post-closure plans,
permit and other applicable RCRA requirements; or 2)
depositing the face value of the bond into the standby
trust fund.
o The Regulator should notify the Trustee of the standby
trust fund in advance of expected payments into the trust
by the Surety.
The Surety enters bankruptcy or is removed from
Circular 570?
o The Company is required to obtain alternative financial
assurance within 60 days after the bankruptcy of the
Surety the removal of the Surety’s name from Circular
570.
Why it Works:
o The Surety acts as a backstop to the Company.
o Depending on the type of bond, the Surety guarantees
that the closure and/or post-closure requirements will be
met either through: 1) payment of the face value into a
standby trust; 2) performance of closure and post-
closure care.
o Surety bonds can be a lower cost option to the Company
than Trust Funds or Letters of Credit.
Challenges:
o Accurate and current cost estimates for closure and
post-closure are essential.
o Sureties only underwrite bonds in cases where it do€
not expect-to have to pay out (or perform). Therefor
only the most healthy and financially stable companies
are able to obtain surety bonds.
o Few sureties are willing to underwrite bonds for
environmental liabilities without. 1) substantial payment
of cash collateral up front (as much as 95 percent); and
2) accelerated premium payments (i.e. over two to five
years). Accordingly, surety arrangements can be costly
for the Company.
o Surety bonds are not without risk to the Regulator.
There is the possibility that the Surety and the Company
may face financial insolvency at the same time. In such
cases, the Company may have greater difficulty finding
alternative financial assurance within the prescribed 60
day time frame.
o With performance bonds, the Surety may opt to perform
closure and/or post-closure activities, but not have the
expertise to properly perform the activities.
o If one Surety covers a substantial number of facilities for
the Company, the Regulator may be at greater risk. The
lack of diversification by the Surety may lead to a lack of
independence between the financial solvency of the
Company and the Surety.
o Surety companies may opt to secure only a small
fraction of the bond’s value, and pool (or reinsure) th
remaining amount. It is important to ensure that any
reinsurers are listed on Circular 570.
Tips for Ensuring 5uccess:
o Encourage the surety to include in the bond agreement
the optional rider to automatically increase the face
value to reflect current cost estimates.
o In the event the Company sells its facility (“transfer of
ownership ), the Regulator should retain the original
surety bond until such time as the new owner submits
acceptable financial assurance to the Regulator. After
review and approval, the Regulator can release the
former owner’s financial assurance.
o In the event the Company (or Surety) experiences a
name change or merger, the Regulator should ensure
that all financial documents reflect the current legal
name of both the Company and the Surety.
o Place the original, signed document(s), including the
surety bond and the standby trust fund agreement in a
safe place (i.e., a fire-proof safe) with no public access.
o Regularly check that the Surety (and any reinsurers) are
listed by the U.S. Department of the Treasury on its
Circular 570. Sign up on the Department of Treasury ’s
website to receive notifications of changes in the list.
ci Remember, only the Regulator may approve a reductiou
in the face value of the bond.
RCRA Subtitle C Ciosure and post-Closure: Surety Bond

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RCRA SUBTITLE C FINANCIAL ASSURANCE
CHECKLIST DOCUMENTS
Surety Bond

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND INFORMATION
Company Name: _________________________________ EPA ID #:______________________
SURETY BOND: A guarantee by a surety company that the owner’s or operator’s financial assurance obligations
will be fulfilled. If the owner or operator fails to pay or perform as specified in the bond, the
surety company will become liable.
iNSTRUMENT COVERS: U CLOSURE U POST-CLOSURE CARE
U THIRD PARTY LIABILITY-SUDDEN ACCIDENTAL OCCURRENCES
U THIRD PARTY LIABILITY-NONSUDDEN ACCIDENTAL OCCURRENCES
INSTRUMENT TYPE: PAYMENT BOND U PERFORMANCE BOND
SURETY NAME:
ADDRESS:
CONTACT PERSON/TITLE:
CONTACT PHONE NO.:
BOND NUMBER:
BOND EFFECTIVE DATE:
FACE VALUE OF BOND:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND INFORMATION
Company Name: _________________________________ EPA ID #:
CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENT/DATE: _____
POST-CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENT/DATE: _____
ANNUAL AGGREGATE AMOUNT
SUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
NONSUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
FACE VALUE OF BOND:
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND GUARANTEEING PAYMENT INTO A CLOSURE TRUST FUND
Company Name:___________________________________ EPA ID#:______________
YES NO QUESTION COMMENTS
J Is the surety company listed as an acceptable surety in
U.S. Department of Treasury Circular 570? [ 40 CFR
§264. 143(b)(1); 40 CFR §265.143(b)(1)]
J Does the bond use wording identical to that specified
in 40 CFR §264.151(b)? [ 40 CFR §264.143(b)(2);
40 CFR §265.143(b)(2)J
U Does the bond make the surety liable if the owner or
operator fails to perform as guaranteed by the bond?
[ 40 CFR §264.143(b)(5); 40 CFR §265.143(b)(5)]
U Is the penal sum of the bond in an amount at least
equal to the current closure cost estimate? [ 40 CFR
§264.143(b)(6); 40 CFR §265.143(b)(6)]
U Has the owner or operator established a standby trust
fund? [ 40 CFR §264. 143(b)(3); 40 CFR
§265.1 43(b)(3)]
U U Was the bond submitted at least 60 days before the
date on which hazardous waste was first received for
treatment, storage or disposal? [ 40 CFR
§264.143(b)(1); 40 CFR §265.143(b)(1)]
U j Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR
§264.1 43(b)(3)(i); 40 CFR §265. 143(b)(3)(i)]
Reviewed by:
Date: _______

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND GUARANTEEING PERFORMANCE OF CLOSURE*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U U Is the surety company listed as an acceptable surety in
U.S. Department of Treasury Circular 570? [ 40 CFR
§264.143(c)(l)]
U J Does the bond use wording identical to that specified
in 40 CFR §264.151(c)? [ 40 CFR §264.143(c)(2)]
U J Does the bond make the surety liable if the owner or
operator fails to perform as guaranteed by the bond?
[ CFR §264.1 43(c)(5)]
[ J [ ] Is the penal sum of the bond in an amount at least
equal to the current closure cost estimate? [ 40 CFR
§264. 143(c)(6)]
UJ J Has the owner or operator established a standby trust
fund? [ 40 CFR §264.143(c)(3)]
U J Was the bond submitted at least 60 days before the
date on which hazardous waste was first received for
treatment, storage or disposal? [ 40 CFR
§264. 143(c)( 1); 40 CFR §264.1 45(c)( 1)]
U [ J Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR
§264. 143(c)(3)(i)]
Reviewed by: _______________________________________________
Date: ___________________________________________________________________
*NOTE: Performance Bonds are not acceptable for interim status facilities.

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND GUARANTEEING PAYMENT INTO A POST-CLOSURE TRUST FUND
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Is the surety company listed as an acceptable surety in
U.S. Department of Treasury Circular 570? [ 40 CFR
§264.1 45(b)(1); 40 CFR §265.1 45(b)( 1)]
Does the bond use wording identical to that specified
in 40 CFR §264.151(b)? [ 40 CFR §264.145(b)(2);
40 CFR §265.145(b)(2)]
Does the bond make the surety liable if the owner or
operator fails to perform as guaranteed by the bond?
[ 40 CFR §264.145(b)(5); 40 CFR §265.145(b)(5)]
U Is the penal sum of the bond in an amount at least
equal to the current post-closure cost estimate? [ 40
CFR §264.145(b)(6); 40 CFR §265.145(b)(6)]
J J Has the owner or operator established a standby trust
fund? [ 40 CFR §264.145(b)(3); 40 CFR
§265. 145(b)(3)]
U LJ Was the bond submitted at least 60 days before the
date on which hazardous waste was first received for
treatment, storage or disposal? [ 40 CFR
§264. 145(b)(1); 40 CFR §265. 145(b)(l)]
U Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR
§264.1 45(b)(3)(i); 40 CFR §265.1 45(b)(3)(i)]
Reviewed by:
Date: -- _____

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND GUARANTEEING PERFORMANCE OF POST-CLOSURE CARE*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Li Is the surety company listed as an acceptable surety in
the U.S. Department of Treasury Circular 570? [ 40
CFR §264. 145(c)(l)]
U Does the bond use wording identical to that specified
in 40 CFR §264.151(c)? [ 40 CFR §264.145(c)(2)]
U Does the bond make the surety liable if the owner or
operator fails to perform as guaranteed by the bond?
[ 40 CFR §264.145(c)(5)]
U Is the penal sum of the bond in an amount at least
equal to the current post-closure cost estimate? [ 40
CFR §264. 145(c)(6)]
Li Has the owner or operator established a standby trust
fund? [ 40 CFR §264. 145(c)(3)]
U Was the bond submitted at least 60 days before the
date on which hazardous waste was first received for
treatment, storage or disposal? [ 40 CFR
§264.1 45(c)( 1)]
U Has an originally signed duplicate of the trust
agreement been submitted? [ 40 CFR
§264. 145(c)(3)(i)]
Reviewed by: _________________________________________________
Date: _____________________________________________________________
*NOTE: Performance Bonds are not acceptable for interim status facilities.

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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 3, Copy of Policy XA1 23456
Policy
Language
Issue(s)/Points of Consideration
Implications/Questions
Section I,
Insuring
Agreement
> The policy infers two classes of sites,
including facilities listed on Exhibit A
and Exhibit B. However, the policy
does not include “Exhibit A” or “Exhibit
B” Accordingly, the regulator does not
know whether the sites under
consideration (i e., Dunes, Inc. or
Eden, Inc.) are covered by the policy,
- It is unclear whether sites acquired
directly or indirectly by Allied Brick
after 8/1/1998 are covered by the
policy.
> Makes reference to Exhibits A and B,
but neither are provided.
The policy is not dedicated solely to
covering the sites in question.
Accordingly, the regulator is at risk
that, if the limit of liability stipulated by
the policy is exhausted covering claims
associated with other sites, no
coverage remains for the sites under
consideration.
Also, it is not clear on which Exhibit the
Dunes, Inc. and Eden, Inc. are listed.
Section II,
Definitions
The policy references the Closure and
Post-Closure plans as attached in
Appendices A and B. Neither
appendices are included
- Again there is reference made to
Exhibits A and B.
The policy makes reference to a
“retroactive date,” but the actual date is
not provided.
- The Regulator should request copies
of Appendices A and B.
The Regulator should request more
information regarding the retroactive
date of the policy.
Section III,
Territory
. . The section does not limit the
coverage of the policy to only the sites
under consideration.
.. This section suggests that this is not a
dedicated insurance policy.
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 3, Copy of Policy XA1 23456
Policy
Language
Issue(s)/Points of Consideration
lmplications!Questions
Section IV,
Exclusions
The policy only applies to dosure and
post-closure costs ansing y from
sites listed on Exhibits A or B.
> Closure and post-closure costs outside
the policy territory” are not covered,
nor are costs from events prior to the
policy’s inception date (or 8/1/1998) or
after its cancellation date (1/1/2005).
The policy does not cover claims
arising from transportation or removal
of pollutants away from a listed site.
> It is not clear whether Dunes, Inc. or
Eden, Inc., are covered sites.
The policy limits claims to only those
made between the policy period (i.e..
between August 1998 and January
2005).
- Limits are placed on what constitutes a
viable pollution event for purposes of
submitting a claim.
Section V.
Limit of
Liability and
Deductible
Limit of Liability = $10 million
Exhibit B sites = $5 million;
, essentially closure and post-closure
costs for Exhibit B sites can not
.- exceea-tñiiitjblimit
- Deductible = $2.5 million
> All sublimits are part of the limit of
liability; they are not in addition to the
aggregate limit.
- The deductible can not be reinsured.
Allied Brick must cover the first $2.5
million in acceptable claims before the
insurer begins to make payment on
claims.
No information is provided by the
Company or the Insurer indicating how
much (if anything) of the limit of liability
or respective sublimit has been
exhausted.
Question. How much has Allied Brick
paid in acceptable claims against the
deductible 9 What (if anything) of the
deductible remains 9 —
> Does the company maintain separate
assurance to cover payment of the
$2.5 milbon deductible?
Section VI,
Claims
Provision
Prior written approval of closure and
post-closure expenses is required by
the Insurer.
No further action
)
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 3, Copy of Policy XA1 23456
Cancellation: The policy period ends
either: 1) if the Insured (Allied Brick)
cancels the policy, 2) the limit of
liability is exhausted; or 3) based
upon fraud
If the policy is terminated, neither
Allied Brick, nor Monument Insurance
Limited have any further liability or
obligation under the policy.
Allied Brick can commute (terminate)
the policy with 90 days advance notice
to the Regulator and the Insurer after
January 1,2005.
5. Assignment. The policy can not be
transferred or assigned without prior
written consent of Allied Brick or
Monument Insurance Limited.
In such a case, Allied Brick would
need to provide consent for Monument
Insurance Limited to assign its rights
to its reinsurer.
> Moreover, in such a case, the
Reinsurer is not obligated to make
payments against the policy unless
having explicitly consented in writing
that it will do so.
11. Premium: Premium = $8,742,828
Carefully review the Cancellation
clause. This section infers that the
Policyholder (i.e., Allied Bnck) can
terminate the policy.
> This poses a serious risk to the
regulator if closure or post-dosure
activities covered by the policy extend
past January 1, 2005, and the
company opts to terminate the policy.
The Assignment language may pose
concerns to the regulator in the event
Allied Brick or Monument Insurance
Limited dissolves its operations and
seeks to transfer or assign the policy.
If the reinsurer refuses consent, it is
unclear what recourse is left to the
regulator.
What happened to the premium
payment?
- Full amount of the premium paid on
August 1, 1998 to Monument
Insurance Limited.
. There is nQautomatic renewal clause
included in the policy.
Exhibits!
> Not Provided.
- These are extremely important, and
Appendices
the regulator should request that the
company provide them.
Section VII,
Conditions
2.
Policy
Language
lssue(s)!Points of Consideration
Implications/Questions
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Conclusions and Recommendations
Problem Set 4
Make a recommendation for whether to accept Allied Brick’s demonstration of financial assurance.
Pay particular attention to all of the information that you have reviewed.
In light of your findings, use Answer Table 4 to organize your thoughts. Consider whether or not
Allied Brick’s insurance policy demonstrates adequate financial assurance for purposes of closure
and post-closure. If not, what are your primary areas of concern? What are your
recommendations for going forward? Anticipate sharing your findings with the larger group.
Documents for your review include:
> Answer Table 4 (blank document to assist in your review)
Recommended review time: 20 mins.
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Insurance: Case Study
Allied Brick Company, Inc. — Answer Table 4, Conclusions and Recommendations
Question 1: Relying on the documents provided by Allied Brick, determine whether or not
the insurance policy demonstrates adequate financial assurance for purposes of closure
and post.closure.
Yes No
Question 2: What (if any) are the key areas of concern with respect to Allied Brick’s
policy?
Question 3:
What are your next steps?
What additional information might you
request from Allied Brick?
>
>
.
;.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 31

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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 4, Conclusions and Recommendations
Question 1: Relying on the documents provided by Allied Brick, determine whether or not
the insurance policy demonstrates adequate financial assurance for purposes of closure
and post-closure.
Yes No
The documents provided by Allied Brick regarding its insurance policy do not demonstrate
adequate financial assurance for purposes of closure and post-closure. The insurance policy
submitted was incomplete, missing Appendices A and B, and Exhibits A and B. In addition, some
of the terms of the policy are unclear, including what sites are covered under the policy, the limit of
liability, and terms of cancellation.
Question 2: What (if any) are the key areas of concern with respect to Allied Brick’s
policy?
- Exhibits A and B were not included in the insurance policy. Without this information, it is not clear
whether Dunes, Inc or Eden, Inc are covered, or if there are any additional sites included in this policy.
Appendices A and B, outlining the Closure and Post-closure plans were not included in the insurance
policy
No information is provided indicating how much (if anything) of the limit of liability or respective sublimits
have been exhausted, or how much of the deductible remains.
The cancellation policy infers that the policy can be terminated by the Policyholder. This poses a
serious risk to the regulator if closure and post-closure activities covered by the policy extend past the
January 1. 2005
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 4, Conclusions and Recommendations
Question 3:
What are your next steps?
What additional information might you
request from Allied Brick?
Issue a follow-up request for additional The regulator should follow-up with Allied Brick
information from Allied Brick. requesting the following items:
Request that Allied Brick submit the additional A copy of all Exhibits, Appendices, and
information within 30 days of the request, or Endorsements related to Policy XAI 23456 by
Allied Brick must post alternate financial Monument Insurance Limited.
assurance.
- An accounting of payments (if any) made by the
insured against the 2.5 million deductible cited in
Section V, Limit of Liability and Deductible,
including how much of the deductible remains
and whether the insured maintained a separate
insurance policy to cover the closure and post-
closure costs related to the two facilities.
How much of the $5 million sublimit remains.
- An explanation of how the premium payment
was distributed given the level of capital
reserves ($42,828) reported by Monument
Insurance Limited in their letter dated August 1,
2003. The regulator should also inquire whether
any funds remain from the premium payment to
make payments on claims made against the
policy, and whether the insurer intends to make
payments on claims made against the policy.
Additional information on Bam Eau Reinsurance.
Are they a captive insurance company? The
regulator should also request a copy of all
reinsurance agreements between Monument
Limited and its reinsurer.
A complete list of all loan agreements, including
exhibits, attachments, and amendments
stipula ng payment terms for the $700,000 in
loans made by Allied Brick to Monument
Insurance, including an accounting of any
repayments made by Allied Brick to Monument
Insurance Limited since August 1, 1998.
> Policy cancellation terms.
Additional information on the “Retroactive Date”
of the policy.
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 4, Follow-up Request for Information
August 18, 2003
Certified Mail No. ______________________
Return Receipt Requested
Sallie Maelyler,
Vice President and CEO
Allied Brick Company, Inc.
do Hip Hop Poste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
RE: FOLLOW-UP REQUEST FOR INFORMATION
Dear Ms. Tyler:
Based on the Region’s review of financial assurance coverage for the Dunes, Inc. and
Eden, Inc. facilities in Topsfield, USA, the Region has determined that additional information is
necessary to further evaluate the adequacy of compliance with the requirements specified under
Subpart H of 40 CFR Part 264. Therefore, pursuant to the Region’s authority under Section 3007
of the Resource Conservation and Recovery Act (RCRA), the Region hereby requests the
following information be submitted to me at the address below within 30 days of receipt of this
letter.
1) Provide an accounting of payments (if any) made by the insured against the
$2.5 million deductible cited in Section V, Limit of Liability and Deductible.
a) How much of the deductible remains 7
b) Does the insured maintain a separate insurance policy (or other
mechanism) to cover the closure and/or post-closure costs related to the
Dunes, Inc. and Eden, Inc. faciIities 7
2) Provide a copy of all Exhibits and Endorsements related to Policy XAI 23456 by
Monument Insurance Limited, including but not limited to Exhibits A & B and
Appendices A & B.
3) How much of the sublimit of $5 million remains?
4) According to your letter of August 1, 2003 Monument Insurance Limited
maintains capital reserves of $42,828. According to Section VII, Conditions
(11. Premium), a fully-funded premium payment of $8,742,828 was paid on
August 1, 1998 to activate the policy.
a) Explain how the premium payment was distributed.
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 4, Follow-up Request for Information
a) What (if any) funds remain from the premium payment to make payment on
claims made against the policy?
b) How does the insurer intend to make payment on claims made against the
policy?
5) Barn Eu Reinsurance is listed as the reinsurer for Monument Insurance Limited
a) Is the reinsurer a captive insurance company?
b) Provide a copy of all reinsurance agreement(s) between Monument
Insurance Limited and its reinsurer, complete with all exhibits, attachments,
and updates.
6) Provide all loan agreements, including exhibits, attachments, and amendments
stipulating payment terms for the $700,000 in loans made by Allied Brick to
Monument Insurance Limited. Also provide an accounting of any (re)payments
made by Allied Brick to Monument Insurance Limited since August 1, 1998.
7) Under what conditions (if any) can the policy be canceled?
8) What is the “Retroactive Date” of the policy?
The information requested in this letter must be provided notwithstanding its possible
characterization as confidential business information or trade secret. If Allied Brick refuses to
provide this information, then alternate financial coverage must be submitted within 30 days of
receipt of this letter. Adequate financial assurance is necessary to ensure that Allied Brick has the
necessary resources to implement the closure and post-closure plan that has been proposed for
the site.
Should you have any questions concerning this letter or wish to meet with the Region within
the next 30 days to discuss this matter (in person or via telephone conference call), you may
contact me at (123) 456-7890.
Sincerely,
Tammy Fay
Tammy Fay
EPA, Region Z
Somewhere, USA 12345
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 4, Allied Brick Response
September 14, 2003
Tammy Fay
EPA, Region Z
Somewhere, USA 12345
Dear Ms. Fay,
In response to your letter dated August 18, 2003 regarding the insurance policy Allied Brick
submitted on behalf of Dunes, Inc. and Eden, Inc., we note the following:
- No deductible remains.
As of August 30, 2003, remaining coverage under the policy totals $6,444,444, all of
which is applicable to sites, including but not necessarily limited to the Dunes, Inc. and
Eden, Inc. facilities. We believe that the coverage that remains is sufficient to cover
the closure and post-closure activities associated with the Allied Brick facilities. We
propose to provide you with updated coverage, as required, should the need arise at
some point in the future.
- Allied Brick is willing to provide you with written certification from Monument Insurance
Limited regarding the remaining coverage under the policy.
With respect to capital reserves, Monument Insurance Limited is reinsured by Barn Eu
Reinsurance Company of Swiss Miss Corporation. The reinsurer is not a captive of
Allied Brick or any affiliated companies.
Of the $8,742,828 premium amount, $8,000,000 was paid to Bam Eu Reinsurance.
Please do not hesitate to call me with questions, or if you require additional information.
Regards,
Sallie Mae Tyler
Sallie MaeTyler,
Vice President and CEO
Allied Brick Company, Inc.
c/a Hip Hop Paste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 4, Final Thoughts and Next Steps
In light of Allied Brick’s letter responding to the Region’s follow-up request for information, the
regulator hosted a conference call with Allied Brick. At issue was whether the policy covered the
entire closure and post-closure period; that is, under what conditions might the policy be canceled.
The company asserted that the existing policy could not be canceled by any party other than Allied
Brick after 2005 . After 2005, however, Allied Brick can cancel the policy with fifteen (15) days
advance notice to the Insurer as long as it is after January 1, 2005. The regulator requested
confirmation from Allied Brick and its reinsurer that the policy would be perpetually renewed for the
duration of the closure and post-closure period. The company (and its reinsurer) declined to
provide a signed certification so stipulating.
Also at issue was the company’s failure to provide additional (financial) information regarding
Monument Insurance Limited’s arrangements with its reinsurer. Given that Monument Insurance
Limited is a captive insurance company, and much of the premium paid to establish the policy was
passed through to the reinsurer, the regulator sought a better understanding of the financial
solvency of the reinsurer. This information was particularly important given that the reinsurers, and
not Monument Insurance Limited, were responsible for making payment on claims made against
the policy. Without such information, the regulator was limited in its ability to determine whether
sufficient funds remained to make payments on claims before after 2005. The company also
refused to provide this information to the regulator.
Likewise, Allied Brick failed to provide any further information regarding the $700,000 loanback. In
addition, the Insurer refused to modify the 90 day notification period for cancellation to 120 days or
include the automatic renewal clause stipulated by the regulations.
As a result, the regulator required the company to post alternate financial assurance as a backstop
to the policy. This alternate assurance could be in the form of a trust fund, letter of credit, or
corporate guarantee. The regulator was concerned about what would happen after 2005; that is,
after the date the policy might be canceled. The regulator also decided to request regular
(monthly, quarterly) declarations from Allied Brick and Monument Insurance Limited stipulating the
amount of funds remaining in the policy. These declarations are required until such time as a
backstop financial assurance mechanism is formally in place.
RCRA Subtitie C Ciosure and Post-Closure: EPA Financiai Assurance Training 37

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This document is intended to provide guidance to EPA staff It does not create any
legally binding requirements on EPA, States, or the regulated community, and does
not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or ofEPA’s regulations and views, and may not
- °ssa ri/v reflect the current position of EPA
Low
Risk
Financial Assurance Mechanisms
High
Risk
RCRA Subtitle C Closure & Post-Closure December 2004
How it Works:
An insurance policy is a contract between two parties. One party
(the Insurer) agrees to pay, on behalf of the second party (the
Policyholder) for claims made against the Policyholder or the
policy. For purposes of financial assurance, the owner/operator
of a Subtitie C facility (“the Company”) is the Policyholder
Through a policy, the Insurer agrees to reimburse the Company
(or another party) upon direction from the Regulator, for costs
incurred for closure and post-closure care. In return, the Insurer
requires that the Company pay: 1) a percentage of the policy
limit up front in the form of cash collateral; and 2) penodic cash
installments (or premiums). The cash collateral requirement and
premium payments often are based on the likelihood of: 1) the
loss occurring; and 2) the insurer having to pay claims up to the
policy limit. The insurance policy differs from the Certificate of
ance in that it provides more detail regarding the coverage
ded. Note, unlike other mechanisms, the Insurer reimburses
pdrtles directly; no stand by trust is required.
In general, there are two types of insurance policies. The first
type, risk transfer policies, assume the transfer of a future
expected loss (or liability) from the Company to the Insurer. In
exchange, the Insurer receives a premium payment from the
Company over the life of the policy. Often, general liability (e g,
automobile) insurance are issued on a risk-transfer basis,
because a loss under the policy has a relatively low probability of
occurring.
The second type, fully-funded policies, assume the transfer of a
future expected liability from the Company to the Insurer only for
a specific or ‘finite’ amount. Essentially, the Company pays the
Insurer an up-front premium equal to the net present value of the
future expected amount of the closure and post-closure costs.
Depending on the situation, the insurer may allow the Company
to pay in phases.
Risk transfer policies are no longer widely used for closure and
post-closure care. Many insurers underwnting closure and post-
closure care do so using only finite (or fully-funded) policies.
These policies tend to more closely resemble trust funds than
conventional general liability insurance policies, limiting the
liability (or risk exposure) of the insurer.
Cost to the Company
M odium
What’s Required:
u The insurer must be licensed to transact the business of
insurance or be eligible to provide insurance as an excess
(or surplus) lines insurer in at least one state.
o The face amount of the insurance policy (i.e., the total
amount the insurer is willing to reimburse under the
policy), must be at least equal to the current closure
and/or post-closure cost estimates.
o The insurance policy mustS
• Stipulate that the insurer may not cancel, terminate, or
fail to renew the policy except if the Company fails to
pay the premium.
• Be automatically renewable (or evergreen) at no less
than the face amount of the expiring policy.
• Contain a provision that allows the policy to be
assigned (or transferred) to the Company’s successor.
• Ensure that if closure has been ordered, the policy
cannot be canceled.
o A certificate of insurance, which serves as evidence of the
insurance contract, must be submifted to the Regulator.
Wording of the certificate must be exactly as specified at
40 CFR 264.151(e).
o If requested to do so by the Regulator, the Insurer must
submit a copy of the insurance policy, including all
endorsements and attachments.
o A standby trust fund is not required
What Happens if...
The Company is a newly permitted facility?
o The Company must submit a Certificate of Insurance to
the Regulator at least 60 days before the date on which
hazardous waste is first received.
o The insurance policy must guarantee:
• Funds will be available to provide closure and post-
closure care of the facility whenever the closure
and/or post-closure period begins; and
• The Insurer is responsible for paying out funds, up to
an amount equal to the face amount of the policy once
closure and post-closure begins upon direction by a
Regulator.

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What Happens If...
(Continued)
The closure/post-closure cost estimates change?
o If the cost estimate decreases, the face amount may
be reduced to the amount of the current cost estimate
following written approval from the Regulator.
o If the current cost estimates increase, the Company
must either: 1) increase the face amount of the policy;
or 2) obtain alternative financial assurance to cover the
shortfall in coverage within 60 days of the increase.
The Company fails to pay the premium?
o Failure to pay the premium is a violation of the RCRA
regulations. In response, the Regulator may pursue
whatever remedy it deems appropriate. This may
include requiring that the Company provide alternative
financial assurance.
D The Insurer may elect to cancel, terminate, or fail to
renew the policy by sending notice to the Company
to the Regulator. The Insurer can not cancel,
terminate, or fail to renew the insurance policy within
120 days of having notified the Regulator.
The Company is named a debtor in a Chapter 11
bankruptcy proceeding?
o Cancellation by the Insurer may not occur if the
Company files for bankruptcy or is named a debtor
prior to the expiration of the policy.
The Company wants to terminate the policy?
o The Company can terminate the policy only if: 1) it
provides alternative financial assurance; or 2) the
Regulator releases the Company from the applicable
financial requirements.
Why it Works:
o Insurance policies can act as a backstop to the
Company. That is, the insurance policy represents a
form of third-party guarantee.
o As long as the policy has a ‘limit of liability’ at least
equal to the estimated cost of closure and post-closure
care, the Regulator is assured a means of payment in
the event that funds are needed to perform closure or
post-closure.
o Insurance policies represent a relatively moderate
risk to the Regulator. As long as the Company pays
its premium, and the face amount of the policy is at
least equal to the current estimate cost of closure and
post-closure, the Regulator is assured adequate
coverage of potential claims.
o Insurance can be a lower cost option to the Company
than a Trust Fund or Letter of Credit, in that it may
have lower collateral requirements and allow for
payment of premiums over the life of the policy.
Challenges:
o The policy language may include endorsements or
exclusions that preclude payment of claims for certain
events. The Insurer is not required to provide a copy of
the policy unless specifically requested to do so by the
Regulator. The regulations require that a Certificate of
Insurance be provided by the Company. Note
however, without reading the policy language, the
Regulator may be unaware of key exclusions.
o There is an increasing trend in the use of captive
insurance. A ‘captive’ underwrites insurance policies Q
for its parent company or for other affiliates controlled by
its parent. The financial health (and solvency) of the
captive may be closely connected to the financial
condition of the Company. Therefore, if the Company
faces financial difficulties, there is the possibility that
claims made against the captive’s policy(ies) may be
unmet or trigger financial distress.
o Regulators often have limited means to determine
whether an insurance policy is underwritten by a captive.
Neither the current RCRA insurance certificate, nor the
declaration page of the insurance policy tend to provide
this information.
o The Regulator must remain aware of the status of the
Insurer. The Insurer is not required to inform the
Regulator if: 1) its charter/license is suspended/revoked:
or 2) it becomes insolvent.
o Given the trend in fully-funded insurance policies,
independent, third-party insurance has become a more
costly means of demonstrating financial assurance for the
Company.
o The Company has 60 days to obtain a replacement
mechanism. However, the insurer is not required to notify
the Regulator if it is no longer eligible to provide the po’
Tips for Ensuring Success:
o Proofread all documents to ensure that the language is
comprehensive, precise, and conforms to the wording
required by the Subtitle C regulations. Check that the
policy(ies) are legal and enforceable in the state(s) where
the facilities are covered.
o In addition to the Certificate of Acknowledgement, request
a copy of the insurance policy, including all endorsements
and exclusions.
o Check that the policy’s limit of liability is sufficient to cover
the estimated closure and/or post-closure costs for all
covered facilities.
o Many (if not all) large independent insurers are rated by
commercial ratings agencies. The Regulator may want to
monitor such ratings, as they tend to evaluate the financial
structure of insurers over time.
o Ask whether the insurer underwriting the closure/post-
closure policy is a captive of the Company. If so, the
Regulator may want to request the name, address, and
corporate ownership structure of the insurer (or captive);
the name and address of all companies for which it
underwrites insurance; the captive’s most recent financial
rating by A.M. Best, Moody, or Standard & Poors; the
states in which the captive is licensed to conduct
business; whether fronting or reinsurance is used, and i
so by whom and by how much; and the amount of the
captive’s capital reserves, including an accounting of any
loans made to the parent company or affiliates.
RCRA Subtitle C Closure and Post-Closure: insurance

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RCRA SUBTITLE C FINANCIAL ASSURANCE
CHECKLIST DOCUMENTS
Insurance

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
INSURANCE INFORMATION
Company Name:____________________________________ EPA ID#:_______________________
INSURANCE POLICY: An insurance policy guarantees that funds will be available for closure or post-closure
care in the event that the owner or operator fails to perform. Once closure or post-closure
care begins, the insurer will be responsible for paying out funds, up to the face value of
the policy, as directed by the appropriate agency.
POLICY COVERS: LI CLOSURE LI POST-CLOSURE CARE
LI THIRD PARTY LIABILITY-SUDDEN ACCIDENTAL OCCURRENCES
LI THIRD PARTY LIABILITY-NONSUDDEN ACCIDENTAL OCCURRENCES
INSURANCE COMPANY NAME:
ADDRESS:
CONTACT PERSON/TITLE:
CONTACT PHONE NO.:
POLICY NUMBER:
POLICY EFFECTIVE DATE:
FACE VALUE OF POLICY:
SOURCE DOCUMENTIDATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
INSURANCE INFORMATION
Company Name:________________________________ EPA ID#:
CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENTIDATE: _____
POST-CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENT/DATE:
ANNUAL AGGREGATE AMOUNT
SUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
NONSUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
COMBINED SUDDEN AND NONSUDDEN
(Agency Approved):
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
INSURANCE FOR CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J Is the insurer licensed to transact the business of
insurance, or is the insurer eligible to provide
insurance as an excess or surplus lines insurer, in one
or more states? [ 40 CFR §264.143(e)(1); 40 CFR
§265. 143(d)(1)}
U Has a certificate of insurance been submitted? [ 40
CFR §264.143(e)(l); 40 CFR §265.143(d)(l)]
U U 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 §265.143(d)(2)]
U Li Is the face amount of the policy equal to at least the
amount of the current closure cost estimate? [ 40
CFR §264.143(e)(3); 40 CFR §265.143(d)(3)]
U Does the policy guarantee that funds in an amount up
to the face amount of the policy will be available to
close the facility? [ 40 CFR §264. 143(e)(4); 40 CFR
§265.143(d)(4)]
Is the policy assignable to a successor owner or
operator? [ 40 CFR §264.143(e)(7); 40 CFR
§265.1 43(d)(7)]
J J Does the policy provide that the insurer may not
cancel, terminate or fail to renew the policy except
for failure to pay the premium? [ 40 CFR
§264.143(e)(8); 40 CFR §265.143(d)(8)]
U Is the policy automatically renewable? [ 40 CFR
§264.143(e)(8); 40 CFR §265.143(d)(8)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
INSURANCE FOR POST-CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
Li Is the insurer licensed to transact the business of
insurance, or is the insurer eligible to provide
insurance as an excess or surplus lines insurer, in one
or more states? [ 40 CFR §264.145(e)(1); 40 CFR
§265.1 45(d)( 1)1
U Has a certificate of insurance been submitted? [ 40
CFR §264.145(e)(I); 40 CFR §265.145(d)(1)]
U Does the certificate of insurance use wording
identical to that specified in 40 CFR §264.151(e)?
[ 40 CFR §264.145(e)(2); 40 CFR §265.145(d)(2)]
J Is the face amount of the policy equal to at least the
amount of the current post-closure cost estimate? [ 40
CFR §264.145(e)(3); 40 CFR §265.145(d)(3)]
J L] Does the policy guarantee that funds up to the face
amount of the policy will be available for post-
closure care of the facility? [ 40 CFR §264.1 45(e)(4);
40 CFR §265. l45(d)(4)]
U 1J Is the policy assignable to a successor owner or
operator? [ 40 CFR §264.145(e)(7); 40 CFR
§265. 145(d)(7)]
U 1J Does the policy provide that the insurer may not
cancel, terminate or fail to renew the policy except
for failure to pay the premium? [ 40 CFR
§264.1 45(e)(8); 40 CFR §265.1 45(d)(8)]
U U Is the policy automatically renewable? [ 40 CFR
§264.1 45(e)(8); 40 CFR §265.1 45(d)(8)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
LIABILITY INSURANCE FOR SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCES
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J Is the insurer licensed to transact the business of
insurance, or is the insurer eligible to provide
insurance as an excess or surplus lines insurer, in one
or more states? [ 40 CFR §264.147(a)(l)(ii); 40 CFR
§265.147(a)(1)(ii)]; 40 CFR §264.147(b)(1)(ii); 40
CFR §265. 147(b)(l)(ii)]
Is the liability coverage for sudden accidental
occurrences in the amount of at least $1 million per
occurrence with an annual aggregate of at least $2
million, exclusive of legal defense costs? [ 40 CFR
§264.147(a); 40 CFR §265.147(a)]
U Is the liability coverage for nonsudden accidental
occurrences in the amount of at least $3 million per
occurrence with an annual aggregate of at least $6
million, exclusive of legal defense costs? [ 40 CFR
§264.147(b); 40 CFR §265.147(b)]
U Is the Hazardous Waste Facility Liability
Endorsement attached to the policy? [ 40 CFR
§264.1 47(b)( 1)(i); 40 CFR §265.1 47(b)( I )(i)]
J Does the endorsement use the wording identical to
the wording specified in 264.151(i)? If an insurance
certificate is submitted, is the wording identical to the
wording specified in 264.151(j)? [ 40 CFR
§264.1 47(b)(1 )(i); 40 CFR §265.1 47(b)( 1 )(i)]
U Has an originally signed duplicate of the endorsement
or certificate of insurance been submitted? [ 40 CFR
§264.147(a)(1)(i); 40 CFR §265.147(a)(1)(i); 40 CFR
§264.1 47(b)( 1 )(i); 40 CFR §265.1 47(b)( 1 )(i)]
J If the owner or operator has combined coverage for
sudden and nonsudden accidental occurrences, is the
coverage at least $4 million per occurrence and $8
million annual aggregate? [ 40 CFR §264.147(b); 40
CFR §265.147(b)]
Reviewed by: ____________________________________________
Date: __________________________________________________________

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Corrective Action

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2LJu - 7 /D ; a - Z Le_
1IS 1/2 4<- -/-? J
QiwaGL
p _ gjt4I
‘
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA ’s
regulations and views, and may not necessanly reflect the current position of EPA
V
Financial Responsibility for
Corrective Action
RCRA Subtitle C Finanoal Assurance Training
Seattle, WA
December 2004
Key Points
• Statutory & Regulatory Requirements
• Proposed Rulemakings
• RCRA Administrative Order Authority
• EPA Financial Assurance Guidance
Statutory and Regulatory
Requirements for Financial Assurance
or Corrective Action
• RCRA § 3004(u) & (v) Statutory
Authority f j Oth
• Federal Re (ilations at 40 C.F.R
§ 264.101
1

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Iec_ 1
Proposed Rulemakings for Financial
Assurance Requirements for
Corrective Action (cont.)
• 1996 Advance Notice of Pro
Rulemaking (ANPR)
(61 FR 19432, May 1, 1996
• 1999 Subpart S Withdrawal Notice
(64 FR 54604, O er 7, 1999)
4 - _ )
1P
J1 Yyv
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any nghl or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA ’s
regulations and views, and may not necessanly reflect the current position of EPA
Proposed Rulemakings for Financial
Assurance Requirements for
Corrective Action
• 1986 Proposed Rule
(51 FR 37854, October 24, 1986)
• 1990 Subpart S Proposal
(55 FR 30798, July 27, 1990)
w-J
/
Using Statutory Order Authority to
Impose Financial Assurance Requirements
for Corrective Action
EPA may use its statutory order authority,
rather than permits, to impose FA
requirements for CA
RCRA § 3008(h) authorizes a corrective
actuor or jer to nu t rii status faciifly...
where CA is ‘ necessary to protect human
heaith or the environment.”
• Agency poiicy
2

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s -( ---- c
I -(
Li—
7U
(1
4 ea, e/ 1
— ( e4e,f e & c L (t - _-
I&k2— n ± J gk -
C2 Z Zti1. e °
- t 7j! ,2 ‘ z ’
-
‘— -
g J L Pt 9iv /)
7ac)3 -
Using Statutory Order Authority to
Impose Financial Assurance Requirements
for Corrective Action
RCRA § 7003 authorizes orders to anyone
who contributes to the management of
solid or hazardous waste that may present
and imminent & substantial endangerment
to health or the environment as necessary
to protect public health & the
environment.” (MRA concerns need to be
evaluated)
• Some states have simiiar order authorities.
7Oc 3?
Financial_Responsibility for CA
“Interim uidance on Financial
esponsi ility for Facilities Subject to
RCRA Corrective Action”
September
N
Scope of New Guidance
• Facilities with RCRA corrective Action
Permits
- RCRA § 3004(u) & (v) and
- 40 CFR § 264.101
• Facilities subject to RCRA Corrective Action
Orders
- RCRA § 3008(h) Orders
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any nghl or benefit, substantive or procedural This document is note complete representation of RCRA or of EPA’ s
regulations and views, and may not necessanly reflect the current position of EPA
3

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{J,)11” (1
- ——
This document is anlended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA’S
regulations and views, and may not necessarily reflect the current position of EPA
Timing: When isFA Needed?
At different stages
.RFI /
.Significan nterim Measures
• Remedy Selection
/aj
4 Pir O. —k Q- i
C,
Estimating costs of CA
OSRE developed tools for
evaluating cost estimates for the
RFI and Interim Measures
• Average Cost of Remedial Investigation
Derived from Fund-Lead Superfund Costs
• Intenm Measures Cost Compendium
• Compendium of Related Guidance
Documents
Estimating costs of CA
Two computer models are available to
help develop or assess cost estimates
• RACER and
• CostPro
4

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JJ 4 L 2 d
t € t
-
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA ’s
regulations and views, and may not necessanly reflect the current position of EPA
FA Mechanisms Under Permits
& RCRA 3008(h ) Orders
• Trust Fund
• Surety Bond Guaranteeing Performance
• Surety Payment Bond w/ Standby Trust Fund
• Letter of Credit w/ Standby Trust Fund
• Insurance
• Financial Test
• Corporate Guarantee
• Or a combination of mechanisms. —
A l aw,iab uv,deR RA & ,egv ,
may ‘ FACA
Model F4A language for
RCRA § OO8(h ) Orders
OSR is developing j
• Model language for F A provisions in RO A §
3008(h) orders and RI1RA § 7003 orders
• Model language for FA instruments for these orders
• Trust Agreement
• Letter of Credit
• Surety Bond
• Tip Sheets for RCRA corrective action mechanisms
Drafting Language for Corrective
Action FA Mechanisms
• For assistance, look at
• aosure & Post-closure Care Regs,,
4OCFRPart264,SubpartH \
• Municipal Solid Waste Landfill Regs, \
40 CFR Part 258.74, Subpart H
• Underground Storage Tank Regs, j
40 CFR Part 260.90, Subpart G /
These financial assurance regu/aI&,s are available
electronically at www.eoa.oovleoahc*’nelcfr4O
5

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Specialized Area of Law and
—4 ,_Finance -
Regulators should work with experts in
• Law
• Finance and
• Insurance
when reviewing the proposed FA
mechanisms prior to approval to ensure
the mechanism is adequate for its
intended purpose.
Maintain Effectiveness of
— Mechanisms
• Be sure the 0/0 complies with the
reporting requirements in permits or
orders
• Review all new or replacement
instruments
• Monitor them for termination or
cancellation
• Monitor major third party providers
Financial Responsibility for
Corrective Action
• Summary:
• FACA is required in permits and
generally should be included in CA
orders
• Flexibility in timing
• A variety of mechanisms are
available
This document is intended to provide guidance to EPA staff It does not creaie any legally banding requirements on EPA. States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA’s
regulations and wews, and may not necessanly reflect the current position of EPA
6

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FA info in RCRAInfo
• OSRE is working with other HQ offices
to update RCRAInfo to capture financial
assurance information.
For More Information:
• The guidance is available at
htto:llw .m.eoa ppv/comoluance/resourcesloolicies!d
eanuo/raa/untenm-Iin-pssur-cor-act.odf
• The cost estimating tools are available at
htto:llww’w.eoa oov/comolparcelresoureslool laes/de
anuo/raalavo-cost-unvesVci-crnDlt odf
• OSRE Staff
Mary Bell (202 564-2256) bell marv )eoa.oov
Tracy Gipson (202 564-4236) aioson.tj v eoa.oov
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any nght or benefit, substantive or procedural This document Is not a complete representation of RCRA or of EPA ’s
regulations and views, and may not necessanly reflect the current position of EPA
7

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S7q 1
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C 20460
t q IC ,’
SEP 30 2003
MEMORANDUM
SUBJECT Fransmittal of lnteiini Guidance on Financial Responsibility fbr Facilities Suhjectto
RCRA Correcti e Action
S
FROM Susan E. Bromni
Site Remediation Enforcement
obert Springer
Director, Office o Solid Waste
‘I’O. RCRA Senior Policy Advisors. Regions I - X
RCRA Enforcement Managers. Regions I - X
RCRA Key Contacts. Regions I - X
This memorandum transmits the auachcd document entitled “Interim Guidance on Financial
Responsibility for Facilities Subject to RCRA Corrective Action.” Financial assurance is an
important aspect oithe corrective action program. This document provides decision makers
guidance in the implementation of financial responsibility requirements to ensure that owners and
operators provide cvidencc of financial responsibility for corrective action that ma” become
necessary in the future. This tiuidance will also assist the states that are authorized for corrective
action in the implcmeiuationoU tinancial assurance reqwrenients, so please share ii with them as
appi opriate.
In come cases there may he some facility owners and operators that arc unable or f il to
provide financial assurance Prompt enforcement action against non-compliant, financially viable
entities is generally appiopriate. We recognize that facility owners and operators that are bankrupt or
h tve other financial problems may have difficulty securing financial assurance. We encourage
innovative and sitc-spccilic approaches to address the difliculties financially stressed companies
have in meeting financial assurance requirements. This guidance does not prescribe the use of any
particular approach. Decision makers have the discretion to use approaches described here, or on a
case-by case basis adopt a different approach as appropriate.
PRINTED ON RECYQ.EDI
RCC’rcLADLE PAPER

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We appreciate the input we received from the Regional and State representatives
who helped shape this document. Thank you to those of you who allowed members of
your staffs to work on it. Some of them participated on the workgroup, and some
reviewed drafts of the guidance and provided comments. We received input from all 10
Regions as well as from ASTSWMO’s Corrective Action and Permitting Task Force and
the States of Arkansas, California, Florida, Illinois, Michigan. New York, Ohio, Virginia.
and Washington.
Our offices are working on several projects in the area of financial assurance. We
are forming work groups with your staffs and interested states to facilitate
communication by sharing case studies and best practices. In addition, financial
assurance training modules and courses are under development, as are efforts to include
financial assurance data in RCRAInfo. For more information regarding financial
assurance for corrective action, please contact Mary Bell at (202) 564-2256 or Dale
Ruhter at (703) 308-8192.
Attachment
cc:
Regional Counsels (Regions I - X)
Paul Connor, OECA/OSRE
Neilima Senjalia, OECA/OSRE
Sandra Connors, OECA/OSRE
Monica Gardner, OECA/OSRE
Bruce Kulpan, OECA/OSRE
Peter Neves, OECA/OSRE
Mary Bell, OECA/OSRE
Tracy Gipson, OECA/OSRE
Matthew Hale, OSWERJOSW
Bob Hall, OSWERJOSW
Desi Crouther, OSWERJOSW
Tom Rinehart, OSWERIOSW
Betsy Devlin, OSWER/OSW
Dale Ruhter, OSWERJOSW
Brian Grant, OGC
Mary Beth Gleaves, OGC
Rosemarie Kelley, OECA/ORE
Lynn Holloway, OECA/ORE
Tom Kennedy, ASTSWMO

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Interim Guidance on Financial Responsibility for Facilities
Subject to RCRA Corrective Action
Table of Contents
Page
Section 1: Introduction 2
Section 2: Statutory and Regulatory Requirements for Providing 4
Financial Assurance for Corrective Action at Hazardous
Waste Treatment, Storage and Disposal Facilities
Section 3: Implementation of Financial Assurance Requirements for Corrective Action 5
3.1 Timing and Cost Estimating 6
3.2 Mechanisms 8
Section 4 Responding to Facilities that Claim an Inability to Provide
Financial Assurance for Corrective Action
4.1 Evaluating the Financial Health of a Facility Where the 10
Owner/Operator Claims a Limited Ability to Provide
Sufficient Financial Assurance
4.2 Environmental Claims in Bankruptcy Filings 12
Section 5: Conclusion l4
Section 6: Use and Purpose of this Document 14
Page 1 of 15

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Section 1: Introduction
The purpose of this document is to provide guidance to EPA Regions and States authorized for
corrective action (“authorized states”) regarding corrective action financial responsibility
requirements at hazardous waste facilities subject to the Resource Conservation and Recovery
Act (RCRA). This guidance addresses RCR.A corrective action financial responsibility
provisions at hazardous waste treatment, storage and disposal facilities (TSDFs) that are
permitted or subject to RCR.A § 3008(h) orders.’
This document does not address financial responsibility requirements for closure, post-closure
care or third-party liability. 2 In addition, this document does not address every available option
or approach; and some of the ideas suggested in this document may not be appropriate for all
facilities. Finally, regulators should be aware that state laws and regulations may differ from
federal requirements and may affect how the regulatory agency handles financial responsibility
requirements.
/‘ Corrective action entails conducting cleanup activities to address all unacceptable risks to human
( health or the environment from the release of hazardous waste or hazardous constituents at
j TSDFs. The corrective action process generally includes the following elements: initial site
assessment, Site characterization, environmental indicators, selection and implementation of the
remedy.
If corrective action, when necessary, cannot be completed prior to the issuance of a permit to an
/ owner or operator of a TSDF by the Administrator or an authorized State, the permit must
f contain a schedule of compliance for completing such corrective action and assurances of
financial responsibility. Thus, both EPA and authorized States must include assurance of
financial responsibility for corrective action in permits that require corrective action. EPA is
‘Advance Notice of Proposed Rulemaking, Scope and Definitions, 61 Fed. Reg. 19432,
at 19441 (May 1, 1996) (hereinafter “the 1996 ANPR”).
2 Regulations for closure, post-closure care and third-party liability are found in 40 CFR
Part 264, Subpart H for owners and operators of permitted hazardous waste facilities, and 40
CFR. Part 265, Subpart H for owners and operators of facilities operating under interim status.
, g., discussion of corrective action authority in the context of permitting and
Section 3008(h) orders in the 1996 ANPR at 19442-43 and 19453-54 (discussion of the
definitions of “release” and “solid waste management unit”).
The 1996 ANPR at 19436 and 19443; Environmental Indicators for Corrective Action
and Corrective Action Process. RCRA Cleanup Reforms ( www.epa.gov/correctiveaction) .
RCRA § 3004(u), 42 U.S.C. § 6924(u).
Page2of 15

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authorized to issue administrative orders or file civil judicial actions that impose corrective
action financial responsibility requirements on facilities subject to 3008(h) orders. 6
The primary purpose of the financial responsibility requirements for corrective action is to assure
that funds will be available when needed to conduct necessary corrective action measures. The
intent of the RCRA financial responsibility requirements is, in part, to reduce the number of
TSDFs that are insolvent or abandoned by their owners and operators, leaving the costs of
corrective action to be borne by the public. S
Congress intended that facility owners and operators ensure that adequate funds would be
available to complete the required corrective action so contaminated TSDFs do not become the
responsibility of the federal Superfund or State cleanup programs. It is important for regulators
to require facility owners and operators to obtain financial assurance when the companies are
financially healthy, so that resources are set aside in the event a company hits a financial decline.
The Agency recognizes that there may be some facility owners and operators that are unable or
fail to provide financial assurance. Prompt enforcement action against non-compliant,
financially viable entities is generally appropriate. In cases where the owner or operator is
insolvent or bankrupt and is having difficulty securing financial assurance, regulators could
consider requiring the owner or operator on a case-by-case basis to provide financial assurance
pursuant to a compliance schedule as part of an enforcement action, while also performing the
necessary corrective action. Regulators are encouraged to work with financially distressed
facility owners and operators to develop practical facility-specific cleanup goals that protect
human health and the environment, and to assure, using all appropriate tools, that the regulated
community complies with financial assurance requirements.
EPA has not promulgated detailed regulations for financial assurance for corrective action. EPA
codified the statutory requirements for owners and operators of permitted facilities, but did not
codi& requirements for owners and operators of facilities operating under interim status.
Regions and authorized States have discretion in determining how to address the corrective
action financial assurance requirements at each RCRA TSDF to meet the regulatory and
statutory requirements in light of the specific circumstances at that facility.
EPA recognizes that the main goal of regulators in implementing the corrective action
6 RCRA § 3008(h), 42 U.S.C. § 6928(h); 63 Fed. Reg. 56710, at 56716 (Oct. 22,
1998) and 65 Fed. Reg. 70954, at 70966 (Nov. 28, 2000).
Interim final rule with request for comments, Future Regulatory Activity, 47 Fed Reg.
32274, at 32279 (July 26, 1982).
The 1996 ANPR at 19434, Statutory and Regulatory Requirements.
The 1996 ANPR at 19434, Statutory and Regulatory Requirements.
Page3of 15

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requirements is to protect human health and the environment presented by releases at RCRA
facilities, and that financial assurance involves matters with which regulators are sometimes not
familiar. By this guidance, EPA hopes to assist regulators in understanding the purpose and
importance of financial assurance for corrective action and the regulator’s role in ensuring that
financial assurance is sufficient.
This guidance document does not address all issues related to financial responsibility for
facilities subject to RCRA corrective action. We expect to issue follow-up guidance to address
some of the outstanding issues, such as model language options for administrative orders.
Section 2: Statutory and Regulatory Requirements for Providing
Financial Assurance for Corrective Action at Hazardous Waste Treatment,
Storage and Disposal Facilities
RCRA TSDF owners and operators are required to demonstrate financial responsibility for
corrective action as may be necessary to protect human health and the environment primarily to
ensure adequate funds are available to undertake the necessary corrective action at the facility in
the event, for example, the facility owners and operators are unable or fail to do so. Under
RCRA § 3004(u), permits issued by the Administrator or a State “shall contain schedules of
compliance for such corrective action (where such corrective action cannot be completed prior to
issuance of the permit) and assurance of financial responsibility for completing such corrective
action.”
RCRA § 3004(v) further requires that corrective action be taken beyond the facility boundary
where necessary to protect human health and the environment unless the facility owner or
operator concerned demonstrates to the satisfaction of the Administrator that, despite its best
efforts, it was unable to obtain the necessary permission to undertake off-site corrective action.
Federal regulations at 40 CFR § 264.101 codi& the requirements of RCRA § 3004(u) and (v).
“The owner or operator of a facility seeking a permit for the treatment, storage or disposal of
hazardous waste must institute corrective action as necessary to protect human health and the
environment for all releases of hazardous waste or constituents from any solid waste
management unit” and “the permit will contain assurances of financial responsibility for
completing such corrective action.” Further, “ [ t]he owner or operator must implement corrective
actions beyond the facility property boundary, where necessary. . . “; and “ [ a]ssurances of
financial responsibility for such corrective action must be provided.”
At permitted TSDFs, financial assurance requirements for corrective action are imposed through
the permit. The part of the permit that includes requirements for financial assurance for
corrective action may be issued by an authorized State, or where States are not authorized, by
EPA.
At facilities that are issued RCRA § 3008(h) orders, EPA may rely on its administrative order
authority, rather than on permits, to impose financial assurance requirements. Under RCRA §
Page4of 15

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3008(h), EPA may issue administrative orders requiring corrective action or such other response
measures as EPA may deem necessary to protect human health or the environment. EPA’s
authority under this section includes, among other things, the authority to require financial
assurance for corrective action. Most authorized States have § 3008(h)-like authority.
Regulators are encouraged to include financial responsibility requirements in corrective action
orders issued to TSDF owners and operators.
RCRA regulations authorize the use of various mechanisms to provide financial assurance for
closure, post- closure, and third-party liability including any one, or a combination of, if
appropriate, trust fund, surety bond, letter of credit, insurance, corporate guarantee, or
qualification as a self-insurer by means of a financial test. EPA may allow these financial
mechanisms to establish financial assurance for corrective action under either permits or
administrative orders. EPA may allow other financial mechanisms as well if the facility owner
or operator demonstrates to the satisfaction of the Agency, that such mechanisms provide an
acceptable level of financial assurance, and the mechanism is otherwise consistent with federal
law. ‘° Authorized States may allow these or other financial assurance mechanisms that are
consistent with the requirements of their own laws and provide adequate assurance.
Section 3: Implementation of Financial Assurance Requirements for Corrective Action:
Timing, Cost Estimating and Mechanisms
In the legislative history of RCRA § 3004(u), Congress expressed concern that unless all
hazardous constituents released from solid waste management units at permitted facilities are
addressed and cleaned up more sites will be added to the Superfund program in the future, with
little prospect for control or cleanup. 12 Although detailed regulations to govern financial
assurance for corrective action were proposed by the Agency, they were not finalized. Instead,
EPA codified the statutory requirements for owners and operators of permitted facilities. The
Agency has emphasized that regulators should ensure that financial assurance requirements are
applied appropriately to ensure remedies proceed expeditiously and facility owners and operators
have the necessary funds to implement corrective action. 13
3.1 Timing and Cost Estimating
‘° For further discussion of this subject, see preamble to the Proposed Rule, Allowable
Mechanisms, 55 Fed. Reg. 30799, at 30856 (July 27, 1990), and RCRA § 3004(a) & (t), 42
U.S.C. § 6924(a) & (t); 40 CFR Parts 264, Subpart H & 265, Subpart H.
RCRA § 3009,42 CFR § U.S.C. § 6929.
12 The 1996 ANPR at 19434, citing H.R. Rep. No. 198, 98” Cong., 1” Sess., part 1, 61
(1983).
D The 1996 ANPR at 19455.
Page5of 15

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The Agency has acknowledged the difficulties regulators face in determining when financial
assurance for corrective action should be established and the amount of financial assurance to
require. In the 1996 ANPR, EPA stated that financial assurance demonstrations have been
ordinarily required at the time of remedy selection. ‘ The Agency has also said the degree of
investigation and subsequent corrective action necessary to protect human health and the
environment varies significantly across facilities. Since few cleanups will follow exactly the
same course, decision makers should have significant latitude to structure the corrective action
process, develop cleanup objectives, and select remedies appropriate for facility-specific
circumstances.’ 5 Since no final rule was issued by the Agency concerning the timing of financial
assurance for corrective action, regulators have the flexibility to tailor the timing and
requirements for financial responsibility to facility-specific circumstances. 16
In determining the timing and the amount of financial assurance at a particular site, there are
several approaches for regulators to consider. One approach is to require financial assurance for
known releases at the time of final remedy selection, and the associated cost estimates are
known. The advantage of this approach is that the regulator can use this cost to determine the
amount of financial assurance to require. However, a disadvantage to this approach is that funds
are set aside relatively late in the process, often not before major costs are incurred. 17 Since it
frequently takes several years from the time a facility becomes subject to corrective action for
the facility to reach the final corrective measures selection stage of the process, there is a risk
that a facility owner or operator’s financial situation could deteriorate during that time. If the
owner or operators financial health declines and there is not sufficient financial assurance in
place, the responsibility to fund the cleanup may shift to the regulating agency and/or taxpayers.
Another approach in determining the timing and amount of financial assurance at a particular
facility is to require owners and operators to demonstrate financial assurance once it is
determined corrective action is necessary, but before the corrective measures are selected and
corrective action costs are known. This approach would require a facility owner or operator or
the regulator to make an early estimate of the likely cost of corrective action at the facility, and
require the facility owner or operator to provide financial assurance for that cost. After the
corrective measures are determined and better cost estimates are known, the financial assurance
could be adjusted up or down, consistent with the revised cost estimate. This approach would set
aside funds for corrective action costs at an earlier stage. However, it may be difficult to
‘ The 1996 ANPR at 19454, Financial Assurance.
‘ The 1996 ANPR at 19440, Program Management Philosophy.
6 The 1996 ANPR at 19454, Financial Assurance.
‘ The 1986 ANPR at 37860, Timing and Amount of Financial Assurance.
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determine a reasonable amount for some facilities.’ 8
Regulators also should consider the nature of the cleanup involved at a particular site. Although
early implementation of the corrective action program focused on final cleanups, more recently
the trend has been towards ensuring interim measures and stabilization. ‘ Since final remedy
implementation may be delayed at some facilities, based on information available at the
beginning of the corrective action process, it may make sense to require TSDF owners and
operators to demonstrate financial assurance for early stages of the corrective action process on a
site-specific basis. For example, where it is known that the costs of the investigation are certain
to be quite substantial and/or when the facility is in poor financial condition, regulators may wish
to consider requiring financial assurance to cover the estimated cost of the investigation. At
other facilities, regulators may determine it is necessary and appropriate to require financial
assurance for significant interim measures as well. An example of such an interim measure is
installing and maintaining a groundwater well system to stop a plume of contamination from
further migration.
Initially, the financial assurance required could be limited to those activities, such as the
investigation and interim measures, that are deemed necessary at the beginning of the process.
Later, if it is determined that additional corrective measures are required and what those
corrective measures will be, regulators could require financial assurance to be established for
those corrective measures. Regulators could structure the financial assurance requirements in
the permit or administrative order so that the facility owner or operator could demonstrate
financial assurance incrementally. The financial assurance could be adjusted as the work is
conducted, and as the costs of subsequent stages become known. Some financial assurance
mechanisms might be better suited to this approach than others.
18 The 1986 ANPR at 37860, Timing and Amount of Financial Assurance.
‘ 9 As the corrective action program began to mature it became clear to regulators that final
cleanups were difficult and time consuming to achieve, and an emphasis on final remedies at just
a few facilities could divert limited resources from addressing ongoing releases and
environmental threats at many other facilities. As a result, the Agency established the
Stabilization Initiative in 1991 which increased the rate of corrective actions by focusing on
near-term activities to control or abate threats to human health and the environment and prevent
or minimize the further spread of contamination. In addition, in response to the Government
Performance and Results Act of 1993 (GPRA) and criticism that the agency focused too much on
administrative process rather than actual cleanups, EPA developed two specific environmental
indicators for the corrective action program: Human Exposures Controlled Determination and
Groundwater Releases Controlled Determination. The indicators are facility-wide measures that
are obtained when there are no unacceptable risks to humans due to contaminants or when
migration of contaminated groundwater is controlled. Thus, the current approach to corrective
action focuses on ensuring interim measures and stabilization actions (The 1996 ANPR at
19436).
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There are potential advantages in requiring TSDF owners and operators to demonstrate financial
assurance earlier and incrementally, rather than at final remedy selection. This approach could
assure that funding will be available for stabilization activities so that the facility does not
present an unacceptable risk in the near-term if it defaults. Demonstrating financial assurance
incrementally could increase the amount of resources available for cleanup work while reducing
the financial burden on the facility owners and operators of providing a large amount of financial
assurance for remedy implementation.
Depending on the mechanism selected, it is possible for the regulator to structure the requirement
for financial assurance so that the amount set aside is reduced or increased at specified intervals
as the corrective action work is characterized and conducted. Permits or administrative orders
would be modified accordingly. Regulators may structure the financial assurance so the amount
is reconsidered at regular intervals (e.g., annually) corresponding with completion of the various
stages of corrective action at a particular facility. The amount of financial assurance should also
account for inflation.
We recommend that estimates be based on costs that would be incurred by an independent, third-
party in order to ensure that the full costs of corrective action will be covered in the event an
owner or operator is not able to fulfill its obligations. EPA’s 1986 proposed rule for financial
assurance for corrective action contains some discussion of some of the elements that may be
relevant to a cost estimate. 20 Often, however, regulators will need to rely on the institutional
knowledge that exists in their Region or State to estimate the costs of some of these activities
when actual costs are not known.
The language of the permit or administrative order should be crafted carefully to ensure that the
financial assurance requirements are clearly set forth and that the amount necessary for the
particular facility is established and maintained. Regulators may also consider including a
provision in an order providing that if the facility owner or operator fails to establish and maintain
the financial assurance as required, the facility owner or operator may be subject to enforcement
action, including civil penalties. In addition, clear definitions of operative terms, such as “failure
to fulfill corrective action obligations” will help insure compliance.
3.2 Mechanisms
Since EPA has not promulgated specific regulations for financial assurance for corrective action.
regulators have the flexibility to determine which mechanism an owner or operator may use to
satis1 ’ the financial assurance requirements. Often regulators look to other regulatory provisions
pertaining to financial assurance for guidance such as the regulations for closure and post-closure
care and third-party liability at TSDFs at 40 CFR Part 264, Subpart H. These provisions allow
owners and operators of TSDFs to demonstrate financial responsibility through a trust fund,
20 Advance Notice of Proposed Rulemaking, 51 Fed Reg, 37854, at 37862 (Oct. 24,
1986) (hereinafter “the 1986 ANPR”).
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surety bond, a letter of credit, insurance, corporate guarantee, or qualification as a self-insurer by
means of a financial test. Any one, or any combination of these mechanisms may be used if
appropriate, to satisl ’ the financial assurance requirements for corrective action given the specific
circumstances. EPA may allow other mechanisms to provide financial assurance for corrective
action as well, if the facility owner or operator demonstrates to the satisfaction of the Agency that
such mechanisms provide an acceptable level of financial assurance, and the mechanisms are
otherwise consistent with federal law. 21 States may use these or other financial assurance
mechanisms, provided they are permissible under their own laws and provide adequate levels of
assurance. Each mechanism has unique characteristics so regulators should carefully evaluate the
advantages and disadvantages of each when determining which should be used.
Regulators may also look to the regulations for municipal solid waste landfill facilities at 40 CFR
Part 258.74, Subpart H, and the regulations for underground storage tanks at 40 CFR Part 280.90,
Subpart G for guidance as well. 22
EPA urges regulators to exercise caution in drafting the actual language of the mechanism to be
used for a specific facility. For example, regulators should not necessarily rely on the exact
language in the regulations because that language does not relate specifically to corrective action.
The language of the mechanism or instrument for financial assurance should be drafted for the
specific purpose of providing financial assurance for corrective action at the specific facility
being addressed in order to ensure its availability in the event that the owner or operator fails to
fulfill its obligations.
The permit or administrative order can be drafted to include provisions to help ensure the
adequacy of the financial assurance mechanism. For example, the document could be drafted to
include the specific mechanism the facility owner or operator must provide or a specific range of
options that would be acceptable to the regulating agency. For administrative orders, the selected
mechanism would require approval by the regulating agency. In addition, the administrative
order could set forth consequences in the event the owner or operator fails to establish and
maintain the financial assurance as required.
Use of each mechanism implicates a specialized area of law and finance. Regulators should work
with experts in those fields in reviewing the mechanisms proposed prior to approval to ensure
sufficiency. Once a mechanism is selected, there are various techniques to ensure the mechanism
remains effective. In the regulations mentioned above, for example, mechanisms such as the
financial test are monitored to ensure the company continues to meet both the financial and the
record keeping and reporting requirements. Monitoring of third-party mechanisms, such as surety
Proposed Rule, Allowable Mechanisms, 55 Fed. Reg. 30799, at 30856 (July 27, 1990).
22 The financial assurance regulations referenced above are available electronically at
www.epa.gov/epahome/cfr4O (Title 40, Chapter 1, Subchapter I Solid Wastes (Parts 239-299),
Part 264 p.64; Parts 258.74 p.47; Parts 280.90 p.36).
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bonds also ensures the surety remains financially viable. This can be done, for example, by
confirming that the surety continues to be included in the U.S. Treasury’s Circular 570.
Monitoring by regulators can be facilitated by, for example, imposing regular reporting
requirements on the owner or operator.
As important as regular monitoring are requirements for reporting any termination or cancellation
of the financial assurance instrument. The regulatory authority could require notice of the intent
to cancel, terminate or fail to renew an instrument. This notice could provide sufficient time for
the owner or operator to obtain a replacement or, if one is not available, allow the regulator
enough time to call in the instrument and ensure that funds will be available for the work. In
addition, when a corporate guarantee is used, the corporate guarantor could be required to provide
immediate notice whenever it no longer meets the financial test. When this occurs, the facility
owner or operator could be required to provide an alternative financial assurance mechanism.
The financial assurance regulations referenced above provide examples of how this can be
structured.
In sum, regulators have considerable discretion in determining how to address financial assurance
requirements that are protective of human health and the environment. The Agency suggests
using the approach that is best suited to the particular facility being addressed. Practical cleanup
requirements should be developed that enhance timely, efficient and protective cleanups based on
facility-specific circumstances.
Section 4: Responding to Facilities that Claim an Inability to Provide Financial
Assurance for Corrective Action
4.1 Evaluating the Financial Health of a Facility Where the Owner/Operator
Claims a Limited Ability to Provide Sufficient Financial Assurance
Where financial assurance for corrective action has not yet been provided by the owner or
operator of a TSDF, an owner or operator could claim, at the time the financial assurance must be
provided, that it cannot afford the required financial assurance or claim that no one is willing to
provide it for them. Where corrective action cannot be completed prior to issuance of the permit
RCRA and current federal regulations explicitly mandate permits issued to owners and operators
of TSDFs must contain schedules of compliance for corrective action and assurances of financial
responsibility for completing such corrective action. 23 Likewise, owners and operators of
facilities subject to RCRA 3008(h) administrative orders are typically required to provide
financial assurance. In cases where the facility owner or operator claims it is unable to afford the
required financial assurance, EPA recommends that regulators evaluate the financial health of the
owner or operator to determine whether the claim is valid. Regulators should obtain the expertise
of a financial analyst when making this determination.
23 RCRA § 3004(u), 40 CFR § 6924(u); 40 CFR § 264.101.
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A good starting point for reviewing the financial condition of an owner or operator would be the
individual or company’s financial statements and tax returns. Generally, reviewing a company s
records from the last five years will be sufficient. The facility owner or operator should not have
any difficulty voluntarily providing such information to document a legitimate claim.
Regulators should keep in mind that the value of an entity’s financial statements and tax returns is
limited because these documents generally reflect past financial performance from which future
performance may only be predicted. They do not provide certainty about an owner or operators
future financial situation.
Regulators should also keep in mind that an owner or operator that submits financial information
generally will have the expectation that such information will be retained as confidential and not
released to the public. EPA has specific procedures that must be followed in the event that an
entity that submits financial information claims that the information is confidential. 24 Each State
regulator is encouraged to review his or her State’s rules regarding such information.
Besides financial information provided by the owner or operator, regulators may also find useful
information from other sources, such as Dun & Bradstreet (D&B), the Securities and Exchange
Commission (SEC), and LEXIS-NEXIS. In addition, both Moody’s and Standard & Poor’s
provide bond ratings. These services may have information that may be helpful in predicting a
company’s future performance, and therefore, its ability to provide financial assurance.
D&B can provide a broad range of information such as bankruptcy filings, suits and liens, and
credit opinions. Regulators can use D&B to identify and group entities within an organization,
and link parents with subsidiaries. D&B also provides business deterioration and high risk alerts.
Private services, such as D&B, provide useful reference tools, but the costs of collecting and
analyzing the data from these services can be high, so regulators may not have access to them.
Access to EDGAR, SEC’s online database is publicly available at no cost. EDGAR is available
at www.sec.2ov/index/htm . However, the SEC only has financial information on publicly traded
companies, with assets of $10 million or higher. It is important to note that previous analysis by
EPA found significantly higher bankruptcy rates for owners and operators that have a net worth
less than $10 million. 25
if the regulator determines that the owner or operator’s claim is valid, the regulator must decide
the best course of action to try to bring the owner or operator into compliance with financial
assurance requirements during the period leading up to final remedy selection. If the facility
owner or operator concerned demonstrates that it is working toward complying with the
requirements, and that there is a reasonable prospect of providing financial assurance in the near
24 40 CFR Part 2.208, Subpart B.
25 Notice of Proposed Rulemaking, 59 Fed. Reg. 51523, at 51527 (Oct. 12, 1994).
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future, the regulator may consider requiring the owner or operator to provide the financial
assurance in accordance with a schedule, while also performing the necessary corrective action.
The compliance schedule should clearly set forth, in detail, what the owner or operator must do.
when the owner or operator must do it, and the milestones and reporting requirements. In
addition, the compliance schedule should require the owner or operator to submit updates on its
financial situation. For interim status facilities, regulators should consider including such terms
in an administrative order. For permitted facilities, the regulators may need to modify the permit
to accomplish the same result.
If the regulator determines that the facility owner or operators claim is not valid, a variety of
options are available to the regulator to ensure that the owner or operator complies with the
financial assurance requirements. For example, depending upon the circumstance the regulator
could issue an administrative order requiring compliance with RCRA financial assurance
requirements and/or seek penalties for noncompliance, or file an action for injunctive relief in
court.
4.2 Environmental Claims in Bankruptcy Filings
When the owner or operator of a facility subject to RCRA corrective action requirements files for
bankruptcy, financial assurance issues become further complicated. While bankruptcy law is
generally favorable to the government in enforcing corrective action and financial assurance
requirements against debtors, there are often other considerations that should be evaluated
pragmatically.
Typically, a financially distressed business will continue to operate and will file a Chapter II
bankruptcy case, which provides an opportunity for the company to restructure its debts. If the
company cannot solve its financial problems, it may seek to liquidate by filing a Chapter 7
bankruptcy case or by having its Chapter II case converted to Chapter 7 liquidation. Issues
relating to financial assurance vary depending upon whether the bankruptcy case is a Chapter II
or Chapter 7 case.
In a Chapter II bankruptcy case, the debtor usually remains in possession and control of its
property and continues to operate its business while seeking a solution to its financial problems.
A Chapter II debtor is not excused from its obligation to comply with environmental laws and
regulations in the operation of its business, including financial assurance requirements. 26 The
regulating agency may take appropriate enforcement action to compel compliance or to assess a
26 In Safety-Kleen. Inc. (Pinewood v. Wyche , 274 F.3d 846 (4tI Cir. 2001), the court held
that in a Chapter II case a state administrative order requiring compliance with RCRA financial
assurance requirements remains in effect, notwithstanding the filing of a Chapter II petition by
the debtor because the primary purpose of financial assurance requirements is to deter
environmental misconduct.
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civil penalty. 27 Environmental enforcement actions brought by the government against companies
in bankruptcy are generally excepted from the bankruptcy automatic stay pursuant to the “police
power” exemption in II U.s.c. §362 (b)(4).
The regulating agency’s response to a Chapter 11 bankruptcy may differ depending on the
situation. For example. if the facility owner or operator has established and is maintaining
adequate financial assurance at the time that it declares bankruptcy, then the regulating agency
could act to secure that financial assurance by whatever means is appropriate given the particular
financial assurance mechanism. It is possible that, upon notice of bankruptcy, the issuer may
attempt to terminate an instrument established for financial assurance. In such a case, the
regulating agency will have to act swiftly to decide whether to make a demand for payment to
secure the funds before the termination of the specific financial assurance instrument occurs.
Such demand for payment would typically direct payment of the secured amount into an already
established standby trust, where the funds would be available to finance the ongoing corrective
action work. This approach works best where the mechanism for demanding such payment is
specified in the language of the specific instrument that established the financial assurance.
Ultimately, the party responsible for payment on the financial assurance will be forced to bring a
claim in the bankruptcy proceeding against the debtor for any payment required by the regulating
agency under a financial assurance mechanism established prior to the filing of bankruptcy (such
claims are considered “contingent claims” and are subject to bankruptcy).
Where the facility owner or operator has not established financial assurance or an appropriate
amount of financial assurance for corrective action, it is important for the regulating agency to
assert itself in the bankruptcy proceeding to ensure that the resources of the owner or operator are
available to address the necessary corrective action. Facilities that file for Chapter II bankruptcy
protection and plan to emerge from bankruptcy as an operating TSDF could be required as part of
the bankruptcy process, to establish and maintain financial assurance for corrective action.
Regulating agencies need to be involved in the bankruptcy proceeding to ensure that this is the
case. Where an owner or operator that has declared Chapter 11 bankruptcy does not intend to
continue operating as a TSDF and will, therefore, no longer receive hazardous waste, the
regulating agency should endeavor to ensure that sufficient resources are made available to
complete the necessary corrective action at the facility.
Regulators should also be aware that some bankruptcy courts allow Chapter II liquidations where
the debtor remains in possession, no trustee is appointed, and the debtor proposes and the
creditors vote on and approve a plan of liquidation. Abandonment of contaminated property may
occur in such Chapter Il liquidations.
In a Chapter 7 bankruptcy case, the debtor ceases operations and its business is liquidated. A
Chapter 7 trustee is appointed who sells the assets of the debtor and distributes any proceeds to
27 Once a penalty is assessed or a judgment on the penalty is obtained, the automatic stay
prohibits collection activities other than through the bankruptcy process.
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creditors in accordance with the priority scheme set forth in the Bankruptcy Code. The Chapter 7
trustee may seek to abandon contaminated property that cannot be sold. While the debtors
obligations for cleaning up the contaminated property are not discharged by the bankruptcy, the
debtor rarely has the resources to perform such work. More often than not, the financial
assurance previously established by the debtor may be the only significant source of funding for
corrective action.
Issues that arise when a regulated entity files for bankruptcy are complex. in some instances the
law is unsettled or may vary depending upon the jurisdiction. Regulators must consult with legal
counsel when cases involving bankruptcy arise in order to ensure that their regulating agency s
rights are preserved.
Section 5: Conclusion
RCRA requires permits issued to owners and operators of hazardous waste TSDFs to provide
assurances of financial responsibility for completing corrective action as may be necessary to
protect human health and the environment. In addition, financial assurance requirements should
generally be included in corrective action administrative orders issued under Section 3008(h) of
RCRA, 42 U.S.C. § 6928(h). Regulators have flexibility to tailor financial responsibility
requirements to facility-specific circumstances. EPA recommends structuring the governing
document, either permit or administrative order to ensure that facility owners and operators obtain
an appropriate mechanism to satisfy the financial responsibility requirements for corrective
action. The mechanism should ensure that sufficient funds are available to undertake the
necessary corrective action at the facility in the event the facility owner or operator is unable or
fails to so do. Failure of a facility owner or operator to comply with financial responsibility
requirements may put human health and the environment at risk.
Section 6: Use and Purpose of this Document
This document is not a regulation nor does it change or substitute for the statutory provisions
described in this document. Moreover, this document does not confer legal rights or impose legal
obligations upon any member of the public.
While EPA has made every effort to ensure the accuracy of the discussion in this document, the
obligations of the regulated community are determined by statutes, regulations, or other legally
binding requirements. In the event of a conflict between the discussion in this document and any
statute or regulation, this document would not be controlling. Because this document cannot
impose legally-binding requirements EPA and State decision-makers retain the discretion to adopt
approaches on a case-by-case basis that differ from this guidance where appropriate.
The general description provided here may not apply to a particular situation based upon the
circumstances. Interested parties are free to raise questions and objections about the substance of
this document and the appropriateness of the application of this document to a particular situation.
EPA and other decision-makers retain the discretion to adopt approaches on a case-by-case basis
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that differ from those described in this document where appropriate.
This is a living document and may be revised periodically without public notice.
For additional information contact: Mary Bell at (202) 564-2256, bell.marv epa.gov , or Dale
Ruhter at (703) 308-8192, ruhter .dale@epa .gov .
Page 15 of 15

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, 9 1E0 S7 41
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.c 20460

OFFICE OF
ENFORCEMENT AND COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Transmittal of Average Cost of Investigation Derived from Fund-
Lead Superfund Costs, Interim Measures Cost Compendium, and Compendium of
Related Guidance Documents
FROM: Susan E. Bromm, Director
Office of Site Remediation Enforcement
TO: RCRA Directors, Regions I - X
RCRA Enforcement Managers, Regions I - X
RCRA Key Contacts, Regions I - X
This memorandum transmits the attached documents entitled “Average Cost of Remedial
Investigation Derived from Fund-Lead Superfund Costs” and “Interim Measures Cost
Compendium,” and “Compendium of Related Guidance Documents.” The purpose of the
documents is to assist you in evaluating the appropriate level of financial assurance that may be
required for a RCRA Facility Investigation (RFI) or for interim measures.
On September 30, 2003, OSRE and OSW jointly transmitted the “Interim Guidance on
Financial Responsibility for Facilities Subject to RCRA Corrective Action.” That intenm guidance
provides regulators with guidance on implementing financial responsibility requirements to ensure
that hazardous waste treatment, storage, and disposal facility (TSDF) owners and operators provide
evidence of financial responsibility for corrective action when necessary.
The September 30, 2003 guidance recommends a flexible, facility-specific approach to
requiring financial assurance for corrective action, and in appropriate situations, encourages
regulators to require financial assurance earlier in the corrective action process such as for the RFI
and/or for significant interim measures.
PRINTED ON RECYCLED!
RECYCLABLE PAPER

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Enclosed, please find:
Average Cost of Remedial Investigation Derived from Fund-Lead Superfund Costs
The first document is a table that provides cost values for the remedial investigation (RI) at
28 categories of sites. The cost values are based on the costs of completed fund-lead RI costs from
the Superflind program. For each site type category, the number in parentheses indicates the number
of sites where cost data was obtained.
Fund-lead RI cost data came from three sources: RACMIS, an Office of Superfund
Remediation Technology Innovation (OSRTI) system that tracks and maintains information on work
performed by Response Action Contractors; SCORES, an accounting system maintained by the EPA
Comptroller’s Office; and CERCLIS, an OSRTI system that tracks and maintains information on
hazardous waste sites and remedial activities across the nation.
Cost data was assigned to completed RI actions in a hierarchical fashion based on data
quality. All available RACMIS cost data was assigned first to completed RI actions. SCORES data
was assigned to those completed RI actions that did not already have cost information. Finally,
CERCLIS cost data was assigned to any remaining actions where cost data had not already been
assigned.
The Superfund and RCRA programs have similar investigation and remediation processes.
Superfund RI costs can be used as a proxy for RCRA Facility Investigation (RFI) costs and serve as a
general guideline for cost estimating efforts. Although past costs from similar work serve as
excellent pricing sources, adjustments will have to be made for dissimilarities which affect prices
such as facility type, media, and type and volume of waste. Users of this table can determine the site
type category, and then refer to the table to locate a cost estimate for assessing the appropriate
amount of financial assurance.
Interim Measures Cost Compendium
The second document is a cost compendium for a variety of interim measures. The costs
were developed using the Remedial Action Cost Engineering and Requirements (RACER) cost
estimating software which was developed by the US Air Force dunng the early 1990s for use by its
remedial project managers in developing estimates for cleanups related both to RCRA and
Superfund. Costs in this software are based on the 2003 Environmental Cost Handling Options and
Solutions (ECHOS) cost database which consists of unit prices for matenals, labor and equipment
that is updated annually through a survey of contractors, suppliers, laboratories, and
engineering/consulting firms.
For each interim measure, we included multiple scenarios. For example, costs for
groundwater extraction well installation were obtained for four different scenarios. These costs are
provided in a chart that allows you to locate the correct extraction and depths to groundwater rates to
estimate the installation cost per well. The annual operation and maintenance (O&M) cost per well
also are included in the chart.

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Facility-specific conditions will govern the type of investigation and interim measures and
the level of effort required for any given facility. The range and cost data is provided as a framework
for developing cost estimates during preliminary or planning phases, where actual costs are not
known. You are encouraged to use the attached documents and adjust cost estimates as more
information becomes known.
Compendium of Related Guidance Documents
Also attached is a compendium of Superfund and RCRA remediation guidance documents.
The documents address remediation cost estimating tools, procedures and guidelines, and documents
related to site investigation and interim measures. The compendium summarizes the guidance
documents and includes the internet address for the PDF files (except for two documents available
through NTIS).
I appreciate the input my office received from Bob Stewart in EPA Region IV, who helped
shape these documents and I want to thank him for his help. For more information regarding the
attached documents, please contact Mary Bell at (202) 564-2256.
Attachments (3)
cc:
Paul Connor, OECA/OSRE
Neilima Senjalia, OECA/OSRE
Ken Patterson, OECA/OSRE
Monica Gardner, OECA/OSRE
Mary Bell, OECAJOSRE
Tracy Gipson, OECAIOSRE
Matthew Hale, OSWER/OSW
Maria Vickers, OSWER/OSW
Dale Ruhter, OSWER/OSW
Christine McCulloch, OECA/RED

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Letters of Credit

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
SURETY BOND FOR SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCES
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Is the surety company listed as an acceptable surety in
U.S. Department of Treasury Circular 570? [ 40 CFR
§264.1 47(i)(2); 40 CFR §265.1 47(i)(2)]
J Has a copy of the bond been submitted? [ 40 CFR
§264.1 47(i)( 1); 40 CFR §265.1 47(i)( 1)]
U Does the bond use wording identical to that specified
in 40 CFR §264.151(1)? [ 40 CFR §264.147(i)(3); 40
CFR §265. 147(i)(3)]
D Has a written statement been submitted from the
Attorneys General or Insurance Commissioners of the
state where the surety is incorporated and from each
state where a facility covered by the bond is located,
indicating that such a surety bond is a legally
enforceable obligation in that state? [ 40 CFR
§264.1 47(i)(4); 40 CFR §265.1 47(i)(4)]
Reviewed by:
Date:

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Insurance

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Captive Insurance Companies — What Are They?
Page 1 of 4
IEI cantiv om
Definitions
A captive insurance company is, in its simplest and purest form, an insurance
company that only insures all or part of the risks of its parent. This definition is,
however, rather narrow and fails to reflect the way in which captives have
developed over the years. A captive may more usefully be described as an
insurer that writes risks whose origins are restricted or risks to which it has
unique access.
History and development
In the last 20 to 30 years there has been phenomenal growth in the number of
captive insurance companies so that today there are well over 4,000 captives
worldwide writing more than $2Obn in premium. These companies have capital
and surplus estimated at over $5Obn.
The captive insurance industry can be said to have its origins in the formation of
mutuals and co-insurance companies in the 1 920s and 1 930s. However, the
start of the real growth of the captive industry can be traced to the early 1 950s
and the move by parent companies, to establish their captives offshore.
The greatest stimulus to the development of captives has been the expense or
lack of availability of certain types of insurance cover in the commercial market.
Other considerations apply, however, and these have become so important in
the minds of risk managers and finance directors that, even when commercial
premium rates have been extraordinarily low, the interest in captives has been
greater than ever.
Evidence of this interest is provided not only by the number of captives being
formed but also by the increasing number of domiciles available for their
incorporation. Long-standing domiciles, such as Bermuda, the Cayman Islands,
Guernsey, the Isle of Man and Luxembourg have been joined by the likes of
_______ Vermont, the British Virgin Islands, Gibraltar and Dublin. In a move that
demonstrates forcibly the emergence of captives into the mainstream of the
insurance and risk management arena, the Council of Lloyd’s passed a byelaw
in November 1998 permitting the establishment of captive operations at Lloyd’s.
Types of captive
Captive Resource Center Captive Insurance Companies — What Are
They?
By Martin Eveleigh ACII
Ask the Expert Forum
Ask the Expert FAQ
Captive Basics
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Learning Center
Templates and Tools
Pulse Surveys
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Businesses and Associations
Links to Member Websites
Captive Yellow Pages
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Research & Information
News/Library
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Conference Calendar
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Website FAQ
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A.M. BcSr
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findA
Insuranco- -
.company ratin S
Enter Company
Advanced
Search Opflana
Membership Info
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http://www.capti ve.com/service/kpmg/kpmg...article2.html
5/1/2007

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Captive Insurance Companies — What Are They? Page 2 of 4
Captive.com, lic In its simplest form a captive can be defined as a wholly owned insurance
Re ister for Site U dates subsidiary of an organisation not in the insurance business whose primary
p function is to insure some or all of the risks of its parent. Since captives were first
E-mail captive.com formed the industry has looked at new ways of developing the captive model to
provide appropriate vehicles for a wide range of different owners and users.
There are now many types of captive, including:
• Single-parent captives, underwriting only the risks of related group
companies.
• Diversified captives underwriting unrelated risks in addition to group
business.
• Association captives which underwrite the risks of members of an industry
or trade association. Liability risks such as medical malpractice are
frequently insured in this way.
• Agency captives formed by insurance brokers or agents to allow them to
participate in the high-quality risks, which they control.
• Rent-a-captives are insurance companies that provide access to captive
facilities without the user needing to capitalise his own captive. The user
pays a fee for the use of the captive facilities and will be required to
provide some form of collateral so that the rent-a-captive is not at risk
from any underwriting losses suffered by the user.
• Special purpose vehicles (‘SPy’s) are used in risk securitisation. They are
reinsurance companies that issue reinsurance contracts to their parent
and cede the risk to the capital markets by way of a bond issue.
Captives may be established as direct-writing companies issuing policies to, and
receiving premiums from, their insureds but the insurance industry is generally
highly regulated and, in many jurisdictions, certain risks may only be written by
an admitted insurer. Usually, and particularly in the case of smaller captives, it is
simpler for the captive to operate as a reinsurer accepting the risks of its parent,
which have been insured by a licensed direct-writing company (a ‘fronting
company’) and then ceded to the captive. The fronting company will charge a fee
for its services and may require a letter of credit to guarantee the captive’s ability
to pay claims.
Reasons for forming a captive insurance company
It is popularly thought that a captive is primarily a tax minimisation device. In
fact, captives are usually formed for other economic reasons with the main
drivers being risk management and risk financing. Some of these reasons are
summarised below.
• Lower insurance costs Commercial market insurance premiums must
be adequate to meet the cost of claims but, in common with other
commercial enterprises, insurers are in business to make money and will
therefore include in the premium an element to provide for their
acquisition costs, overheads and profit. This portion of the premium can
represent as much as 35% or 40% of the whole. In establishing a captive,
the parent seeks to retain the profit within the group rather than see it go
to an outside party. A captive may also help reduce insurance costs by
charging a premium that more accurately reflects the parent’s loss
experience.
• Cash flow. Apart from pure underwriting profit, insurers rely heavily on
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Captive Insurance Companies — What Are They? Page 3 of 4
investment income. Premiums are typically paid in advance while claims
are paid out over a longer period. Until claims become payable the
premium is available for investment. By utilising a captive, premiums and
investment income are retained within the group and, where the captive is
domiciled offshore, that investment income may be untaxed. Additionally
the captive may be able to offer a more flexible premium payment plan
thereby offering a direct cash flow advantage to the parent.
• Risk retention. A company’s willingness to retain more of its own risk,
particularly by increasing deductible levels, may be frustrated by the
inadequate discount offered by insurers to take account of the increased
deductible and by the fact that the company is unable to establish
reserves to pay future claims. Establishment of a captive can help
address both these problems.
• Unavailability of coverage. Where the commercial market is unable or
unwilling to provide coverage for certain risks or where the price quoted is
seen to be unreasonable, a captive may provide the cover required.
• Risk management. A captive can act as a focus for the risk management
and risk financing activities of its parent organization. An effective risk
management programme will result in recognisable profits for the captive.
Risk management can be viewed by a captive owner not as a cost centre
but as a potentially profitable part of the company’s activities. A captive
can also be used by a multinational to set global deductible levels by
enabling a local manager to insure with the captive at a level suitable to
the size of his own business unit while the captive only buys reinsurance
in excess of the level appropriate to the group as a whole.
• Access to the reinsurance market. Reinsurers are the international
wholesalers of the insurance world. Operating on a lower cost structure
than direct insurers they are able to provide coverage at advantageous
rates. By using a captive to access the reinsurance market the buyer can
more easily determine his own retention levels and structure his
programme with greater flexibility.
• Writing unrelated risks for profit. Apart from writing its parent’s risks, a
captive may operate as a separate profit centre by writing the risks of third
parties. In particular, an organisation may wish to sell insurance to
existing customers of its core business. For example, retailers may sell
extended warranty cover to customers with the risk being carried by the
retailer’s captive. The claims pattern of this type of business is usually
very predictable with a large number of small exposures and can provide
the retailer with a valuable additional source of revenue.
• Tax minlmisation and deferral. The tax considerations in forming a
captive will depend on the domicile of both the parent and the captive.
Integration of a captive as part of an overall tax planning strategy is a
complex subject so that professional legal and tax advice is essential.
© 2000 KPMG. All rights reserved
This article is extracted from a forthcoming KPMG publication, “Insurance in the
British Virgin !slands”
The content of this article is intended to provide a general guide to the subject
matter. Specialist advice should sought about your specific circumstances.
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Captive Insurance Companies — What Are They? Page 4 of 4
For further information please contact:
Martin Eveleigh Tel: +1 284 494 5800
KPMG Fax: +1 284 494 6565
P0 Box 650 e-mail: kQmginsurance©surtbvi.com
Road, Tortola
British Virgin Islands
The author is Insurance Manager at KPMG in the British Virgin Islands, who
provide insurance management seivices through a wholly-owned subsidiary,
Belmont Insurance Management Limited.
To Belmont Insurance Management Limited Page .
httnYIwwwcantiv cnm/s rvice/kpmgIkpmg_articIe2.htmI
http:llwww.capti ve.com/service/kpmg/kpmg ....article2.html 5/1/2007

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Tins document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation oJRCRA or ofEPA’s regulations and views, and nay not necessarily reflect the current position of EPA
- ! INSURANCE
RCRA Subtitle C aosure and Post-Closure
Financial Assurance Training
Seattle, WA
December 7-10, 2004
Lz
ii L
— Key Points
• The Basics
• Challenges & Tips for Success
• Case Study Exercise
AJlied Bnck Company Inc
• Final Thoughts
• Panel Discussion
The BasIcs: What IS Insurance?
• An insurance policy is a contract between two partes.
• Party 1 the Insurer
• Party 2 = the Policyholder = the Owner/Operator
• The Insurer agrees to pay, on behalf of the
Policyholder, for daims made against the policy.
• For purposes of l nancial assurance, and upon direction
from the Regulator, the Insurer agrees to reimburse the
Company (Or another party) for costs incurred for
dosure/post-closure care
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1

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This document is intended to provide guidance to EPA staff it does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA ’s regulations and views, and may not necessarily reflect the current position of EPA.
- 4 The Basics: What is Insurance?
• Unlike Surety Bonds and LOCs, Insurance does not
require the use of a Standby Trust Fund.
• There are two types of insurance policies that are
acceptable under RCRA Subtitle C:
• Risk Transfer Policies
• Finite Risk (or Fully Funded) Policies
The Basics: What is Insurance?
• Risk Transfer Policies’
• Assume the transfer of a future expected loss from
the Policyholder to the Insurer
• In exchange for its coverage, the Insurer receives a
premium payment over the life of the policy.
• Pncing assumes that losses under the policy have a
relatively low probability of occurnng (e g.,
automobile, flood)
The Basics: What IS Insurance’
• Finite Risk (or Fully-Funded) Policies’
• Assume the transfer of a future expected loss from
the Policyholder to the Insurer only for a specific (or
‘finite’) amount.
• Policyholder pays the Insurer an up-front premium
equal to the ‘net prosent value’ of the future
expected dosure/post ’closure costs.
• Depending on the situation, the Insurer may allow
the Company to pay in stages.
2

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The Basics: What is Insurance?
• Risk transfer policies are no longer widely used for
dosure and/or post-dosure care.
• Insurers are more willing to underwrite finite nsk
policies for purposes of financial assurance.
• Finite nsk policies more dosely resemble Trust Funds
than conventional general liability insurance policies
• The liability (or nsk exposure) to the Insurer is
limited under finite risk policies.
I *aI.GO....dPnICM ,... E P A PE.t..S t,a..nT,.I, 7
The Basics: What is Insurance?
• Moderate risk mechanism for the Regulator
• An insurance policy provides the Regulator with a
form of third-party guarantee
• The Regulator is assured adequate coverage of
potential claims as Ion as.
• The Policyholde ys
• The policy has a imit of liabibty’ at least equal to the
current estimated cost of dosure/post-closure
• If the Insurer maintains reinsurance, the Regulator
may have added security.
CRA AAA I _______________________________________________________________________________
The BasIcs: What is Insurance’
• The cost of an insurance policy is a function of
• The probability of a loss occunng,
• The probability that the Insurer will have to pay out
dairns up to the policy limit __________________________________________________________
• The greater the risk to the Insurer of having to pay
out on dainis, the higher the cost to the ________________________________________________
Policyholder.
rCEA c EPA PA A. . ,.. k ________________________________________________________________________
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation oJRCRA or ofEPA ’s regulations and views, and may not necessarily reflect the current position of EPA
3

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
The Basics: What is Insurance?
Moderate cost mechanism for the Company:
The Policyholder pays an annual, nsk-based premium
The Insurer also may require a percentage of the policy
limit up front in the form of cash collateral
• Despite the premium and cash collateral payments,
Insurance can be a lower cost option than a Letter
of Credit.
• Unlike an bC, Insurance does not necessanly require
that the Company adhere to stnct finanoal covenants.
w
The Basics: How Insurance Works
• The insurer must be licensed to transact the business
of insurance be eligible to provide insurance as an
excess (or surplus) lines insurer in at least one State.
• Excess/surolus lines Rates and policy language are
not subject to state review, claims against individual
policies are not backed by the state’s general fund
• The ‘limit of liability’ of the insurance poitcy (or the
total amount the insurer is willing to reimburse) must
be at least equal to the current closure and/or post-
closure cost estimates.
The Basics: How Insurance Works
• The insurance policy must:
• Stipulate that the Insurer can not cancel, terminate, or fail
to renew the policy.
defaults on its premium payment.
• Be automatically renewable (Or evergreen) at no less than
the ‘limit of liability’ of the expiring policy
• Contain a provision that allows the pohcy to be assigned
(or transferred) to the Policyholders successor’””’
• Stipulate that the policy can not be canceled, if closure has
been ordered.
4

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This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is no: a complete
representation of RCR.A or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
- The Basics: Required Documents
A certificate of insurance, which serves as evidence
of the insurance contract, must be submitted to the
Regulator.
• The certificate must be worded correctly [ see 40 CFR
264 151(e)1
• If requested to do so b the Regulator e Insurer
must submit a copy of e in ce policy,
including all endorsements and attachments.
• A Standby Trust Fund required.
/
- The Basics: What to do if.
The cost estimates decrease, the Regulator:
• Should review documentation supporting the decrease
• May approve (in writing) a reduction in tile limit of
liability of the poiicy.
• The cost estimates increase, the Policyholder must
within 60 days:
• Increase the limit of liability of the policy; or
( btana emaflvelinanciaI assurance to co)- ’
- The Basics: What to do if..
• The Policyholder defaults on its premium payment.
• Failure to pay the premium is a violation of the RCRA
regulations In response, the Regulator may pursue whatever
remedy it deems appropnate (e.g., require alternative
finanoal assurance)
• The Insurer can cancel, terminate, or opt not to renew the
policy by sealing notice to the Policyholder to the
Regulator
• The Insurer can not cancel, terminate, or fail to renew the
insurance policy within 120 days of having notified the
regulator, or if dosure has been ordered
5

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L)
This document is intended to provide gwdance to EPA staff Ii does not create any legally binding requirements on EPA. States, or
the regulated community, and does no! create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
- The Basics: What to do if...
• The Policyholder seeks to terminate its policy
• The Compan j u provide proof of alternative financial
assurance policy can be terminated
• Only the R u & can release the Policyholder from the
applicable regulalory requirements
• The Policyholder is named a debtor in Chapter 11
• The Insurer can not cancel the policy if the Policyholder
files for bankruptcy protection, or is named a debtor pnor
to the expiration of the policy
cn .s ‘nr———
- Liability Requirements
• Insurance for Liability Coverage
Sudden accidental occurrences (see cenpiiax rnpuirenants at
§264 147(aXl) and §265 147(aXl)J
• Non-sudden accidental occurrences (see mmptste neu’remenIs
at §264 147(bXl) and §265 147(b)(1)j
• Policies must be either:
• Evidenced by a Certificate of Liability Insurance - 40 CFR
2 & 4 .l5l(j); or
• Amended by a Hazardous Waste Facility Liability
Endorsement 40 CFR 264.151(i)
- —
U , 4
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- Challenges
• There is an increased use of captive insurance.
• A ‘Captive Insurer underwntes insurance policies Ix for its
parent or for other affiuistes controlled by its parent
• The financial heaTh (and solvency) of the Captive Insurer may
be dosely connected to the financial condition of the
icyhotcer (e g, loanbacks)
• us cealowstheComp enytoselfi
without having to meet corporate financial test ratios
• If the Pci i er ces financial difficulties, daims
made against the Captive Insurer ’s policy(ies) may be
unmet or tngger financial distress.
* C S FPAfl&.T..,S.
6

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LL - / -4- -
Challenges (continued )
• Regulators often are limited in their ability to
determine whether an insurance policy is
underwntten by a Captive Insurer.
For example , neither the current RCRA insurance
certificate, nor the declaration page of the insurance policy
tend to provide this information.
• An insurance policy underwntten by a
Insurer may not be transferred (Or assigned) to
companies outside the Captive Insurer’s corporate
family.
CR*.tO S P..ICa.0. E P A FE SE ,4. 7
Without reading the policy language, the Regulator likely is..
unaware of key policy terms, including retained limiis, —
range of coverage, policy exclusions, etc ______________________________________________________________
CPA P..C C.,. . .dPsC.,. , 1041.,...w A... .
RE Es.0a.., , ,. . ‘d EPA ck,..100 A.... ,. Is. . ., -
This document is intended to provide guidance to EPA staff Ii does 1101 create any legally binding requirements on EPA, States, or
the regulated community, and does not create a iy rig/il or benefit, substantive or procedural This document is not a complete
representation of RGRA or ofEPA’s regulations and weit’s, and mat’ 1101 necessarily reflect the current position of EPA
- Challenges (continued )
The RCR.A regulations only require that the Policyholder
provide a Certificate of Insurance
• Unless asked to do so by the Regulator, the Policyholder
i .n t required to provide a copy of the insurance policy
• Neither the Policyholder, nor the Insurer are required to
provide the finanoal (Or actuarial) data underpinning the
terms of the insurance policy
10
Challenges (continued )
• State Insurance Commissioners, which are responsible
for regulating and examining the financial condition of
Insurers, often do not have the resources to respond to
requests for information from the Regulator.
• The Regulator must remain aware of the corporate
status of the Insurer The Insurer required
inform the Regulator if
• Its charter or license is suspended or revoked,
• It enters ‘rehabilitation’ or ‘liquidation’, or
• It loses its authonty to issue insurance
7

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t 4$ 0 /4&L
— Challenges (continued )
• As more insurers underwrite finite nsk insurance
polloes (with clear limits of liability), accurate and
current cost estimates for dosure/post-dosure care
are essential.
• With the increasing trend in finite nsk policies,
insurance has become a more costly means of
demonstrating finanoal assurance for the
Policyholder.
Hence, the inaeased use of captive insurance, which
represents a low (or no) cost option for the company
— j Tips for Ensuring Success
• The Policy Declaration page of an insurance policy tsj
the same as a certificate of Insurance.
• Always request a copy of the policy, including all
schedules, endorsements, and exclusions.
a Proofread all documents to ensure that the language is
comprehensive, precise, and conforms to the regulations
a check that the poiicy(ies) are iegai and enforceable in the
State(s) in which the l olities are covered
a Ensure that the policy’s limit of liability is at least equal to
the estimated cost of closure/post-closure for all covered
facilities
-d
Tips for EnsurIng Success (continued)
• Regularly monitor the business press and ratings
releases; this applies for both captive and
independent insurers.
a Many (if not at) insurers Gre rated by commeroai ratings
agencies (e g, AM. Best, Standard & Poors)
• Neither the Policy Dedaration, nor the certificate of
Insurance are likely to stipulate whether the Insurer
underwnting the policy is a captive.
Lt .aa EpSr,. hai
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA.
8

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TI its document is iiitended to provide guidance to EPA staff it does not create any legally binding requirements on EPA . States, or
the regulated community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete
representation oJRCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of EPA
-har
Tips for Ensuring Success (continued)
• The Regulator may want to ask the Policyholder (or
Insurer) to provide a signed declaration stating’
• Name, address, and corporate ownersiup svucture ot the Insurer
• Name and address at all companies, ‘tiding parent company and
affiliates, tot which it underwrites insurance
• The Insurm”s most recent iinanoai raUng (it rated) by AM Best,
Moody, or Standard & Paws
• The states in which the Insurer is kenned to conduct business
• whether fronting or reinsurarce is used, by whom, and how much
• The amount at the Insurer’s capital reserves, inciuding an
accounting of at loanbadcs.
,,
Case Study Exercise : Allied Bnck
• Problem Set 1 : Review the policy declaration provided
by Allied Bnck company, Inc. Highlight additional
information you might request from the company.
• Suggested ‘Time’ 15 minutes
• Problem Set 2 : Review Allied Bnck company, Inc,’s
response to your request for additional information. Are
you satisfied by their response’
• Suggested Time 15 minutes
• In preparation for tomorrow.
Case Study ExercIse : Allied Bnck
• Problem Set 3 : In your small group session, review the
insurance policy language. Discuss your thoughts and
concerns (if any) with respect to the policy
• Suggested lime 30 minutes
• Problem Set 4 : In your small group session, deode
whether you will accept Allied Bnclc’s demonstration of
flnanaal assurance
• Suggested ‘time 20 minutes
9

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Final Thoughts
Insurance can be a relatively low risk option, but
only if the Regulator:
• Regularly monitors the business press and ratings releases;
• Considers carefully the use of captive insurance, and
• Acts quickly if the Insurer (or the Company) shows signs of
financial du ress
Most insurers are willing to underwnte only finite nsk
pollaes. Accordingly, the Regulator must ensure
that the policy’s limit of liability is at least equal to
the current estimates of dosure/post-closure care.
CIaSI C.P.dCM...,. EP*FS,S*......,.. I ..MSI 1 ’ ______________________________________________________________________________
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete
representation of R RA or of EPA r regulations and views, and nrav not necessarily reflect the current position of EPA
10

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INSURANCE: CASE STUDY
ALLIED BRICK COMPANY, INC.
This document is intended to provide guidance to EPA siaff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is 1101 a complete
representation of RC ’RA or ofEPA’s regulations and vie vs, and may not necessarily reflect the current position 0/EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training

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Insurance: Case Study
Allied Brick Company, Inc. — Table of Contents
I. Background 3
II. Problem Set 1: Policy Declaration 4
Ill. Problem Set 2: Letter from Allied Brick 11
IV. Problem Set 3: Copy of Policy 16
V. Problem Set 4: Conclusions and Recommendations 30
RCRA Subtitle C Closure and Post.Ciosure: EPA Financial Assurance Training 2

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This document is intended to provide guidance to EPA staff ft does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of R RA or of EPA c regulations and views, and may not necessarily reflect the current position of EPA
Insurance: Case Study
Allied Brick Company, Inc.
Background
Allied Brick Company, Inc. (“Allied Brick”) operates two facilities in Topsfield, USA. Both facilities
treat and dispose of hazardous waste material, including chlorine and chlorine byproducts. The
facilities have been in operation since 1975.
The facilities are permitted, operating, and active. As the regulator, you are evaluating the
company’s closure and post-closure plan. Currently, Allied Brick estimates total closure and post-
closure costs of $2.3 million; that is, $1.5_million for Dunes, Inc. and $800,000 for Eden, Inc .
_ —
Allied Brick has proposed use of insurance policy XAI 23456 to demonstrate financial assurance
under Subpart H of 40 CFR Part 264. You researched the company, and located an August 1998
Business Wire article announcing the placement by Settler Global Insurance Strategy of a 1 [ o -
million closure and post-closure policy on behalf of Moderne Poste, AG, a leading chemical
materials company. The policy caps environmental exposures relating to operations of its wholly-
owned subsidiary, Allied Brick Company, Inc. (acquired by Moderne Poste in 1995). With a $10
million limit of liability , the policy covers closure and post-closure costs at various Allied Brick
C i any sites.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
The policy is underwritten _ by-Monum nt lnsiiranr I imit t1 a Mo tp Pnst , AC, r ptive. arid is
re-insu d by Barn Eu Reinsurance, a member of the Swiss Miss group. The one-time premium,
together ftiTh1 to $8.7 million.
/. 5 ’/ - ’
L J
?.
-

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Insurance: Case Study
Allied Brick Company, Inc. — Large Group Discussion, Policy Declaration for XA1 23456
Problem Set 1 :
Review the attached Policy Declaration for XA1 23456. Based on your review of the declaration
and what you currently know about the Insurer, use Answer Table I to organize your thoughts and
recommendations. Anticipate sharing your thoughts with the larger group.
Documents for your review include:
> Policy Declaration for XAI 23456 (page 5)
> Answer Table I (blank template to assist in your review)
Recommended review time: 15 mins.
RCRA Subtitie C Ciosure and Post-Ciosure: EPA Financial Assurance Training 4

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Insurance: Case Study
Allied Brick Company, Inc. — Large Group Discussion, Policy Declaration for XAI 23456
HAZARDOUS WASTE - CLOSURE/POST-CLOSURE POLICY
Policy Number: XA1 23456
Named Insured: Allied Brick Company, Inc.
Address: Allied Brick Company, Inc.
do Hip Hop Post Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
Policy Period: Beginning January 1, 1998 un lJ Limits of Insurance are
exhausted or the policy is commuted by the Policyholder.
Limit of Liability: Umbrella Limit: $10,000,000, subject to a ublimit $5,000,000 .
..- ,
Covered Facilities: The United States of America N. 2.
Deductible: / /
Policy Premium/Schedule: $8,742,828 U.S. Premium shall be due not later than noon EST
on August 1, 1998.
Company: Monument Insurance Limited
Sunny Skies
Cayman Islands
Notice: This Insurance Is Not Licensed by the State of Pennsylvania
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 5

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Insurance: Case Study
Allied Brick Company, Inc. — Answer Table 1, Policy Declaration for XA1 23456
Document
Reviewed
Issue(s)
Additional Information to Request from
Allied Brick?
Q 4 4
L
Policy
Declaration
J 11 A,L
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RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
6

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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 1, Policy Declaration for XA1 23456
No detads are provided regarding.
Policy cancellation clauses,
- The facilities (or sites) covered
under the policy:
- The amount of sublimit remaining
under the policy:
- The nature or operating structure
of the insurer
The declaration suggests that the
policy is an umbrella policy covering
multiple sites for multiple liabilities,
the regulator should be concemed
that it is not a policy that is dedicated
solely to the closure and post-closure
care of the Dunes, Inc. and Eden,
Inc facilibes.
> Monument Insurance Limited is a
captive insurance company.
Allied Brick and Monument Insurance
both are wholly owned subsidiaries of
Moderne Poste. AG.
It is not clear whether a reinsurer is
backing the policy
The regulator should request a copy of
the policy, including all endorsements,
attachments, amendments, and
schedules
The regulator also should request a
signed, dated Certificate of Insurance
for closure or post-closure that
complies with the wording at 40 CFR
264.151(1).
The regulator should request a signed
declaration from Allied Brick that
provides additional information
regarding Monument Insurance
Limited.
Key information to request is an
accounting of the captive insurance
company’s reserves, and any loan
backs made by Monument Insurance
Limited to Allied Brick.
See the Request for Information that
follows.
Policy
Declaration
Document
Reviewed
Issue(s)
Additional Information to Request from
Allied Brick?
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 1, Follow-Up Request for Information
July 4, 2003
Certified Mail No. _____________________
Return Receipt Requested
Ms. Sallie Mae Tyler,
Vice President and CEO
Allied Brick Company, Inc.
do Hip Hop Poste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
RE: REQUEST FOR INFORMATION
Dear Ms. Tyler:
Based on the Regions review of financial assurance coverage for the Dunes, Inc. and
Eden, Inc. facilities in Topsfield, USA, the Region has determined that additional information is
necessary to further evaluate the adequacy of compliance with the requirements specified under
Subpart H of 40 CFR Part 264. Therefore, pursuant to the Region’s authority under Section 3007
of the Resource Conservation and Recovery Act (RCRA), the Region hereby requests the
following information be submitted to me at the address below within 30 days of receipt of this
letter.
1) A copy of Policy XA1 23456 by Monument Insurance Limited with all schedules,
attachments, amendments, and endorsements;
2) A signed, dated Certificate of Insurance for Closure or Post-Closure, as
specified at 40 CFR 264 (see Attachment A for regulatory wording); and
3) A signed declaration by Allied Brick Company, Inc. or Monument Insurance
Limited that states the following:
> The name, address, and corporate ownership structure of Monument
Insurance Limited;
> The name and address of all companies, including parent company and
affiliates, for which the insurer (i.e., Monument Insurance Limited)
underwrites insurance.
> The insurer’s most recent financial rating (if rated) by A.M. Best, Moody’s, or
Standards & Poors.
> The states in which Monument Insurance Limited is licensed to conduct
business.
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 1, Follow-Up Request for Information
> Whether fronting or reinsurance is used, and if so by whom and by how
much.
> The amount of Monument Insurance Limited’s capital reserves, including an
accounting of any loanbacks (i.e., loans made by Monument Insurance
Limited either to its parent company or its affiliates).
The information requested in this letter must be provided notwithstanding its possible
characterization as confidential business information or trade secret. If Allied Brick refuses to
provide this information, then alternate financial coverage must be submitted within 30 days of
receipt of this letter. Adequate financial assurance is necessary to ensure that Allied Brick has the
necessary resources to implement the closure and post-closure plan that has been proposed for
the sites.
Should you have any questions concerning this letter or wish to meet with the Region within
the next 30 days to discuss this matter (in person or via telephone conference call), you may
contact me at (123)456-7890.
Sincerely,
Tammy Fay
Tammy Fay,
EPA, Region Z
Somewhere, USA 12345
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 1, Attachment A: Certificate of
Insurance for Closure or Post-Closure, as specified at 40 CFR
264.151(e)
Attachment A
Name and Address of Insurer
(herein called the “Insurer”):____________________________________________
Name and Address of Insured
(herein called the “Insured”):____________________________________________
Facilities Covered: (List for each facility: The EPA Identification Number, name, address, and the
amount of insurance for closure and/or the amount for post-closure care (these amounts for all
facilities covered must total the face amount shown below).)
Face Amount:
Policy Number:
Effective Date:
The Insurer hereby certifies that it has issued to the Insured the policy of insurance
identified above to provide financial assurance for (insert “closure” or “closure and post-closure
care” or post- closure care’7 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.
Whenever requested by the EPA Regional Administrator(s) of the U.S. Environmental
Protection Agency, the Insurer agrees to furnish to the EPA Regional Administrator(s) a duplicate
original of the policy listed above, including all endorsements thereon.
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.
(Authorized signature for Insurer)
(Name of person signing)
/Title of person signing)
Signature of witness or notary:_____________________________________________
(Date]
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Insurance: Case Study
Allied Brick Company, Inc. — Large Group Discussion, Letter from Allied Brick
Problem Set 2
Review the attached response from Allied Brick. Based on your review of the letter, use Answer
Table 2 to organize your thoughts and log your next steps/recommendations. Consider whether
you are satisfied by Allied Brick’s response. Do you think it necessary to review the actual
insurance policy language? Why or why not? Anticipate sharing your thoughts with the larger
group.
Documents for your review include:
> Response from Allied Brick to EPA Region Z Request for Information (page 12)
> Answer Table 2 (blank template to assist in your review)
Recommended review time: 15 mins.
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Insurance: Case Study
Allied Brick Company, Inc. — Large Group Discussion, Letter from Allied Brick
August 1,2003
Tammy Fay
EPA, Region Z
Somewhere, USA 12345
Dear Ms. Fay:
We received your letter dated July 4, 2003 on July 6, 2003. In response to your request for
information, we offer the following:
1. A copy of Policy XA 123456.
To be mailed under separate cover.
2. A ff ä laratiaYrtirJJiied Brick Company. Inc. that states the following:
• The name, address, and corporate ownership structure of Monument Insurance Limited:
Monument Insurance Limited is located at 123 Dachsund Way, Sunny Skies, C ymari
Islands. 100 percent of the stock of Monument Insurance Limited is owned by Allied
Buck .
• The name and address of all companies, including parent company and affiliates, for
which it underwrites insurance:
Allied Brick Company, Inc.
do Hip Hop Poste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
• The insurer’s (i.e., Monument Insurance Limited) most recent financial rating (if rated)
by A.M. Best, Moody’s, or Standards & Poors
Not rated.
• The states in which Monument Insurance Limited is licensed to conduct business:
cessan urplusIines. h
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Insurance: Case Study
Allied Brick Company, Inc. — Large Group Discussion, Letter from Allied Brick
• Whether fronting or reinsurance is used, and if so by whom and by how much:
Barn Eu Reirisurance
• The amount of Monument Insurance Limited’s cap ital reseries, including an accounting
of any loanbacks (i.e., loans made by Monument Insurance Limited either to its parent
company or its affiliates):
-Th
Capital reserves 4 e loan for $700,000 xists from Monument Insurance
Limited to Allied Bric R. -
, o / ;:::
Sincerely,
Sallie Mae Tyler
Sallie MaeTyler,
Vice President and CEO
Allied Brick Company, Inc.
c/a Hip Hop Paste Management
8 Parts Way Circle, Suite 1234
Topsfield, USA 98765
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Insurance: Case Study
Allied Brick Company, Inc. — Answer Table 2, Letter from Allied Brick
Document
Reviewed
Issue(s)/Points of Consideration
Implications/Additional Questions?
Letter from
Allied Brick
t -ó )
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Insurance: Case Study Answers
Allied Brick Company, Inc. — Answer Key for Table 2, Letter from Allied Brick
Allied Brick still has not provided a
signed Certificate of Insurance as
required by the RCRA regulations.
> Monument Insurance Limited is a
wholly owned subsidiary of Allied Brick
The captive insurance company is not
independently rated.
The captive insurance company is an
excess/surplus lines insurer,
suggesting that its rates and policy
language are not subject to state
review and are not covered by most
insurance laws; that is, such insurers
are largely free of rate and form
restrictions imposed on other
(independent) insurance carriers by
state insurance commissioners. As
non-admitted insurers, the companies
are not eligible for the state insolvency
fund. As a result, if a surplus lines
insurer enters liquidation, claims
against individual policies are not
backed by the state’s general fund,
and therefore may go unpaid.
The captive lists a reinsurer, which
may offset the regulator’s concern with
respect to the insurers excess/surplus
lines status.
The captive’s capital reserves are only
$42,828.
> There is loan back from Monument
Insurance Limited to Allied Brick in the
amount of $700,000.
Without the insurance policy and
related attachments, you are limited in
your ability to determine whether the
policy provides adequate coverage.
> What happened to the $8.74 million in
premium payment, given that the
captive has only $42,828 in capital
reserves and has loaned $700,000
back to its parent company (i.e., the
Insured).
What (if any) funds remain from the
premium payment to make payment
on claims made against the policy?
How does the insurer intend to make
payment on claims with only $42,828
in capital reserves? Moreover, as a
captive, the insurer lacks the
diversification to cultivate additional
sources of revenues.
> While the listing of a reinsurer may
offset some concern, the regulator
should inquire how much coverage
this will provide for future obligations.
The regulator should review the policy
language and attachments
Letter from
Allied Brick
Document
Reviewed
Issue(s)/Points of Consideration
ImplicationslQuestions to ask Allied
Brick
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XA1 23456
Problem Set 3
In response to your request for additional information, Allied Brick provided the following document
for your review:
> A copy of Policy XA123456.
Within your team, review the insurance policy language. Use Answer Table 3 to organize your
thoughts and concerns, if any. Anticipate sharing your thoughts with the larger group.
Documents for your review include:
> Copy of Policy XA123456 (page 17)
> Answer Table 3 (blank document to assist in your review)
Recommended review time: 30 mins.
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XM23456
HAZARDOUS WASTE CLOSURE AND POST-CLOSURE POLICY
CONTENTS
I -INSURING AGREEMENT 18
Il-DEFINITIONS 18
Ill-TERRITORY 20
IV- EXCLUSIONS 20
V-LIMIT OF LIABILITY AND DEDUCTIBLE 20
VI-CLAIMS PROVISIONS 20
VI I-CONDITIONS 21
EXHIBITS 24
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XA1 23456
MONUMENT INSURANCE LIMITED
Sunny Skies, Cayman Islands
(A Stock Insurance Company Herein Called the Company)
HAZARDOUS WASTE CLOSURE AND POST-CLOSURE POLICY ENTERED INTO BETWEEN
ALLIED BRICK COMPANY, INC. (herein the ‘INSURED’)
AND MONUMENT INSURANCE LIMITED (herein the ‘Company’).
This is a Claims Made and Reported Policy — Please Read Carefully
In consideration of the payment of the premium set out in the Declarations and in reliance upon the
statements contained in the Applications attached hereto and made a part hereof and any supplemental
materials and information submitted herewith, and subject to all the terms and conditions of this Policy, the
Company agrees with the INSURED as follows
I INSURING AGREEMENT
The Company agrees to indemnify the INSURED, or such party(ies) as the REGULATORY BODY
designates in writing, subject to the Limits of Liability of this policy for such CLOSURE COSTS and/or POST-
CLOSURE COSTS that the REGULATORY BODY instructs the Company to indemnify the INSURED for, in
writing, in such amounts as the REGULATORY BODY specifies in writing, and as stipulated on Exhibit A
attached herewith. It is a condition under this Policy that coverage is only afforded subject to the following:
- The INSURED must be legally obligated to pay such CLOSURE COSTS and/or POST-CLOSURE
COSTS by reason of the FINAL CLOSURE of “a WASTE MANAGEMENT FACILITY designated in
the Declarations and in Exhibit A attached herewith: and
- CLAIMS by the INSURED, or such party(ies) as the REGULATORY BODY designates in writing, for
such CLOSURE COSTS and/or POST-CLOSURE COSTS must be first reported in wnting to the
Company during the POLICY PERIOD designated in the Declarations, and
- FINAL CLOSURE of a WASTE MANAGEMENT FACILITY first takes place after the Retroactive
Date shown in the Declarations
II DEFINITIONS
CLAIM means a request by the INSURED or such party(ies) as the REGULATORY BODY designates in
wnting, for payment of a statement or bill of expenditures made for CLOSURE COSTS and/or POST-
CLOSURE COSTS by reason of a FINAL CLOSURE of a WASTE MANAGEMENT FACILITY in accordance
with its CLOSURE PLAN or POST-CLOSURE PLAN, provided that such request
1 is first submitted in writing to the REGULATORY BODY for approval dunng the POLICY
PERIOD: and
2 is first reported in writing to the Company during the POLiCY PERIOD
CLOSURE COSTS means all expenses specifically identified in the CLOSURE PLAN and approved by the
REGULATORY BODY
CLOSURE PLAN means the written CLOSURE PLAN attached to the Policy as Appendix A and made a part
thereof, prepared in order to comply with federal regulations promulgated under the Resource Conservation
and Recovery Act (contained iii 40 C F R Part, 264 and 40 C F R. Part 265), or other applicable federal,
state or local
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XA1 23456
regulations regarding closure of waste management facilities and provided that such CLOSURE PLAN
including any revisions or amendments thereto, shall first have been approved by the REGULATORY BODY
FINAL CLOSURE means the closure of all WASTE MANAGEMENT UNITS at a WASTE MANAGEMENT
FACILITY pursuant to the CLOSURE PLAN
INSURED means the NAMED INSURED and any director, officer, partner or employee thereof while acting
within the scope of his/her du es as such.
MOST RECENT PUBLISHED INVESTMENT RATE means the last published investment rate prior and
closest in time to the date upon which the Company becomes obligated to make payment for POST-
CLOSURE COSTS.
NAMED INSURED means the person or entity designated as such in the Declarations.
POLICY PERIOD means the period set forth in the Declarations, or any shorter period arising as a result of.
I cancellation of this Policy; or
2. with respect to particular location(s) designated in Item 5 of the Declarations.
a. the deletion of such location(s) from this Policy by the Company; or
b. the sale, leasing, giving away, abandonment or relinquishing of operational control
of such location(s) without the written consent of the Company
POST-CLOSURE COSTS means all expenses specifically identified in the POST-CLOSURE PLAN
approved by the REGULATORY BODY
POST-CLOSURE PLAN means the written POST-CLOSURE PLAN attached to this Policy as Appendix B
and made a part hereof, prepared in order to comply with federal regulations promulgated under the
Resource Conservation and Recovery Act (contained in 40 C.F.R. Part 264 and 40 C.F.R. Part 265), or other
applicable federal, state or local regulations regarding post-closure of waste facilities, and provided that such
POST-CLOSURE PLAN including any revisions or amendments thereto, shall first have been approved by
the REGULATORY BODY
REGULATORY BODY means the Regional Administrator of the United States Environmental Protection
Agency for the EPA region in which the WASTE MANAGEMENT FACILITY named in the Declarations and in
Exhibit A, attached herewith is located, or any person or State Agency designated by the Regional
Administrator.
WASTE-MANAGEMENT FACILITY(IES) or facility(ies) means the entire facility designated by location
description in the Declarations and in Exhibit A which has received authonzation from the REGULATORY
BODY to engage in the treatment, storage or disposal of waste and which indudes one or more WASTE
MANAGEMENT UNIT(s) on, within or under such facility.
WASTE MANAGEMENT UNIT means a surface impoundment, waste pile, land treatment area, landfill cell,
incinerator, tank and its associated piping and underlying containment system, or a container storage area,
or other contiguous area of land on or in which waste is placed, or the largest area in which there is
significant likelihood of mixing waste constituents in the same area. Such unit must be located on, within or
under a WASTE MANAGEMENT FACILITY. A container alone does not constitute a unit; a unit includes
containers and the land or pad upon which they are placed.
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XAI 23456
III TERRITORY
This Policy only applies to CLAIMS arising from CLOSURE COSTS and/or POST-CLOSURE COSTS
incurred at WASTE MANAGEMENT FACILITIES located in the United States, its Territories or posse sions,
or Canada; and made or brought in the United States, its territones or possessions, or in Canada. “
EXCLUSIONS
This insurance does not apply to expenses, losses, liabilities of, or damages of any kind incurred by,
accruing to, or alleged to be liabilities of the INSURED, by reason of
1. (a) Any criminal or civil penalties imposed by reason of the violation or any law or
regulation
(b) Any CLOSURE COSTS and/or POST-CLOSURE COSTS based upon or\
attnbutable to the INSURED’s intentional, knowing, willful or deliberate \
noncompliance with any statute, regulation, ordinance, administrative complaint, J
notice of violation, notice letter, executive order or instruction of any governmental /
agency or body
2 Any expenses, charges or costs resulting from the defense and/or investigation
liability or obligation for CLOSURE COSTS andlor POST-CLOSURE COSTS hereunder
This insurance does not apply to expenses, losses, liabilities of, or damages arising from any environmental
remediation costs arising from a site other than a site listed on Exhibit A attached herewith, from an event
that begins before or after the prescnbed policy period, or from pollution events caused during the course of
transportation or removal of any Pollutant away from one (or more) sites listed on Exhibit A, attached
herewith.
V LIMIT OF LIABILITY AND DEDUCTIBLE
This Policy is to pay CLAIMS, subject to the deductible amount, if any, stated in the Declarations The —
deductible amount, if any, is to be borne by the INSURED and is not to be insured.
Subject to the foregoing, and with respect to each WASTE MANAGEMENT FACILITY shown in the
Declarations, and in Exhibit A, attached herewith, the company’s total liability for all CLOSURE COSTS
and/or POST-CLOSURE COSTS from all CLAIMS reported to the Company during the POLICY PERIOD
shall not exceed the Limit of Liability shown in the Declarations as applicable to the “Total for all CLAIMS.”
Sites listed in Exhibit B, attached herewith, shall be further subject to the sublimit shown in the Declarations.
The sublimit forms part of the total limit of liability.
Provided that the full increased premium as determined by the Company has been paid in full within Fifteen
(15) calendar days of when due, the Limit of Liability for each WASTE MANAGEMENT FACILITY for which
such full increased premium has been paid, shall increase annually, as follows: Beginning from the date the
Company becomes obligated under this Policy to indemnify POST-CLOSURE COSTS, the increase Limit of
Liability of such WASTE MANAGEMENT FACILITY shall be equivalent to the existing Limit of Liability, less )
any payments made under this limit, multiplied by an amount equivalent to 85 percent (85%) of the M09V’
RECENT PUBLISHED INVESTMENT RATE for newly issued 26-week Treasury securities.
VI CLAIMS PROVISIONS
With respect to CLAIMS under this Policy, it is a condition precedent to coverage that:
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XA1 23456
1 In the event that the INSURED receives, formally or informally, information to the effect that
CLOSURE COSTS and/or POST-CLOSURE COSTS or FINAL CLOSURE of a WASTE
MANAGEMENT FACILITY is/are under consideration by the REGULATORY BODY, the
INSURED shall immediately forward to the Company any demand or notice from the
REGULATORY BODY regarding the CLOSURE COSTS and/or POST-CLOSURE COSTS
or FINAL CLOSURE received by the INSURED or his or her representative.
2. The INSURED shall cooperate with the Company and, upon the Company’s request, assist
in obtaining information relative to any CLAIMS made. The INSURED shall not, except at
his own cost, voluntarily make or approve any payment, assume any obligations or incur any
expense
relating to CLOSURE COST and/or POST -CLOSURE COSTS which are not in accordance
with the CLOSURE PLAN or POST-CLOSURE PLAN without the Company’s or the
REGULATORY BODY’s wntten permission
3 Any notices required by these conditions shall be sent to.
PNP Claims Administrators
37 Run Down Road
Anywhere, USA 91431
or other address(es) as substituted by the Company in writing —
VII. CONDITIONS
INSPECTION AND AUDIT --The Company shall be permitted but not obligated to inspect, sample
and monitor on a continuing basis the INSURED’s properly or operations, at any time. Neither the
Company’s right to make inspections, sample and monitor nor the actual undertaking thereof nor any
report thereon shall constitute an undertaking, on behalf of the INSURED or others, to determine or
warrant that property or operations are safe, healthful or conform to acceptable engineering practice
or are in compliance with any law, rule or regulation The Company or its designee may examine and
audit the INSURED’s books and records at any time during the POLICY PERIOD and extensions
thereof, as far as they relate to the subject matter of this insurance, and within any periods of FINAL
CLOSURE or post-closure for which coverage is provided
2. CANCELLATION -- The Company shall not cancel, terminate or fail to renew the coverages provtded__._/d O
herein except for failure to pay the full premium shown in the Declarations. The Comp sti 11i tify
the INSURED and the REGULATORY BODY of its intent to cancel, termina arñ ot to renew by u
sending, by certified mail, to the INSURED at the address sh jp -tl’uis Policy and to the
REGULATORY BODY, wntten notice stating the date not less tha 90 ys hereafter allowing time
for receipt of notice on which such cancellation, termination or failure o renew shall be effective.
This Policy may be canceled by the JNSURED pursuant to applicable statute by surrender thereof to
the Company or any of its authorized agents or by mailing to the Company written notice stating the
date thereafter the cancellation shall be effective, provided that such date falls on the first day of the 1 ”
month beginning with January 1, 2005 The aiIir, of f ca as afnresa,d shaii ha iiffir ’rent prr ofof
notice. The time of surrender or the effective date and hour of cancellation stated in the notice shall
become the end of DC’lI ir’V PERIOD
In the event of (i) cancellation or nonrenewal by the INSURED or (ii) cancellation by the Company for U (1V
nonpayment of premium, the full Insurance Premium shown in the Declarations shall be deemed
earned and the unpaid portion thereof shall be immediately due and payable. Upon the effective date
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XAI 23456
of cancellation by the INSURED, all indemnity obligations on the part of the Company hereunder
shall automatically cease and the INSURED shall have no further recourse against the Company
with respect to unpaid CLAIMS.
3. DECLARATIONS AND REPRESENTATIONS -- By acceptance of this Policy, the INSURED agrees
that the statements contained in the Declarations and any other supplemental materials and ,
information submitted herewith are the INSURED’s agreements and representations, that they shall 14 ”
be deemed material, that this Policy is issued in reliance upon the truth of such representations and
that this Policy embodies all agreements existing between the INSURED and the Company or any of
its agents relating to this insurance.
4. ACTION AGAINST COMPANY -- No action shall lie against the Company unless, as a condition
precedent thereto, there shall have been full compliance with all of the terms of this Policy, nor until
the amount of the INSURED’s obligation to pay shall have been finally determined either by
judgment against the INSURED after actual trial or by written agreement of the INSURED, the
claimant and the Company
Any person or organization or the legal representative thereof who has secured such judgment or
wntten agreement shall thereafter be entitled to recover under this Policy to the extent of the
insurance afforded by this Policy. No person or organization shall have any right under this Policy to
join the Company as a party to any action against the INSURED to determine the INSURED’s
liability, nor shall the Company be impleaded by the INSURED or his legal representative.
Bankruptcy or Insolvency of the INSURED or of the INSURED’s estate shall not relieve the Company
of any of its obligations hereunder.
5. ASSIGNMENT -- This Policy shall be void if assigned or transferred without written consent of the
Company. However, this policy may be assigned to a successor owner or operator of a WASTE
MANAGEMENT FACILITY designated in the Declarations, provided that the Company and its
reinsurer consents to the assignment, which consent shall not be unreasonably withheld.
6 SUBROGATION -- In the event of any payment under this Policy, the Company shall be subrogated
to all the INSURED’s rights of recovery therefor against any person or organization and th
INSURED shall execute and deliver instruments and papers and do whatever else is necessary to
secure such rights. The INSURED shall do nothing after a CLAIM to prejudice such rights.
7. CHANGES -- Notice to any agent or knowledge possessed by any agent or by any other person
shall not affect a waiver or a change in any part of this Policy or stop the Company from asserting
any right under the terms of this Policy; nor shall the terms of this Policy be waived or challenged,
except by endorsement issued to form a part of this Policy.
8. SOLE AGENT -- The first INSURED stated in the Declarations shall act on behalf of all INSUREDS
for the payment or return of premium, receipt and acceptance of any endorsement issued to form a
part of this Policy, and giving and receiving notice of cancellation or non-renewal.
9. CHOICE OF LAW — It is agreed that in the event of the failure of the Company to pay any amount
claimed to be due hereunder, the Company and the INSURED, will submit to the jurisdiction of the
State of New York, and will comply with all the requirements necessary to give such court
junsdiction All matters ansing hereunder including questions related to the interpretation of
performance and enforcement of this Policy shall be determined in accordance with the law and
practice of the State of New York (notwithstanding New York’s conflicts of law rules). Nothing in this
clause constitutes or should be understood to constitute a waiver of the Company’s right to remove
an action to a United States District Court.
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Insurance: Case Study
Allied Brick Company, Inc. — Small Group Discussion, Copy of Policy XA1 23456
10. OTHER INSURANCE -- Where other valid and collectable insurance is available to the NAMED
INSURED for CLOSURE COSTS and/or POST-CLOSURE COSTS covered under the terms and
conditions of the Policy, the Company’s obligation to the INSURED is as follows:
This insurance shall apply as excess insurance over any other valid and collectable insurance be it
primary or excess. This excess insurance shall in no Way be increased or expanded as a result of
the receivership, insolvency, or inability to pay of any insurer with respect to both the duty to
indemnify and the duty to defend. This also applies to the INSURED while acting as a self-insured for
any coverage;
Where this insurance is excess over other valid and collectable insurance, the Company will pay only
its share of the amount of CLOSURE COSTS and/or POST-CLOSURE COSTS, if any, that exceeds
the total amount that all such other insurance will pay for the CLOSURE COSTS and/or POST-
CLOSURE COSTS in the absence of this insurance.
11. PREMIUM — The full Policy premium for coverage hereunder shall be payable in accordance with
the Declarations. It is an absolute condition that the full amount of each premium installment be
actually received by the Company in accordance with said schedule to be or continue to be effective.
12. REGULATORY PROVISIONS -- Any term or condition of this Policy to which any federal or state
administrative or regulatory provisions apply shall be governed only by those regulations or
provisions in effect at the inception of this Policy.
IN WITNESS WHEREOF the Company has caused this Policy to be signed by its Vice President and
countersigned on the Declarations by a duly authorized agent of the Company.
Sallie Mae Tyler
Sallie MaeTyler,
Vice President and CEO

5c rJ
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 23

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Insurance: Case Study
Allied Bnck Company, Inc. — Answer Table 3, Copy of Poiicy XA123456
,os c
-
dw -
7 oe4A.d 1½
&
2 4 I t W e L
0’
olicationslAdditional Questions
Section I,
Insuring
Agreement
74
?t $ -
Section II ,
Definitions
Section II I,
Territory
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
24

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-
, 7 —

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Insurance: Case Study
Allied Brick Company, Inc. — Answer Table 3, Copy of Policy XAI 23456
Policy
Language
Issue(s)/Points of Consideration
Implications/Additional Questions
Section IV,
Exclusions
>
>
Section V,
Limit of
Liability and
Deductible
>
Section VI,
Claims
Provisions
>
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 25

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Insurance: Case Study
Allied Brick Company, Inc. — Answer Table 3, Copy of Policy XA123456
Policy
Language
lssue(s)IPoints of Consideration
Implications/Additional Questions
Section VII,
Conditions
>
Exhibits
..
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 26

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BANKRUPTCY: CASE STUDY
GREEN WAY CHEMICAL CORP.
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated conun unity, and does not create any right or benefit, substantive or procedural Tins document is no, a complete
representation of RCRA or of EPA regulations and views, and may not necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training

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- LETTER OF CREDIT
RCRA Subtitle C Closure and Post-Closure
Financial Assurance Training
Seattle, WA
December 7-10, 2004
C0.. d
— 4 Key Points --
• The Basios..
• Challenges & Tips for Success
• Case Study Exercise
Noble Smelting & Refining (NS&R)
• Final Thoughts
• Panel Discussion
A a CUSS.N.P S UP*FW.dg .Sfl. T 2
The Basics: What is an LOC’
• A document issued by a linancual institution that
guarantees the payment of a customer’s obligations
up to a stated amount for a specified penod of time.
• Financial Institution = Bank, Savings & Loan, etc.
• Customer = Owner or Operator of a Subtitle C facility
• For purposes of financial assurance, LOC5 arguably
provide regulators with assurance that the
owner/operator will pay for dosure and post-closure
when necessary.
PA COdP EP*2b,M. .r, -
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or of EPA s regulations and views, and may nor necessarily reflect the current position of EPA
1

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6 ’
Otj
tl I i £ > Q cc
4 £ a J
This document is intended to provide guidance to EPA stoff It does not creote any legolly binding requirements on EPA, States, or
the regulated community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete
representation ofRCItA or ofEPA’s regulations and views, and ma; not necessarily reflect the current position of EPA
— The Basics: What is an LOC?
• Low nsk methanism for the Regulator:
• An LOC substitutes the bank’s credit for the Company’s
credit
• Funds are immediately available for use by the Regulator
• Relatively high cost mechanism for the Company:
• Financial institutions typically charge an annual fee equal to
a percentage of the face value of the LOC
• Companies may be required to set aside cash andlor now
cash collateral to secure the LOC
- The Basics: How an LOC works
• The financial institution is regulated and examined
by a competent federal or state agency (e.g., Office
of the Comptroller of the currency).
• A Standby Trust Fund is established with a qualified
financial institution.
• The LOC must be:
• Equal to the current estimated dosure/post-closure costs
• issued for at least one year, automatically renewable
• Irrevocable, can not be recalled or revoked
-- - C -
The Basics: Required Documents
• In addition to the LOC, the Company writes a letter
(see 40 CFR 264 151(d))’
• Refernng to the LOC by number,
• Listing the issuing financial institution and date,
• Providing EPA identification number(s) for at! covered
facilities;
• Listing the Company’s name and address, and
• Listing the amount of funds secured by the LOC
• Arignginjjly signed copy of the standby Trust Fund
agreement.
2

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?4L DC- S
)
41
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
The Basics: Drawing on an LOC
• To draw on the LOC, the Regulator directs the
financial institution to deposit funds into the
Standby Trust Fund.
• The Regulator then directs payment of the
required funds from the standby Trust Fund to pay
for closure/post-dosure activities.
• The Company is legally obligated to repay the
finanaal institution the pnncipal amount drawn on
the LOC plus interest.
7 ci
The Basics: Canceling an LOC
• The financial institution must notify the Company
the Regulator at least 120 days before the
LOC’s expiration date. In response,
• The Company provides alternate finanoal assurance, Qr
• The Regulator releases the Company from the applicable
financial requirements.
If the Company does not establish alternate financial
( assurance within 90 days of having been notified by
I. the finanaal institution, the Regulator may draw on
\ the full value of the LOC.
- Liability Requirements
LOC for Liability Coverage (see complete requirements a
§264 147(h) and §265 347(h)]
• Wording must be identical to §264 151(k)
• Company must
• Designate third-party daimants as benel9cianes, or
• Establish a standby trust fund, wording must be
specified at 40 CFR 264.151(n).
3

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Challenges
• Accurate and current cost estimates for closure and
post.closure are essential
• The financial instituhon is not required to inform the
Regulator if.
• Its charter/license has been suspended/revoked.
• It enters bankruptcy protection, or
• it loses its authonty to issue LOCs
A.CO.nd P..ta..n EPA Eb1S A...WW4.b. I C
Challenges (continued )
• LOCs represent one of the more costly mechanisms
and may constrain a con,panys ability to finance ___________________________________________________
alternative investments
• The financial institution may
• Require the Company to set aside funds to secure the LOC;
• Impose significant seivuce lees,
• Prescnbe restncting financial convenants, and
• Secure liens again the Company’s existing assets, and
EA C .APICI... T ______________________________________________________________________________
Tips for Ensuring Success
• Proofread all documents to ensure LOC language
conforms to wording requirements (see 40 0R
264.151(d))
• The LOC is what ensures that you have access to
funds. You will have to present the onginal LOC to
direct payment from the LOC into the Standby Trust
Fund.
• Place the original, signed document(s) in a safe
place (i.e., a fire-proof safe) with no public access.
EPA PA ..T __________________________________________________________________
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’s regidations and views, and may not necessarily reflect the current position of EPA
4

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— ‘ Tips for Ensuring Success (continued)
• Develop a relationship with the ‘LOC Department”
of the financial institution issuing the LOC.
• Remember
• Only the Regulator us authonzed to draw on (or reduce
the amount of) the bC.
• The Regulator is the beneficiary of the ICC
• The Regulator is not responsible for paying
administrative fees, All fees are the responsibility of
the Company
RA .C EM..*... n.. t ,. . s U
Case Study ExercIse : NS&R
Problem Set 1 Review the documents provided
by NS&R Outline your areas of concern (if any)
and highlight additional information you may wish
to request from NS&R
• Suggested Time 20 minules
• Problem Set 2 : Assume that Lowell Bank notifies
you of its inlention to not renew NS&Rs LOC In
your small group session, decide what steps to
take in response
• Suggested Time 20 minutes
* .t 01Cb. UPAFJSA.T .
Final Thoughts —
• As with all mechanisms, the Regulator must:
• Monitor the financial status of the Company and the
financial institution.
• Act quickly if there is the slightest indication of finanaai
distress
• Ensure the ICC is updated to reflect ç t dosure and
post-dosure cost estimates
• The Regulator is not responsible for paying
administrative fees; All fees are the responsibility
of the Company.
fl .CO..dP*. E P A Fb.IS .. ¶. is
This document is intended to provide guidance to EPA staff It does flog create any legally binding requirements on EPA, Stares, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA’S regulations and views, and may not necessarily reflect the current position of EPA
5

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LETTER OF CREDIT: CASE STUDY
NOBLE SMELTING AND REFINING
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA. States, or the
regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete representatioii
of RCRA or of EPA c regulations and views, and nay no: necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training

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Letter of Credit: Case Study
Noble Smelting and Refining — Table of Contents
I. Background 3
II. Problem Set 1: Letter of Credit Documentation 4
Ill. Problem Set 2: Cancellation of Letter of Credit 16
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 2

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the
regulated community, and does not create any right or benefit, substantive or procedural This document is not a coniplele representation
of RCRA or ofEPA ’s regulations and views, and may 1101 necessarily reflect the current position of EPA
Letter of Credit: Case Study
Noble Smelting and Refining
Background
Noble Smelting and Refining (NS&R) is a permitted hazardous waste facility. The company reclaims,
smelts, and refines lead from lead acid batteries and other lead bearing materials. The company
operates a hazardous waste management facility to store the spent batteries in EPA Region Y. The
current estimated closure cost for this facility is $3.5 million.
NS&R proposes to establish a letter of credit with Lowell Bank in the amount of $3.5 million for
purposes of demonstrating financial assurance for closure. Lowell Bank has the authority to act as a
Trustee, and its trust operations are regulated and examined by the Comptroller of the Currency. In
addition, NS&R established a standby trust agreement with First American Bank.
On May 30, 2002, NS&R submitted the following documents for your review for purposes of complying
with the letter of credit requirements, and in keeping with the timeline for reporting requirements under
Subpart H of 40 CFR Part 264:
• Letter from NS&R; and
• Irrevocable Standby Letter of Credit issued by Lowell Bank.
RCRA Subtitle C Ciosure and Post-Ciosure: EPA Financial Assurance Training 3

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iS ?t -e
Letter of Credit: Case Study
Noble Smelting and Refining — Large Group Discussion, Letter of Credit Documentation
Problem Set 1 :
Review and discuss the documents provided by NS&R. Outline your areas of concern (if any), and
highlight additional information you might request from the company. Use Answer Table 1 to organize
your findings.
From your review of the documents, determine if NS&R demonstrates adequate financial assurance for
purposes of closure.
Documents for your review include:
> Letter from NS&R, dated May 30, 2002 (page 5)
> Irrevocable Standby Letter of Credit issued by Lowell Bank, dated May 30, 2002
(page 6)
> Answer Table I (blank template to assist in your review)
> Regulatory Wording for the Irrevocable Standby Letter of Credit, as specified at
40 CFR 264.151(d) (page 14)
> Regulatory Requirements for the Letter from the Owner or Operator (page 15)
Recommended Review Time. 20 mins
RCRA Subtitle C Closure and Post-Ciosure: EPA Financial Assurance Training 4

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Letter of Credit: Case Study
Noble Smelting and Refining — Large Group Discussion, Letter of Credit Documentation
Letter from the Owner or Operator
May 30, 2002
I ’
Charles Smith, Regional Administrator
Region Y
565 7th Street West
Anywhere, USA 62517
Dear Mr. Smith:
In compliance with Subpart H of 40 CFR 264.151(d) we propose to use Letter of Credit Number
12345678 issued by Lowell Bank on May 30, 2002 for the purpose of demonstrating financial
assurance for the following facility:
Noble Smelting and Refining (NS&R)
162 Commonwealth Ave.
White Plains, Kansas 10022
EPA ID # KSD 765432187
The amount of funds assured for closure of the facility by this letter of credit is $3.5 milIio T )
Sincerely,
R. Cooper
Roy Cooper, President and CEO
Noble Smelting and Refining
162 Commonwealth Ave.
White Plains, Kansas 10022
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
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Letter of Credit: Case Study
Noble Smelting and Refining — Large Group Discussion, Letter of Credit Documentation
Irrevocable Standby Letter of Credit
May 30, 2002
Charles Smith, Regional Administrator
Region V
565 7th Street, West
Anywhere, USA 62517
Phone: (i Oi)234. .5678
Dear Mr. Smith:
We hereby establish our Irrevocable Standby Letter of Credit No. 12345678 in your favor, at the
request and for the account of Noble Smelting and Refining, 162 Commonwealth Ave., White Plains,
Kansas 10022 up to the aggregate amount of three million five hundred thousand U.S. dollars ($3.5
million), available upon presentation of:
(1) Your sight draft, bearing reference to this letter of credit No. 12345678, 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 May 30, 2002 and shall expire on May 30, 003, b f1 7_
expiration date shall be automatically extended for a period of 1 year on May 30, 2003/ unless, at least JøX- ’
120 days before the current expiration date, we notify both you and Noble Refining and Smelting by U i Ø J
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 Noble Refining and Smelting, 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 the draft directly into
the standby trust fund of Noble Refining and Smelting in accordance with your instructions.
We certify that the w g of thu letter of credi is identical to the wording specified in 40 CFR
264.151(d) as such regulations were constituted on the date shown immediately below.
S. Jones May 30, 2002
Shirley Jones
Vice President, Lowell Bank
/ ft d8k’
This credit is subject to the most recent edition of thó Uniform Customs and Practice for Documentary
Credits, published and copyrighted by the International Chamber of Commerce. cft
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 6

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Letter of Credit: Case Study
Noble Smelting and Refining — Answer Table 1, Letter of Credit Documentation
Question 1: Relying on the documents provided by NS&R, decide whether the letter of credit
provides adequate financial assurance for purposes of closure.
Yes No
Document Reviewed
Issue(s)/Points of Consideration
Implications/Additional Information
Required?
Irrevocable Standby
Letter of Credit
.
—

.
>
)
Letter from the
Owner or Operator
.
p
.
,
)
p
.
p
Other
-
RCRA Subtitle C Closure and Post.Closure: EPA Financial Assurance Training 7

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 1, Letter of Credit Documentation
Question 1: Relying on the documents provided by Noble Refining and Smelting, determine
whether or not the company demonstrates adequate financial assurance for purposes of
closure.
Yes No
Document Reviewed
Issue(s)
Implications/Additional Information
Irrevocable Standby
Letter of Credit
• Letter omits. and on each
successive expiration date . ..“
LOC is due to expire on 5/30/04. The
regulator should request a corrected
LOC as soon as possible.
)
)
)
Letter from the
Owner or Operator
No issues identified
—
None required
)
Other
Missing Standby Trust Agreement
and Certificate of Acknowledgement
- Reguiator should request copy of Standby
Trust Agreement and Certificate of
Acknowledgement
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 8

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 1, Letter of Credit Documentation
Standby Trust Agreement
Trust Agreement, the “Agreement,” entered into as of May 30, 2002 by and between Noble Smelting and
Refining, a Kansas corporation, the “Grantor,” and First American Bank, 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 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
secunties acceptable to the Trustee.
RCRA Subtitle C Closure and Post-Closure: EPA FInancIal Assurance Training 9

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 1, Letter of Credit Documentation
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 uninvesteci 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. BOa-i et seq., including one which may be created, managed, underwntten, 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 pnvate 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 appropnate 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,
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 10

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 1, Letter of Credit Documentation
(d) To deposit any cash in the Fund in interest-beanng 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 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
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 11

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 1, Letter of Credit Documentation
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 wnting 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 Kansas
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)(1) as such regulations were constituted on the date first above written
S. Lawson
Corporate Counsel, Noble Smelting and Refining
Attest:
R. Cooper
President and CEO, Noble Smelting and Refining
Attest.
L. Downey
Vice President, First Amencan Bank
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 12

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 1, Letter of Credit Documentation
Certificate of Acknowledgement
State of Kansas
County of Radcliff
On this May 30, 2002, before me personally came Roy Cooper to me known, who, being by me duly
sworn, did depose and say that he resides at 36 Golden Drive, White Plains, Kansas 10022, that he is
President and CEO of Noble Refining and Smelting, 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.
P. Babkin
Signature of Notary Public
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 13

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Letter of Credit: Case Study
Noble Smelting and Refining — Large Group Discussion, Letter of Credit Documentation
Regulatory Wording for the Irrevocable Standby Letter of Credit,
as specified at 40 CFR 264.151(d)
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 the 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 and copyrighted by the International Chamber of Commerce,” or uthe
Uniform Commercial Code”].
RCRA Subtitle C Closure and Post.Closure: EPA Financial Assurance Training 14

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Letter of Credit: Case Study
Noble Smelting and Refining — Large Group Discussion, Letter of Credit Documentation
Regulatory Requirements for the Letter from the Owner or Operator,
as specified at 40 CFR 264.151(d)
) SubpaFt H of 40 CFR 264.143 (d) (4) and 264.145 (d)(4)
The letter of credit must be accompanied by a letter from the owner or operator referring to the
letter of credit by number, issuing institution, and date, and providing the following information:
the EPA Identification Number, name and address of the facility, and the amount of funds
assured for closure of the facility by the letter of credit.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 15

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Letter of Credit: Case Study
Noble Smelting and Refining — Small Group Discussion, Cancellation of Letter of Credit
Problem Set 2 :
Assume that on January 20, 2003, Lowell Bank notifies you that it intends not to renew NS&R’s letter of
credit. As the regulator, highlight your next steps with respect to Noble Smelting and Refining.
Documents for your review include:
> Regulatory Wording for the Closure of Credit, as specified at 40 CFR 264.143 (d)
(page 17)
> Answer Table 2 (blank template to assist in your review)
Recommended Review Time: 20 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TraIning 16

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Letter of Credit: Case Study
Noble Smelting and Refining — Small Group Discussion, Cancellation of Letter of Credit
Regulatory Wording for the Closure Letter of Credit,
as specified at 40 CFR 264.143 (d)
(d) Closure letter of credit.
(1) An owner or operator may satisfy the requirements of this section by obtaining an irrevocable
standby letter of credit which conforms to the requirements of this paragraph and submitting the letter to
the Regional Administrator. An owner or operator of a new facility must submit the letter of credit to the
Regional Administrator at least 60 days before the date on which hazardous waste is first received for
treatment, storage, or disposal. The letter of credit must be effective before this initial receipt of
hazardous waste. The issuing institution must be an entity which has the authority to issue letters of
credit and whose letter-of-credit operations are regulated and examined by a Federal or State agency.
(2) The wording of the letter of credit must be identical to the wording specified in § 264.151(d).
(3) An owner or operator who uses a letter of credit to satisfy the requirements of this section must also
establish a standby trust fund. Under the terms of the letter of credit, all amounts paid pursuant to a
draft by the Regional Administrator will be deposited by the issuing institution directly into the standby
trust fund in accordance with instructions from the Regional Administrator. This standby trust fund must
meet the requirements of the trust fund specified in § 264.143(a), except that:
(i) An originally signed duplicate of the trust agreement must be submitted to the Regional
Administrator with the letter of credit; and
(ii) Unless the standby trust fund is funded pursuant to the requirements of this section, the
following are not required by these regulations:
(A) Payments into the trust fund as specified in § 264.143(a);
(B) Updating of Schedule A of the trust agreement (see § 264.151(a)) to show current
closure cost estimates;
(C) Annual valuations as required by the trust agreement; and
(D) Notices of nonpayment as required by the trust agreement.
(4) The letter of credit must be accompanied by a letter from the owner or operator referring to the letter
of credit by number, issuing institution, and date, and providing the following information: the EPA
Identification Number, name, and address of the facility, and the amount of funds assured for closure of
the facility by the letter of credit.
(5) The letter of credit must be irrevocable and issued for a period of at least 1 year. The letter of credit
must provide that the expiration date will be automatically extended for a period of at least 1 year
unless, at least 120 days before the current expiration date, the issuing institution notifies both the
owner or operator and the Regional Administrator by certified mail of a decision not to extend the
expiration date. Under the terms of the letter of credit, the 120 days will begin on the date when both
the owner or operator and the Regional Administrator have received the notice, as evidenced by the
return receipts.
RCRA Subtitle C Closure and Post-ciosure: EPA Financiai Assurance Training 17

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Letter of Credit: Case Study
Noble Smelting and Refining — Small Group Discussion, Cancellation of Letter of Credit
(6) The letter of credit must be issued in an amount at least equal to the current closure cost estimate,
except as provided in § 264.143(g).
(7) Whenever the current closure cost estimate increases to an amount greater than the amount of the
credit, the owner or operator, within 60 days after the increase, must either cause the amount of the
credit to be increased so that it at least equals the current closure cost estimate and submit evidence of
such increase to the Regional Administrator, or obtain other financial assurance as specified in this
section to cover the increase. Whenever the current closure cost estimate decreases, the amount of the
credit may be reduced to the amount of the current closure cost estimate following written approval by
the Regional Administrator.
(8) Following a final administrative determination pursuant to section 3008 of RCRA that the owner or
operator has failed to perlorm final closure in accordance with the closure plan and other permit
requirements when requiredi & so, me Kegional Administrator may draw on the letter of credit.
(9) If the owner or operator does not establish alternate financial assurance as specified in this section
and obtain written approval of such alternate assurance from the Regional Administrator within 90 days
after receipt by both the owner or operator and the Regional Administrator of a notice from issuing
institution that it has decided not to extend the letter of credit beyond the current expiration date, the
Regional Administrator will draw on the letter of credit. The Regional Administrator 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 Regional Administrator will draw on the letter of credit if the owner or operator
has failed to provide alternate financial assurance as specified in this section and obtain written
approval of such assurance from the Regional Administrator.
(10) The Regional Administrator will return the letter of credit to the issuing institution for termination
when:
(I) An owner or operator substitutes alternate financial assurance as specified in this
section; or
(ii) The Regional Administrator releases the owner or operator from the requirements of this
section in accordance with § 264.143(i).
RCRA Subtitie C Closure and Post-Closure: EPA Financial Assurance Training 18

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Letter of Credit: Case Study
Noble Smelting and Refining — Answer Table 2, Cancellation of Letter of Credit
Question 2: Assume that on January 20, 2003, Lowell Bank notifies you that it intends not to
renew NS&R’s letter of credit. As the regulator, what actions do you undertake in
response?
What are the regulatory requirements with regard
to non-renewal of a Letter of Credit?

olo 1’ - ’ - —
—

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>
As the regulator, what do you do next?
)



.
>
>
>
>
.
.
RCRA Subtitle C Closure and Post•Closure: EPA Financial Assurance Training 19

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in response?
What are the regulatory requirements with regard
to non-renewal of a Letter of Credit’
If the financial institution decides not the
extend the expiration date of the LOG, it must
notify both the Company and the regulator by
certified mail at least 120 days before the
current expiration date.
If the Company does not establish alternate
financial assurance within 90 days of receipt
of the notification from the financial institution,
the regulator may draw on the LOC unless
the financial institution grants an extension.
Any unused portion of the credit shall be
available upon presentation of the regulator’s
sight draft for 120 days after the date of
receipt by the regulator and the Company as
shown on the signed return receipts.
The LOC can only be terminated if: 1) the
Company provides alternate financial
assurance; or 2) the regulator releases the
Company from the applicable financial
requirements.
As the regulator, what do you do next?
The regulator must ensure that the financial
institution provided sufficient notice with
regard to non-renewal of the Letter of Credit
(120 days prior to the expiration date).
The regulator should notify NS&R that it must
establish alternate financial assurance within
90 days of receipt of the notification from
Lowell Bank.
The regulator should prepare in advance to
draw upon the LOC in the event that NS&R
does not obtain alternate financial assurance
in the required timeframe.
In order to draw on the LOG the regulator
must prepare:
• the sight draft, certification and required
signatures
• the trust account number
• the routing number for First American
Bank
Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 2, Cancellation of Letter of Credit
Question 2: Assume that on January 20, 2003, Lowell Bank notifies you that it intends not to
renew NS&R’s letter of credit. As the regulator, what actions do you undertake
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
20

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Letter of Credit: Case Study Answers
Noble Smelting and Refining — Answer Key for Table 2, Cancellation of Letter of Credit
After receiving Lowell Bank’ notification of non-renewal on January 20, 2003, EPA Region V notified
Noble Smelting and Refining that it would draw upon the Letter of Credit and transfer the monies into
the Standby Trust with First American Bank if an acceptable replacement was not established within 90
days. The regulations specify that EPA Region V has up to 120 days to draw upon the Letter of Credit.
Sixty (60) days after the bank’s notification of non-renewal, NS&R had yet to propose an alternative
financial assurance mechanism. Accordingly, EPA Region V prepared all the documents required by
Lowell bank to draw on the letter of credit, including the sight draft, certification, required signatures,
trust account number and First American Bank routing number. These documents were prepared sixty
(60) in advance of the LOC’s expiration date (i.e., May 30, 2003) so that the Region would have enough
time to draw upon the Letter of Credit if necessary.
At the same time that EPA Region V was preparing the documents necessary to draw upon the letter of
credit, NS&R established a new Letter of Credit issued by Commerce Bank. The new Letter of Credit
was accepted by EPA Region Y; the region did not draw upon the first letter of credit with Lowell Bank.
RCRA Subtitie C Closure and Post-Ciosure: EPA Financial Assurance Training 21

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Low
Risk
oO
This document is intended to provide guidance to EPA staff it does not create any
legally binding requirements on EPA, States, or the regulated community, and does
no: create any right or benefit, substantive or procedural This document is not a
-omplete representation of RCRA or ofEPA’s regulations and views, and may not
‘essarilv reflect the current position of EPA
Letter of Credit
Financial Assurance Mechanisms
C
High
Risk
RCRA Subtitle C Closure & Post-Closure December 2004
How it Works:
A Letter of Credit (“LOC ) is a document issued by a
financial institution (e.g., a bank) that guarantees the
payment of a customer’s obligations up to a stated
amount for a specified period of time.
For purposes of financial assurance, the owner/operator
of a Subtitle C facility (“the Company”) arranges with a
financial institution to issue an LOC. The LOC provides
assurance to the Regulator that the Company will pay for
closure and post-closure when necessary. Essentially,
an LOC substitutes the bank’s credit for the Company’s,
eliminating much of the risk to the Regulator.
To secure an LOC, the Company likely will have to pay
‘he financial institution a fee equal to a percentage of the
value of the LOC. This fee may range from 0.5 to 1.0
percent depending on the Company’s credit worthiness
(or financial solvency). Tbe better the Company’s
overall credit worthiness, the lower the fee the financial
institution is likely to charge the Company. The financial
institution also often will require the Company to set aside
cash and/or non-cash collateral to secure the LOC.
In general, a financially healthy company will pay less to
post an LOC than a company facing possible financial
distress. Accordingly, LOCs represent a more attractive
means of demonstrating financial assurance for
companies that are financially healthy.
If the Regulator determines that the company has failed
to perform closure/post-closure as required, and needs to
draw on the LOC to pay for these costs, the Regulator
must direct the bank to deposit cash into a standby trust
fund. The Regulator directs payment of the requisite
moneys from the standby trust to pay for closure/post-
closure activities. The Company is legally obligated to
repay the bank the principal amounts drawn on the LOC
plus interest.
Cost to the Company
M e d iu m
What’s Required:
o The financial institution issuing the LOC must be
authorized to do so; that is, its operations must be
regulated and examined by a Federal or State
agency.
o A Standby Trust Fund must be established by a
qualified financial institution.
o At a minimum, the LOC must equal the current
estimated closure/post-closure costs.
o The LOC must be: 1) issued for at least one year; 2)
irrevocable; and 3) evergreen (i.e., automatically
renewable).
What Happens If. .
The Company wants to use an LOC for purposes of
demonstrating financial assurance?
o The Company must submit the LOC to the Regulator
at least 60 days before the date on which hazardous
waste is first received. The LOC must be valid before
this date.
o The LOC must be accompanied by a letter from the
Company that. 1) refers to the LOC by number, 2)
lists the issuing institution and date; 3) provides the
facility’s EPA identification number; 4) lists the name
and address of the Company; and 5) lists the amount
of funds secured by the LOC.
o The Company also must submit to the Regulator an
original signed duplicate of the Standby Trust Fund
agreement with the LOC.
The closure/post-closure cost estimates change?
o If the cost estimates increase to an amount greater
than the amount of the LOC, the Company must
either: 1) increase the amount of the LOC; or 2)
obtain alternate financial assurance. This must occur
within 60 days of the change in cost estimates.
o If the cost estimates decrease, upon the Regulator’s
review and approval, the Regulator may direct the
bank to reduce the LOC by an appropriate amount,
leaving the remaining funds in the LOC until further
direction by the Regulator.

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What Happens If...
(Continued)
The financial institution decides not to extend the
expiration date of the LOC?
o The financial institution must notify both the Company
and the Regulator by certified mail at least 120 days
before the current expiration date.
o If the Company does not establish alternate financial
assurance within 90 days of receipt of the notification
from the financial institution, the Regulator may draw
on the LOC unless the financial institution grants an
extension
o Note, the Regulator should allow the LOC to be
terminated only if: 1) the Company provides alternate
financial assurance; or 2) the Regulator releases the
Company from the applicable financial requirements.
If the Regulator does not act within 120 days of
receiving notice, the LOC may lapse.
The company fails to perform its closure/post-closure
plan as required by the Regulator?
o The Regulator draws upon the LOC and deposits the
funds into the Standby Trust Fund.
Why It Works:
o Regulators are provided with funds that are
immediately available for use in the event the
Company fails to perform or pay for required closure!
post-closure activities.
o LOCs are designed to provide full coverage of
estimated closure/post-closure costs.
o LOCs are a relatively low risk financial assurance
mechanism for the Regulator. That is, as long as the
Regulator draws on the funds within the specified
time frame, the issuing financial institution must honor
the demand for payment.
Challenges:
o Accurate and current cost estimates for closure and
post-closure are essential.
o The Regulator must remain aware of the status of the
financial institution issuing the LOC. The financial
institution is not required to inform the Regulator if:
1) its charter or license has been suspended or
revoked; 2) it enters bankruptcy protection, 3) it loses
its authority to issue LOCs. In the event that the
issuing institution fails, the FDIC does not guarantee
LOCs. If any of the above events occur, the
Company must establish alternate financial
assurance within 60 days.
o LOCs represent one of the more costly financial
assurance mechanisms for the Company. For
example, the financial institution may: 1) require the
Company to set aside funds (e.g., as much as 80
percent of the face value of the LOC) to secure the
LOC; 2) impose significant fees, and/or 3) secure
liens against the Company’s existing assets.
Accordingly, the Company’s ability to finance
alternative investments may be constrained.
Tips for Ensuring Success:
o Proofread all documents to ensure that the language
is comprehensive, precise, and conforms to the
wording required by the Subtitle C regulations.
o In the event the Company sells its facility (“transfer of
ownership”), the Regulator shall retain the original
LOC until such time as the new owner submits
acceptable financial assurance to the Regulator.
After review and approval, the Regulator shall release
the former owner’s financial assurance.
o In the event the Company (or bank) experiences a
name change or merger, the Regulator should ensure
that all financial documents reflect the current legal
name of both the Company and the financial
institution. Likewise, lithe name of the appropriate
Regulator has changed, the LOC documents should
reflect the change.
o The bank may require the Regulator to provide the
original LOC prior to directing payments into the
standby trust fund. Therefore, place the original,
signed document(s), including the LOC and the
Standby Trust Fund agreement, in a secure place
(i.e ,a fire-proof safe) with no public access.
o Establish and maintain contact with the “LOC
Department” of the financial institution issuing the
LOC.
o Ensure that the financial institution administering the
standby trust fund has “trust powers” granted by an
outside regulatory agency. Acceptable agencies
might include the Federal Deposit Insurance
Corporation (“FDIC”), the Federal Reserve, the
Comptroller of Currency, the Office of Thrift
Supervision [ see Resources fact sheet].
o Remember the Regulator is the beneficiary of the
LOC. The Regulator is not responsible for paying
any administrative fees to the financial institution. All
fees are the responsibility of the Company.
o Only the Regulator, and not the Company, is
authorized to draw on or reduce the amount of the
LOC
o If the financial institution that issued the LOC sends
notice of its intent to cancel, request information from
the Company on its intent to replace the instrument.
In addition, request information from the financial
institution on how to draw upon the LOC
RCRA Subtitle C Closure and Post-Closure: Letter of Credit

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RCRA SUBTITLE C FINANCIAL ASSURANCE
CHECKLIST DOCUMENTS
Letter of Credit

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
LETTER OF CREDIT INFORMATION
Company Name:__________________________________ EPA ID#:________
LETTER OF CREDIT: A guarantee by a financial institution that covers the owner’s or operator’s closure, post-
closure care and liability obligations. The appropriate agency may draw on the letter of
credit if the owner or operator fails to perform.
INSTRUMENT COVERS: U CLOSURE U POST-CLOSURE CARE
U THIRD PARTY LIABILITY-SUDDEN ACCIDENTAL OCCURRENCES
U THIRD PARTY LIABILITY-NONSUDDEN ACCIDENTAL OCCURRENCES
ISSUING INSTITUTION:
ADDRESS:
CONTACT PERSON/TITLE:
CONTACT PHONE NO.:
LETTER OF CREDIT NUMBER:
LETTER OF CREDIT EFFECTIVE DATE:
FACE VALUE OF LETTER OF CREDIT:
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
LETTER OF CREDIT INFORMATION
Company Name: EPA ID#:_______
CLOSURE COST ESTIMATE (Agency Approved): ______
SOURCE DOCUMENT/DATE: ______
POST-CLOSURE COST ESTIMATE (Agency Approved): _______
SOURCE DOCUMENT/DATE: ______
ANNUAL AGGREGATE AMOUNT
SUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
NONSUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
FACE VALUE OF LETTER OF CREDIT
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
LETTER OF CREDIT FOR CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
LI [ ] 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)(1); 40 CFR §265.143(c)(l)}
J Li 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 §265.143(c)(2)]
J Has the letter of credit been submitted along with a
letter from the owner or operation referring to the
letter of credit and providing facility name, address
and EPA identification number as well as the amount
of flmds assured by the letter of credit? [ 40 CFR
§264.143(d)(1), 40 CFR §264.143(d)(4); 40 CFR
§265.1 43(c)( 1), 40 CFR §265.1 43(c)(4)]
Has the letter of credit been issued for at least the
amount of the current closure cost estimate? [ 40
CFR §264.143(d)(6); 40 CFR §265.143(c)(6)]
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 §264.145(d)(5) concerning
extension of the expiration date? [ 40 CFR
§264.1 45(d)(5); 40 CFR §265. 143(c)(4)]
U Has the owner or operator established a standby trust
fund? [ 40 CFR §264.1 43(d)(3); 40 CFR
§265. 143(c)(3)]
U Has an originally signed duplicate of the trust
agreement been submitted with the letter of credit?
[ 40 CFR §264.143(d)(3); 40 CFR §265.143(c)(3)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
LETTER OF CREDIT FOR POST-CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U 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 §264.145(d)(1); 40 CFR §265.145(c)(l)}
U Does the letter of credit use wording identical to that
specified in 40 CFR §264.151(d)? [ 40 CFR
§264.145(d)(2); 40 CFR §265.143(c)(2)]
U Has the letter of credit been submitted along with a
letter from the owner or operation referring to the
letter of credit and providing facility name, address
and EPA identification number as well as the amount
of funds assured by the letter of credit? [ 40 CFR
§264.143(d)(1), 40 CFR §264i43(d)(4); 40 CFR
§265.1 43(c)( 1), 40 CFR §265.1 43(c)(4)]
U] Has the letter of credit been issued for at least the
amount of the current post-closure cost estimate? [ 40
CFR §264.145(d)(6); 40 CFR §265.145(c)(6)]
U] U Has the letter of credit been issued irrevocably for a
period of at least one yeaj, and does it meet all other
requirements specified in §264. 143(d)(5) concerning
extension of the expiration date? [ 40 CFR
§264.143(d)(5); 40 CFR §265.143(c)(5)J
J Has the owner or operator established a standby trust
fund? [ 40 CFR §264.145(d)(3); 40 CFR
§265. 145(c)(3)]
U] U Has an originally signed duplicate of the trust
agreement been submitted with the letter of credit?
[ 40 CFR §264.145(d)(3); 40 CFR §265.145(c)(3)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
LETTER OF CREDIT FOR SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCE LIABILITY
COVERAGE
Company Name:____________________________________ EPA ID#:______________
YES NO QUESTION COMMENTS
U Has a copy of an irrevocable letter of credit been
submitted? [ 40 CFR §264.147(h)(1); 40 CFR
§265. 147(h)(1)]
U U Does the letter of credit use wording identical to that
specified in 40 CFR §264.151(k)? [ 40 CFR
§264.147(h)(3); 40 CFR §265.147(h)(3)]
U 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 §264.147(h)(2); 40 CFR §265.147(h)(2)]
If the owner or operator has established a standby
trust fund, is the wording of the fund identical to the
wording specified in 40 CFR §264.151(n)? [ 40 CFR
§264.1 47(h)(5); 40 CFR §265.1 47(h)(5)}
Reviewed by:
Date:

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Corporate Financial Test

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of R RA or ofEPA ’s regulations and views, and may not necessarily reflect the current position of
EPA
- , CORPORATE FINANCIAL TEST
RCRA Subtitle C Oos e and Post-Cosure
Seattle, WA
December 7-10, 2004
Key Points
• The Basics...
Revisit Finest Chemical, Inc
• Challenges & Tips for Success
• Final Thoughts
The Basics:
- 4 What is the Corporate Financial Test?
• The Company may demonstrate its ability to pay for
the cost of dosure and/or post-closure care by passing
one of two financial tests.
• For as long as the Co tinues to pass either
test, it is allowed to elf insure. e Company:
• Is not required to arrange with a third party to guarantee
payment for dosure/post-ciosure, and
Is not required to set aside funds now to pay for
closure/post-closure at some future date.
1

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The Basics:
- What is the Corporate Financial Test?
• By design, nancial Test is intended to screen out
all but th argest rporations .
Only a co i with a large asset base relative to its total
estimated cost of closure and post-closure is likely to pass
either of the two financial tests.
• The Company may not use other mechanisms in
combination with the Financial Test to cover a single
facility’s closure/post-dosure costa. -
The Finanoal Test may be used only to cover e g cost’
estimate of one or more facilities
tA .._e__ ——a.—. ‘%._
The Basics:
What is the Corporate Financial Test?
• Relatively high risk mechanism for the Regulator:
• The Financial Test presumes that the Companys most
recent past is a reasonable predictor of its future financial
performance
• The ratios underpinning the Financial Test are only as
Sound as the data used to compute them
• Flexible, low cost mechanism for the Company
• Unlike other mechanisms, the Company is not required to
build a fund, nor is it required to pay for the finanaai
backing of a third party.
14... 1,a,...
Sample Balance Sheet :
Finest Chemical
— I.-
14 —— sI_ ,..____ ——
14 a——-—
—a—-.,
5S
This document is intended to provide guidance to EPA staff It does no: create any legally binding requirements on EPA. Stales.
or she regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA c regulations and views, and may not necessarily reflect the current position of
EPA
2

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Op... Salk .srnl....
I’ll al ,s
VOl G 41l21al2157l621 (alIt
62)04
213. 562
Ml 7 1al, ls,spfl.q ,lthql I ,s..al
365.10
N saS .lSl (t.11 ,07l ,al
(217.71 1)
N P t. (cwtefltIl 3)
62 1 1t .ITI
IIAILI 2 1 lS.OCalPaI (
7 17. 143
*3 312
75421
p’s)cI4t14•5sa al21wbl. l. ,n....l.11a14.l...V 5..ltt.
111417
SAl 64 1 — 33... ,s .s.. *.W.,. ..l.,..s
._—_.— 1—

WC.’ 4 s 1 14 .. .
(lI3 . 5lS
0
5
10
Tins document is intended to provide guidance to EPA staff Ii does no: creole any legally binding requirements on EPA, States,
or i/ic regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA ’s regulations and t ’iesis, and may not necessarily reflect the current position of
EPA
Sample Income Statement : Finest Chemical
P 11 1 5 1141 . 4 . . 2 14411
ICC) 55.44.05214721 5l2155’l* ).ll 0. 1 1 9 141
210) La 0l. *aPsO (2 (3 500)
2101512175555 .9dPtll 4177536
Sample Cash Flow
Statement: Finest Chemical
I-
C .s 5ss a . .4 sa
r°i 1 1 5 1214414
IllVfl b.a .Ia. .t ’165155 1d 1711 1 1 0 0.lamll
C005.l , lI l l
0 .SA .414 .ss21 1719
M l) Pl l.4.a (2 ’
cL 1 =c ( eiZ
Sample CFO Letter : Finest Chemical
l14s.. 51.3..mlssal.as.s 14fl4
•(.Ifl.Ifla1. p. ,. 2 4. 1V1115575
O 7S 14,05w.ai n. 1121251
Ill
007t . I. .Wt 5! 3t
O T .151 572721542
• t 112721112
I t. ....4 145 15111
• C.. . .. 110 131
7 5755514. ..lt!lt) 14121170
I lb• — — 1111411
• 7.S.U3 (. sr9E.t 1 1%SI .. aS 34
— 511 11 1 (
II SW. 155 1 1 5 Its
II 6 0555 1 11 It.
I l Sblll 55IlI 5 1I5,.l.l1 Its
I I •4t51 WAS14l.aS 4.t..t2I1 770 7 51
——Il
I I I S A
II fllOSlSWSA lOl l ’O21I 7 55
IS IS .IWb lslpsSmaIIl Its
12 14llall 7 l . 5p0l 1’ 4 11
3

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The Basics:
- How the Financial Test Works
The Company must meet (or exceed) the
requirements of one of two alternative financial tests
(see 40 CFR 264.143(f), 40 CFR 264 145(f), 40 CFR 265.143(e), and
40 FR
- . Alternative 115 a four-part test .
• E M:Th am n mustmeeta Ieast2of ’
f 9 liowung flnanaa
• Total Liabilities-to-Net Worth less than 2.0.
• Ratio of Net Income plus Depreciation, Depletion, and
Amortization to Total Liabilities is greater than 0.1.
• Current Assets-to-Current Liabilit s ra T5 —
— —
( M- V
-
(•
-
T 7
7
/t)1
J
— Alternative I, Part 1: Finest (
• Ratio of Net Income plus Depreciation, Depletion,
and Amortization to Total Uabilities is> 0.1
• Net Income = 284,488 (see line BBJ
• DepreDation, Depletion, and Amoit. 0
• Total liabilities = 1,136,298 (see line N]
• (NI + DDA) IL = 0.25, which is> 0.1 Passes
1A C a.. ,
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is 1101 a
complete representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect tile current position of
EPA
I

- -Alternative I, Part 1: Finest Chemical
• Total Liabilities-to-Net Worth <2.0
• Total liabilities = 1,136,298 [ see line N]
• Net Worth = 12 790,382 [ see line R)
+TE
• TL + NW = 0.09, which is < 2.0 Passes
4

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Alternative I, Part 1: Finest Chemical £ / 9’t
• Current Assets-to-Current Liabilities> 1.5
• Current Assets 6,619,308 [ see line C]
• Current Liabilities = 243,138 [ see line L]
• CA — CL 27.22, which is> 1.5 Passes
________________________________________________________________________
The Basics:
How the Financial Test Works
- Alternative I (continued)
• £ jI2: The Company’s Net Working Capital and ___________________________________________________
Tangible Net Woith each are at least six (6) times the
sum of the current dosure/post-Giosure cost estimates.
• 1 6!L The Company’s Tangible Net Worth is at least
$10 million
• U.S. Assets amount to at least
• 90%of Total Assets, or
• Six (6) lImes the sum of current closure/post-dosure
cast estimates
RaA!..caw. 4p.MCb..n - ______________________________________________________________________________
- Alternative I, Part 2: Fines pi l
• Net Working Capital us at least six (6) mes the
sum of the current closure/post-closure cost ________________________________________________
estimates.
• Net Working Capital = 6,376,170 (Line C minta Line LI ___________________________________________________
• Closure + Post-Closure Costs = 480,866 (see CFO letter]
• 1/6 Working Capital = 1,062,695, which is> 480,866 ______________________________________________________
Passes
a.,.. I ______________________________________________________________________________________
This document is intended to provide guidance to EPA staff Is does ,iot create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of
EPA
5

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Alternative I, Part 2: Finest Chemical
Tangible Net Worth is at least six (6) times the sum
of the current closure/post-closure cost estimates.
• Tangible Net Worth = 12,790,382
• Tangible Net Worth Assets - Totai Liabiiutues / 7 )f,J/. k2%J e9i -Z
• Tangibie Assets = Total Assets - Intangible Assets
• Intangible Assets (e g, goodwill) = 0
• Tangible Net Worth = Total Equity (see iine R]
• Closure ÷ Post-Closure Costs = 480,866 [ see CFO letter]
• 1/6 Tangible Net Worth = 2,131,730, which us >
480,866 Passes
I CO =. _______________________________________________________________________________
- Alternative I , Part 3: Finest Chemical
Tangible Net Worth is at least $10 million.
• Tangible Net Worth = 12,790,382, which is> $10
million Passes
10a C — — n a=. I?
Alternative I, Part 4: Finest Chemical
• U.S. Assets amount to at least:
• 90% of Total Assets, or ________________________________________________
• U.S. Assets = TA = 13,926,680
• U.S Assets 100% TA Passes ______________________________________________________
• Six (6) times the sum of current dosure/post-ciosure
cost estimates ______________________________________________________
• U.S Assets = TA = 13,926,680
• 1/6 US Assets = 2,321,113, which is> 480,886 ______________________________________________________________
______________________________________________________________________________________
This document is intended ioprowde guidance to EPA staff Ii does not create any legally binding requirements on EPA. States.
or the regulated community, and does not create any rig/it or benefu. substantive or procedural This document as not a
complete representation of R 5RA or ofEPA’s regulations and and may no: necessarily reflect the current position of
EPA
6

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The Basics:
How the Financial Test Works
• Alternative 2, also a four-part test, relies on the
Company’s public bond rating.
The company’s most recent bond issuance
must have a rating of.
( , )rh herbYStandard and Poor’s Corporation
higher by Moody’s Investor Services Inc.
. mood corn

The Basics:
How the Financial Test Works
• Alternative 2 (continued)
• Parts 2 & 3 ’ The Company’s Tangible Net Worth is
at least.
• $10 mullion,
• Six (6) times the sum of current closure/post-closure
cost estimates.
• E it . U.S Assets amount to at least
• 90%ofTotalAssets,Lr
• Six (6) times the sum of current ciosure/post-dosure
cost estimates
a• .
The Basics:
How the Financial Test Works
• There are subtle differences between Alternatives 1 & 2.
• Alternative 1:
• Measures the company’s near-term liquidity through its’s
Current Ratio and Net Working Capital.
• Ai in egrates a for theEcmpany’s operating
cash flow.
• Alternative 2 relies on public bond ratings.
C . .d —
This document is intended to provide guidance to EPA staff It does no: create any legally binding requirements on EPA. Stales,
or the regulated community, and does no: create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of
EPA
7

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- The Basics: Required Documents
In addition to passing one of the two alternative
financial tests, the company must submit:
• A letter from the Company’s CEO with current cost estimates
for ]i relevant facilities (see 40 CFR 264.151(f) ].
• A copy of the CPA’S audit report of the Company’s financial
statements for the most recent fiscal year.
• The Company must submit updated documents to the
Regulator within 90 days of each fiscal-year end.
c .I . s U
- The Basics: What to do if.
• The Regulator is concerned about the company’s
financial health.
• The Regulator should immediately request copies of the
Company’s updated finanoai statements, including all
notes and attamments
• The Regulator should recalculate the financial ratios anWor
venfy the Company’s bond ratings
• If, after reviewing the updated documents, the Regulator
concludes that the Company no longer passes the Financial
Test, the Company must provide altemate financial assurance
within 30 days of being notified
ma*t .c . . d
The Basics: What to do if..
• The Company’s fiscal year-end statements show that it
no longer passes either of the two alternative tests.
• The company must:
• Within 90 days of its fiscal year-end, notify the Regulator
of its intent to establish altemative financial assurance
• Provide altemate financial assurance within 120 dan of
the fiscal-year end.
loai,sc .,, vs a.,, -
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA . States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRLA or ofEPA’s regulations and views, and may nat necessarily reflect the current position of
EPA
8

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‘ “ L ,
c1 1t L
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of
EPA
— The Basics: What to do if.
• The Company’s cost estimates change,
• The company must:
• Notify the Regulator of all cost changes, regardless or whether
such changes impact its ability to pass the Finanoal Test
• The Regulator should check that the Company still meets the
standards or the Financial Test —
• If the company’s cost estimates increase beyond the
maximum amount that it can assure, the company can
no longer use the Finanoal Test.
Ra s ,,n ,n a
- Challenges
• The Financial Test requires at least annual
oversight.
• The financial ratios underpinning the Financial Test
are only as good as the histoncal data used to
compute them.
• The data may not be representative of the Company’s
actual (or future) financial condition.
- Challenges (continued )
• Accurate and current cost estimates are essential.
In particular, the Regulator must erare that closure/post-
closure costs are aggregated across all taolities
• The company may have debts (or claims against its
assets) that are not transparent on its financial
statements.
• To the extent such claims are disclosed in the footnotes to the
finanoal statements, the Regulator may want to adjust the
ratio calculations
C iie CNfl PS ‘7
9

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— Tips for Ensuring _ Success (continued)
. .- ..—.——
This document is intended to provide guidance to EPA staff it does not create any legally binding requirements on EPA. States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of
EPA
Challenges (conbnued )
• The Financial Test ratios do not account for the
sudden impact of external (market) shocks on the
Company.
• If the Company no longer meets the requirements
of the Financial Test, it may have difficulty obtaining
alternative financial assurance within the required
time frame of 120 days.
21
Tips for EnsurIng Success
• The Financial Test requires that the Regulator be
vigilant in reviewing the Companys annual
submissions.
• The Regulator should monitor the business press for
adverse news about the Company.
• The Regulator must act without deiay, if it believes the
Company no longer meets the requirements of the
Financial Test.
• Carefully review all documents; ensure that language
is comprehensive and conforms with wording
r eq ents
• The Regulator should confirm the CPA ’s certil
with an officially recognized accreditation organization.
• Bewary of
reporting deadlines may occur at odd times.
10

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Final Thoughts
Only companies with large asset bases relative to their total
estimated costs of dosure and post-dosure care are likely
to pass the Financial Test
• For these companies, the Financial Test is a flexible, low cost
mechanism for demonstrating financial assurance
• Regardless of the size of the Company, the Regulator must
be careful to continuously monitor the financial condition of
the Company.
• Companies can (and do) manipulate how they report
financial data — It all depends on the audience.
Noa CO.w, d.1.a,w II
This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RGRA or of EPA ‘s regulations and views, and may ilot necessarily reflect the current position of
EPA
11

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7
CORPORATE FINANCIAL TEST: CASE STUDY
FINEST CHEMICAL, INC.
This docunieni is intended go prowde guidance to EPA staff It does no: create any legally binding requirements on EPA. Stares, or the
regulated community, and does not creole any right or benefit, substantive or procedural This document is not a complete representation of
RCRA or of EPA regulations and views, and may not necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
I

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Table of Contents
I. Background 3
I I. Problem Set 1: Letter from the Chief Financial Officer 4
Ill. Problem Set 2: Financial Statements 13
IV. Problem Set 3: Corporate Financial Test Worksheet (Part 1) 23
V. Problem Set 4: Corporate Financial Test Worksheet (Part 2) 29
VI. Problem Set 5: Conclusions and Recommendations 35
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 2

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This document is intended to provide guidance to EPA staff Ii does not create any legally binding requirements on EPA, States, or the
regulated community, and does ,ioz create any right or benefit, substantive or procedural This document is not a complete representation of
RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
Corporate Financial Test: Case Study
Finest Chemical Inc.
Background
Established in 1968 as a small chemical marketing company with four subsidiaries, Finest Inc. is now the
largest chemical distributor of chlorine bleach in North America. The company is privately held and
employs 11,500 people nationwide. In addition to its chemical activities, Finest Inc. owns travel plazas,
convenience stores, restaurants, motels and truck service centers in 41 states and three Canadian
Provinces. Finest Inc.’s affiliates and subsidiaries offer a variety of services, including insurance, financial
services, communication services, load and equipment facilitation services, truck fleet sales, and other
interstate travel services.
Finest Chemical, Inc. (“FCI)” is a wholly-owned subsidiary of Finest Inc. FCI operates facilities in Medford,
WY and Somerville, NE. Built in the early 1950s, the Medford, WY facility operated until 1984. Today, the
site is dismantled with the exception of equipment currently being used for post-closure care. The site in
Somerville, NE is an inactive facility that operated from 1937 to 1983. The facilities are in interim status.
As the regulator, you are writing a permit that will address post-closure care.
On May 3, 2003, FCI proposed use of the corporate financial test to demonstrate financial assurance, as
required under Subpart H of 40 CFR Part 265.
The following documents were submitted for your review by FCI for purposes of complying with the
corporate financial test requirements, and in keeping with the timeline for reporting requirements under
Subpart H of 40 CFR Part 265:
• Letter from FCI’s Chief Financia! Officer certifying use of the corporate financial test,
including an Independent Auditors’ Report from BIG3, LLP.
• FCI’s financial statements dated January 31, 2003, including Independent Auditors’
Report, Balance Sheet, Statement of Income and Retained Earnings, Statement of Cash
Flows, and Notes to Financial Statements.
RCRA Subtitie C Ciosure and Post-Closure: EPA Financiai Assurance Training 3

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from the Chief Financial Officer
Problem Set 1 :
Review the attached letter from the Chief Financial Officer of Finest Chemical, Inc. Consider whether the
CFO’s letter is in compliance with the regulatory wording at 40 CFR 264.151(f). In your opinion, does
Finest Chemical, Inc. meet the requirements of the Corporate Financial Test? Why or Why not?
Based on your review of the attached documents, use Answer Table 1 to organize your thoughts and
recommendations. Be prepared to discuss your findings with the larger group.
Documents for your review include:
Letter from the Chief Financial Officer for Finest Chemical, Inc (page 5)
Answer Table I (blank template to assist in your review)
Regulatory Wording for CFO Letter, as specified at 40 CFR 264.151 (f) (page 11)
Recommended Review Time: 15 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 4

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from the Chief Financial Officer
Letter from the Chief Financial Officer
Mayl,2003 (2)
Sarah Jones
EPA, Region Z
Somewhere, USA 12345
Dear Ms. Jones:
I am Chief Financial Officer of Finest Chemical Inc., a Delaware corporation. This er is in
support of this firm’s use of the financial test to demonstrate financial assurance as specified in Subpart H
of 40 CFR Part 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 Part 265. The current closure and/or post-closure cost estimates covered by
the test are shown for each facility:
Finest Chemical Inc. EPA ID# USA1 2345678
Somerville, USA Facility
Somerville, USA
Estimated closure cost $ 0
Estimated post-closure cost 327,330
Finest Chemical Inc. EPA lD# USA87654321
Medford, USA Facility
Medford, USA
Estimated closure cost $ 0
Estimated post-closure cost 153,536
2. This firm guarantees through the orporate uarantees specified in Subpart H of 40 CFR
Part 265, the closure or post-cbs of the following facilities owned or operated by
subsidiaries of this firm. The current cost estimates for the closure or post-closure care so
guaranteed are shown for each facility: N/A
3. In states where EPA is not administering the financial requirements of Subpart H of 40 CFR
Part 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 265. The current closure and/or post-closure cost estimates covered by such a test
are shown for each facility: N/A
RCR4 Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 5

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from the Chief Financial Officer
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 Part 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: N/A
This firm 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 January 31. The figures for the following items marked with an
asterisk are derived from this firm’s independently audited, year-end financial statement for the latest
completed fiscal year ended January 31, 2003.
ALTERNATIVE I
1. Sum of current closure and post-closure cost estimates (total of all cost $480,866
estimates shown in the four paragraphs above
* 2. Total liabilities (if any portion of the closure cost estimates is included in $1,136,298
total liabilities, you may deduct the amount of that portion from this line
and add that amount to lines 3 and 4)
3. Tangible net worth $12,790,382
* 4. Net worth $12,790,382
* 5. Current assets $6,619,308
* 6. Current liabilities $243,138
7. Net working capital (line 5 minus line 6) $6,376,170
* 8. The sum of net income plus depreciation, depletion, and amortization $284,488
9. Total assets in U.S. (required only if less than 90% of firm’s assets are N/A
located in the U.S.)
10. Is line 3 at least $10 million YES
11. Is line 3 at least 6 times line 1? YES
12. Is line 7 at least 6 times line 1? YES
13. Are at least 90% of firm’s assets located in the U.S.? If not, complete YES
line 14.
14. Is line 9 at least 6 times line 1? N/A
15. Is line 2 divided by line 4 less than 2.00? YES
16. Is line 8 divided by line 2 greater than 0.1? YES
17. Is line 5 divided by line 6 greater than 1.5? YES
RCRA Subtitie C Ciosure and Post-Ciosure: EPA Financiai Assurance Training 6

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from the Chief Financial Officer
I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR 264.151
(f) as such regulations were constituted on the date shown immediately below.
Signature John Brown
Name John Brown
Title Chief Financial Officer
Date May 1. 2003
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 7

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from the Chief Financial Officer
Special Report from the Independent Auditor
The Board of Directors
Finest Chemical Inc.:
We have audited, in accordance with auditing standards generally accepted in the United States of
America, the balance sheet of Finest Chemical Inc. (a wholly owned subsidiary of Finest Inc.) as of
January 31, 2003, and the related statements of income and retained earnings and cash flows for the year
then ended, and have issued our report thereon dated March 7, 2003.
We have compared the data, items 2 through 8 under Alternative I, which the attached letter from the Chief
Financial Officer of Finest Chemical, Inc. specifies as having been derived from the independently audited
financial statements of Finest Chemical Inc., for the year ended January 31, 2003, with the corresponding
amounts in such financial statements.
We have also read items 9 through 17 of the attached letter and concur with the responses as they relate
to the aforementioned data.
This report is intended solely for the information and use of the Board of Directors and management of
Finest Chemical Inc., and the environmental regulator. It is not intended to be and should not be used by
anyone other than these specified parties.
BIG3, LLP
March 7, 2003
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TraIning 8

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Answer Table 1, Letter from the Chief Financial Officer
IssuelPoints of Consideration
Implication(s)/Additional Questions?
p
p
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 9

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Corporate Financial Test: Case Study Answers
Finest Chemical Inc. — Answer Key for Table 1, Letter from the Chief Financial Officer
lssuelPoints of Consideration
The CFO’s letter is not worded as specified in 40
CFR 264.151.
Certain words are missing or added,
Paragraphs have been omitted
Implication(s)/Additional Questions?
The regulator should consult legal advice from its
attorney.
> At a minimum, the regulator should request that
FCI submit a correctly worded letter from its
Carefully review the financial statements and
accompanying notes in light of the auditors’
omission of a “clean” opinion.
No addresses are provided for the facilities.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TrainIng 10

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from Chief Financial Officer
Regulatory Wording for CFO Letter, as specified at 40 CFR 264.151(f)
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 J
(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 requared’j 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]
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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Letter from Chief Financial Officer
(Fill in Alternative I if the criteria of paragraph (t)(1)(i) of Sec. 264.143 or Sec. 264.145, or of paragraph (e)(1)(i) of
Sec. 265.143 or Sec. 265.145 of this chapter are used. Fill in Alternative I! if the criteria of paragraph (f)(1)(ii) of Sec.
264.143 or Sec. 264.145, or of paragraph (e)(1)(ii) of Sec. 265.143 or Sec. 265.145 of this chapter are used.)
Alternative I
1. Sum of current closure and post-closure cost estimate [ total of all cost estimates shown in the five paragraphs above]
$________
*2. Total liabilities [ if any portion of the closure or post-closure cost estimates is included in total liabilities, you may
deduct the amount of that portion from this line and add that amount to lines 3 and 4J$ ________
*3 Tangible net worth $_______
*4 Net worth $_______
5. Current assets $_______
*6. Current liabilities $_______
7. Net working capital [ line 5 minus line 6] $_______
*8. The sum of net income plus depreciation, depletion, and amortization $_______
*9 Total assets in U.S. (required only if less than 90% of firm’s assets are located in the U.S.) $_______
10. Is line 3 at least $10 million? (Yes/No) _______
11. Is line 3 at least 6 times line 1? (Yes/No) _______
12. Is line 7 at least 6 times line 1? (Yes/No) _______
*13. Are at least 90% of firm’s assets located in the U.S. If not, complete line 14 (Yes/No) _______
14. Is line 9 at least 6 times line 1? (Yes/No) _______
15. Is line 2 divided by line 4 less than 2.0? (Yes/No) _______
16 Is line 8 divided by line 2 greater than 0.1? (Yes/No) _______
17. Is line 5 divided by line 6 greater than 1 5 7 (Yes/No) _______
Alternative II
1. Sum of current closure and post-closure cost estimates [ total of all cost estimates shown in the five paragraphs
above] $_______
2. Current bond rating of most recent issuance of this firm and name of rating service ________
3. Date of issuance of bond _______
4. Date of maturity of bond _______
‘5. Tangible net worth [ if any portion of the closure and post- closure cost estimates is included in total liabilities” on
your firm’s financial statements, you may add the amount of that portion to this line] $_______
*6. Total assets in U.S. (required only if less than 90% of firm’s assets are located in the U.S.)
$_________
7. Is line 5 at least $10 million ? (Yes/No) _______
8. Is line 5 at least 6 times line 1? (Yes/No) _______
‘9. Are at least 90% of firm’s assets located in the U S ‘ If not, complete line 10 (Yes/No) ________
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 264.151(f) as such
regulations were constituted on the date shown immediately below.
(Signature], (Name], /Tit!e), (Date)
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Corporate Financial Test: Case Study
Finest Chemical Inc. — Large Group Discussion, Financial Statements
Problem Set 2 :
Review the attached financial statements, including notes provided by Finest Chemical, Inc. Consider
whether the financial statements raise any concerns as to Finest Chemical, Inc.’s financial condition (e.g.,
profitability or solvency). In your opinion, does Finest Chemical, Inc.’s financial statements change your
mind about whether the company meets the requirements of the Corporate Financial Test? Why or Why
not?
Based on your review of the attached documents, use Answer Table 2 to organize your thoughts and
recommendations. Be prepared to discuss your findings with the larger group.
Documents for your review include:
Financial Statements for Finest Chemical, Inc. (page 14)
Answer Table 2 (blank template to assist in your review)
Recommended Review Time: 15 mins
RCRA Subtitle C Closure and Post-Closure: EPA FinancIal Assurance Training 13

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Large Group Discussion, Financial Statements
FINEST CHEMICAL INC.
(A Wholly Owned Subsidiary of Finest Inc.)
Financial Statements
January 31, 2003
(With Independent Auditors’ Report Thereon)
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Corporate Financial Test: Case Study
Finest Chemical Inc. — Large Group Discussion, Financial Statements
Independent Auditor’s Report
Board of Directors
Finest Chemical Inc.
I have audited the accompanying balance sheet of Finest Chemical Inc. (a wholly owned subsidiary of
Finest Inc.) as of January 31, 2003, and the related statements of income and retained earnings, and cash
flows for the year then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audit.
I conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about 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 financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Finest Chemical Inc., as of January 31, 2003, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles generally accepted in the
United States of America.
BIG3, LLP
Boston, MA
March 7, 2003
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 15

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H
j r
Corporate Financial Test: Case Study
Finest Chemical Inc. - Balance Sheet
Line
[ A]
[ B)
[ C]
[ D)
[ E]
[ F)
[ GJ
[ H]
P 1
[ J]
(J 2 .tcZA 2 T erL4.L e. - c / — ‘
Finest Chemical Inc., a wholly owned subsidiary of Finest Inc.
As of January 31, 2003
Assets etif a , L4iIe 2—
Current assets: U V
Receivable from Finest Inc. (note 3)
$6,616,000
Deferred tax asset (note 1)
3,308
Total rren se
6,619,308
Land and buildings: &‘ ( P ”
i — ‘ v —
Land
70,295
Buildings
138,936
209,231
Less accumulated depreciation
(138,936)
Net land and buildings
70,295
Receivable from Finest Inc net of current portion (note 3)
6,806,210
Deferred tax asset (note 1)
430,867
[ K] TotalAssets
Liabilities £ .eL 3/i4to I c -
Accounts payable and accrued liabilities — $243,138
I )ccrued environmental costs (note 4) 893,160
[ N] 1ot T’ti bilities 1,136,298
& * 4 4
-E
Shareholder’s Equity:
(0] Common stock, $1 par, 2,481,000 shares authorized, issued, and outstanding
[ P1 Additional paid-in capital
[ 0] Retained earnings
[ R] Total Shareholder’s Equity __________
Commitments and contingencies (note 4)
ES] Total Liabilities and Shareholder’s Equity $13,926,680
See accompanying notes to financial statements.
$13,926,680
2,481,000
5,539,246
4,770,136
J90 , jJ t c&.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
16

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Corporate Financial Test: Case Study
Finest Chemical Inc. - Statement of Income and Retained Earnings
Finest Chemical Inc., a wholly owned subsidiary of Finest Inc.
Fiscal year ended January 31, 2003
Operating, general, and administrative expense:
Operating
General and administrative (note 3)
Total operating, general, and administrative expenses
[ X]
[ ‘1
[ Z]
FAA]
Income (Loss) from Operations
(287,796)
Plus: Interest Income (note 3)
751,743
Income before Taxes
463,947
Less: Tax Expense (note 1)
179,459
EBB] Net Income
284,488
4,899,148
(413,500)
$4,770, 136
Line
[ T] Sales Revenue
[ U]
[ ‘1
Lw]
$17,367
52,101
253,062
305,163
[ CC]
[ DO]
[ EEJ
Retained earnings, beginning of year
Less: Dividends Paid
Retained earnings, end of year
See accompanying notes to financial statements
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
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Corporate Financial Test: Case Study
Finest Chemical Inc. - Statement of Cash Flows q/ . 7tl i 2 Vr
Finest Chemical Inc., a wholly owned subsidiary of Finest Inc.
Fiscal year ended January 31, 2003
Line
Cash flows from Operating Activities: y p.e jz —
[ FF1 Net income $284,488
Adjustments to reconcile net income to net cash provided by operating activities.
Changes in assets and Iiabilities
[ GG] Deferred tax asset 5,789
[ HH] Prepaid expenses 827
[ II ] Accounts payable and accrued liabilities (19,021)
[ JJ] Net cash provided by operating activities 272,083
[ KK] Cash flows from investing activities - decrease in receivable from Finest Inc. 141,417

3 [ LL] Cash flows from financing activities - dividends paid to Finest Inc. (413,500 )
t
[ MM] Net changes in cash 0
[ NN] Cash, beginning of year 0
[ 00] Cash, end of year $0
See accompanying notes to financial statements
RCRA Subtitle C Ciosure and Post-Closure: EPA Financiai Assurance Training 18

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Notes to Financial Statements
FINEST CHEMICAL INC.
(A Wholly Owned Subsidiary of Finest Inc)
January 31, 2003
(1) Summary of Accounting Policies
The following significant accounting policies are followed by
Finest Chemical Inc. (the Company) in preparing and
presenting its financial statements.
(a) Organization and Lines of Business -- The Company is a
wholly owned subsidiary of Finest Inc. (Finest). The
Company owns two chemical facilities
(b) Land and Buildings -- Land and buildings are stated at
cost. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. As of 1/31/03,
buildings were fully depreciated.
(c) Income Taxes — The Company files a consolidated tax
return with Finest Inc.
Corporate Financial Test: Case Study —
Finest Chemical Inc. — Large Group Discussion, Financial Statements
(4) Commitments and Contingencies
(a) Enwronmental
gulations — The Compan
and other chemical manufacturing companies have, in
recent years, become subject to increasingly demanding
environmental standards imposed by federal, state, and local
environmental laws and regulations. It is the policy of the
company to comply with applicable environmental laws and
regulations.
The Company has a formal plan for hazardous waste
disposal and monitonng plan for its facilities, including a
closure plan. For the year ended January 31, 2003, the
Company expensed current environmental clean-up and
monitoring costs related to this plan. It is the Company’s
current intention to continue to incur, for the foreseeable
future (without reimbursement from Finest Inc) its share of
estimated environmental compliance costs associated with
its operations.
Government regulations covenng environmental issues are
highly complex and are subject to continual change.
Accordingly, changes in the regulations or interpretations
thereof, and the ultimate settlement of the amounts sought
(d) Use of Estimates -- Management of the Company has from other parties, could result in material future costs to the
made a number of estimates and assumptions relating to the Company in excess of the amounts accrued.
reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial (b) The Company-- As of January 31, 2003, the Company
statements in conformity with accounting principles generally is a guarantor on four lease obligations between Finest Inc.
accepted in the United States of America. Actual results and its wholly owned subsidiary. The guarantee originally
arose from construction loans which were modified into the
could differ from those estimates.
initial financing of four properties. As a guarantor on the
(2) Employee Benefit Plans lease obligations, the Company will assume responsibili for
the lease payments if Finest Inc is unable to meet the
Eligible payment obligations. The Company has no recourse with
The Company has a voluntary 401(k) savings plati.
employees may contnbute up to 12 percent of salary The Finest Inc. should Finest Inc. be unable to fulfill the lease
Company matches 50 percent of each employees obligations. The total lease obligations through 2011 are
contribution up to a maximum company contnbution of approximately $25,192,074.
$1,200 per employee. Company contributions to the savings
8 ,7 Company is a guarantor on a separate revolving line
plan amounted to $1,654 for the year ended January
letter of credit agreement of Finest Inc. The revolving
2003.
me and letter of credit agreement provides that Finest Inc.
(3) Related Party Transactions
may borrow up to $33,080,000 with interest computed at
Finest Inc.’s option, at the LIBOR rate plus 2.00 to 2.75
allocated from Finest Inc. based on estimated direct costs percent and the federal funds rate plus 1.00 to 1.50 percent.
support the Company. The Company participates in the The agreement matures February 2, 2004. The agreement
General and administrative expense/ce amounts pnmanl percent or higher of the bank’s prime rate plus .50 to 1.00
cash management system of Finest Inc Accordingly, all requires letters of credit and commitment fees and is
cash receipts are invested in Finest Inc. and related secured by trade receivables and inventones of Finest Inc.
subsidianes. The receivable from Finest Inc. is due on Finest Inc. had $0 in outstanding borrowings at January 31,
demand and bears interest of 5.5 percent. Classification 2003, and $372,150 in outstanding letters of credit at
between current and long-term has been determined based January 31, 2003 under this agreement.
on the cash available to Finest Inc. at January 31, 2003.
Interest income related to the receivable amounted to
$751,743
for the year ended January 31, 2003
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
19

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Answer Table 2, Financial Statements
Document Reviewed
Issue(s)/Points of Consideration
lmplication(s)IAdditional Questions?
Balance Sheet
—
)
.
>
.
>
—

p
.
.

Income Statement
.
)

>

>
..
>

.

.
Statement of Cash
Flows
.
..
p
>
.

>
.
.
>

)
Notes to Financial
Statements
>
.
,
>

p
>
).
.
>
.
.
)
>
Auditors’ Opinion
>
>
)
;.
>
)
.
;.
.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 20

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Corporate Financial Test: Case Study Answers
Finest Chemical Inc. — Answer Key for Table 2, Financial Statements
Documents
Reviewed
Issues(s) to Consider
Implication(s)!FoIIow Up Questions
Balance
Sheet
- As of January 31, 2003, FCI lists the current portion
of the note owed to it by Finest Inc. as $6.6 mullion
(line [ A]). That is, FCI estimates that it will receive
in one year or less $6.6 million on the note owed to
it by Finest Inc.
FCrs total assets equal $13.93 million (line (K]). o
this estimate, $13.42 million is a note receivable
owed by Finest Inc. to FCI.
FCI’s buildings appear to be fully depreciated.
- FCI lists $1 14 million (line N]) in total liabilities, of
which $0.89 million (line (M]) relate to accrued
environmental costs
- Absent the note receivable from Finest Inc. to FCI
of $13 42 million, FCI’s assets total only $504,470
as compared to $1.14 million in total liabilities,
... The balance sheet makes reference to
“Commitments and Contingencies (note 4).”
- According to the cash flow statement, Finest Inc.
paid down only $141,417 on its note owed to FCI
during 2002. History suggests that $6.6 million
may be an inflated estimate, resulting in an
inflated estimate of FCI’s current assets. Note,
an asset is considered cun’ent under GAAP, if it
can be converted to cash, sold, or exchanged,
within one year.
- $13.42 million of $13.93 million in total FCI
assets is a note receivable from Finest Inc.
There us no financial data provided on the
wherewithal of Finest Inc, and therefore no
information for the regulator to consider Finest
Inc.’s ability to make due on the debt.
.. Over estimations in FCI’s current assets will
result in an inflated estimate of its net working
capital. Over estimations in FCI’s total assets
will result in an inflated estimate of its tangible
net worth. Both situations will directly impact the
company’s ability to pass the financial ratios of
the Corporate Financial Test
... The only debt owed to FCI is from Finest Inc
Accordingly, Finest Inc. is paying FCI the
$751,743 in interest income.
The regulator should carefully review Note 4, as
well as all other notes.
Income
Statement
- Both FCI and Finest Inc (its parent company) are
closely held. Publicly available data on either
company are limited
. .. FCI generated $17,367 (line (T]) in sales revenue.
- Revenues were offset by $305,163 (line 1W]) in total
operating, general and administrative costs.
Accordingly, FCI generated a net loss from
operations of $287,796 (line (])
- FCI’s net income of $284,488 (line [ BBJ) us due in
large part to $751,743 (line [ V]) in interest income.
- Despite its net loss from operations detailed above,
FCI paid a dividend of $413,500 (line (DD]).
- The company ceased its operating activities in
the mud-1980s. How is it generating revenues?
What is it selling?
. What accounts for the general and administrative
expenses?
• The dividend of $413,500 is nearly equal to the
total post-closure estimate under consideration.
- The primary source of FCI’s net income is
interest payments. On what 7 From whom?
Cash Flow
Statement
FCI lists positive $272,083 (line [ JJ]) in net cash
provided by operating activities.
FCI received $141.41 7 (line [ KK]) from a related
party (i.e., Finest, Inc.)
- The dividend of $413,500 (line (LL]) was paid to
Finest, Inc.
FCI shows a net change in cash of $0 (line (MMD.
FCI shows a net cash balance at beginning and end
of year of $0. (lines (NN] and (00]).
- What is the total amount owed by Finest Inc. to
FCI that accounts for the payment of $141,417?
. . FCI realized $272,083 in cash from its operating
activities. The source of this income us not sales
revenue. It us interest income.
. The sum of FCI’s net cash from operating
activities (or $272,083). and the payment on
Finest Inc.’s note (or $141,417), total $413,500.
All of which was paid back to Finest Inc. in the
form of a dividend. Hence, no change in cash.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 21

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Corporate Financial Test: Case Study Answers
Finest Chemical Inc. — Answer Key for Table 2, Financial Statements (continued)
Note 1, AccountinQ Policies :
- FCI is a wholly-owned subsidiary of Finest Inc.
Both of its facilities are dismantled.
As of January 2003. land and buildings were
fully depreciated.
- FCI files a consolidated tax return with Finest
Inc.
FCI made assumptions relating to reporting of
assets and liabilities. But, FCI notes actual
results could differ.
Note 3. Related Party Transactions :
.. G&A expenses are allocated by Finest Inc.
based on direct costs spent supporting FCI.
. All FCI cash receipts are invested in Finest
Inc. and other subsidiaries.
... Note receivable from Finest Inc. is due on
demand, and bears interest.
- Classification between current and long-term is
determined based on ability of Finest Inc. to
pay off the debt in full.
.. . Interest income related to the Finest Inc. note
owed to FCI equaled $751,743 for 2003
Note 4. Commitments and Contingencies .
. Finest Inc. does not intend to reimburse FCI for
its share of estimated environmental
compliance costs.
- FCI is the guarantor on four lease obligations
(totaling $25.19 million) In other words, FCI is
responsible for satisfying the lease payments if
Finest, Inc. defaults Should Finest Inc.
default FCI has no recourse for collecting such
funds from Finest Inc (see Note 4b)
,. FCI also is a guarantor on a separate revolving
line and letter of credit agreement that provides
Finest Inc the ability to borrow up to $33.08
million The agreement matures 2/2/2004. To
date, Finest Inc. has $0 in outstanding
borrowings, and $372,150 in outstanding
Letters of Credit (see Note 4b).
FCI has no external sources of cash. The
company is wholly dependent on Finest Inc. for
income. Absent Finest Inc. FCI is technically
insolvent.
> FCI’s operating structures is closely intertwined
with that of Finest, Inc., suggesting that they are
operating as one company. For example, G&A
expenses are paid to Finest Inc.; taxes are paid to
Finest Inc.: All FCI cash receipts are invested in
the Finest Inc. family.
The regulator has no basis for considenng the
financial wherewithal of Finest Inc.
Yet, FCI states that it receives no “reimbursement”
from Finest Inc. for its share of accrued
environmental expenses. With no cash, or sales
revenue, how does FCI intend to pay for such
costs?
Note 4b suggests that FCI is solely responsible for
its environmental costs (without support from
Finest Inc.).
The regulator should be concerned that FCI’s
tangible net worth is dependent upon Finest Inc.’s
ability to make due on its outstanding lease
obligations, and debt payments. In the event
Finest Inc. defaults, FCI is responsible and may
need to relinquish security on its $13.4 million note
from Finest Inc. Given the nature of these
contingencies on FCI’s asset structure, the
company’s tangible net worth may be inflated for
purposes of demonstrating the Corporate Financial
Test.
The regulator may wish to request additional
information regarding the revolving line and letter
of credit agreement maintained by Finest Inc., and
guaranteed by FCI. These credit facilities may
represent a source of financing to FCI for funding
its environmental obligations. In the absence of
these financing arrangements, the regulator
should question how FCI intends to pay for its
environmental obligations,
Notes to
Financial
Statements
Documents
Reviewed
Issues(s) to Consider
Implication(s)/Follow Up Questions
Auditors’
Opinion
- No issues Identified; BIG3, LLP issued FCI a
clean opinion,
.. In light of the issues/implications identified above,
the regulator should be wary of the clean opinion
offered by BIG3, LLP.
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22

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Large Group Discussion, Corporate Financial Test Worksheet (Part 1)
Problem Set 3 :
Based on your review of Finest Chemical, Inc. and relying on the attached summary of key financial
statistics for Finest Chemical, Inc., use the attached Corporate Financial Test Worksheet to confirm that
Finest Chemical, Inc. meets the financial test metrics. Be prepared to discuss your findings with the larger
group.
Documents for your review include:
Summary of Financial Statistics for Finest Chemical, Inc. (page 24)
> Corporate Financial Test Worksheet (blank template to assist in your calculations)
Recommended Review Time: 15 mins
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 23

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Corporate Financial Test: Case Study
Finest Chemical Inc. - Large Group Discussion, Summary of Financial Statistics for FCI
Scenario Relies on Financial Data as Classified by FCI in it S Financial Statements
[ 20]
[ 21]
[ 22]
[ 23]= [ 20] [ 22]
[ 24]= [ 1 9]+ [ 23J
Company Name
Closure Costs
Post-Closure Costs
Finest Chemical Inc
so
$480,866
480,866
[ 25]= [ l 3)-fl 9]
[ 26]= [ 9]+ [ 1 0]
[ 27]= [ 7]- [ 1 6]
[ 28]
[ 29]
[ 30]
[ 31]
[ 32]
12,790,382
0
6,376,170
284.488
0
13,926,680
n/a
n/a
Line
[ 1]
[ 2]
[ 3]
[ 4]
[ 5]
[ 6]
[ 7J= [ 2] (6]
[ 8]
[ 9]
[ 10]
(11]
[ 12]
[ 1 3]= [ 7]. [ 1 2]
114]
[ 15]
[ 16J= [ 14) [ 15]
[ 17]
[ 18]
[ 19]= [ 16J: (18]
Sum
Balance Sheet Data
Assets
QQ
Current Assets
Cash and cash equivalents
0
Accounts receivable (Receivable from Finest Inc)
6,616,000
Inventones
0
Deferred tax asset
3,308
Other current assets
0
Current assets
6,619,308
Property, plant and equipment, net of depreciation
70,295
Other Assets
Goodwill
0
Other intangible assets
0
Deferred tax asset
430,867
Other (Receivable from Finest Inc , net of current portion)
6,806210
Total Assets
13,926,680
LIabilities
Current liabilities
Accounts payable
243,138
Current portion of L-T debt
0
Current liabilities
243,138
Long-term debt (Long-term accrued environmental costs)
893,160
Other liabilities
0
Total Liabilities
1,136,298
Common shareholders’ equity
Common shares
2,481,000
Additional paid-in capital
5,539,246
Retained earnings
4,770,136
Total Equity
12,790,382
Total Liabilities & Shareholders Equity
13,926,680
Other Key Data Inputs
Net worth (Total Assets minus Total Liabilities)
Intangible assets (Goodwill)
Working capital (Current Assets minus Current Liabilities)
Net income (From Income Statement)
Depreciation, Depletion and Amortization Expense
Total U S assets
Standard & Poor Bond Rating
Moody’s Investor Service
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Corporate Financial Test: Case Study
Finest Chemical Inc. - Large Group Discussion, Corporate Financial Test Worksheet
Company Name ____________
Sum of ClosurelPost-Closure Costs
Fiscal Year
2002 Individual
TEST: ALTERNATIVE I
(i.A) Owner/Operator meets at least two (2) of the following three (3) financial ratios;
1 The ratio of total liabilities to net worth is less than 2 1
a Total Assets
b Total Liabilities
c Net Worth (a-b)
Ratio (b/c) Pass / Fail
2 The ratio of the sum of net income plus depreciation, depletion, and amortization to
liabilities is greater than 0 11
dNet Income / ) (J /7
e Depreciation, depletion, and amortization d 4
Total Liabilities q
g Ratio (d+e)/f Pass I Fail
3 The ratio of current assets to current liabilities is greater than 1 5 1
h Current Assets _____________
I Current Liabilities
j Ratio (h/i) ______________ Pass! Fail
(i.B) Owner/Operator’s net working capital and tangible net worth each are at least six (6) times the sum of ‘‘
the current closure and post-closure cost estimates and the current plugging and abandonment cost
estimates;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
Sum of closure/post-closure costs and plugging & abandonment costs
g 1/6th Tangible Net Worth (e16) Pass / Fail
h Current Assets
i Current Liabilities
Working Capital (h-i) ____________
k Sum of closure/post-closure costs and plugging & abandonment costs _____________
11/6th Working Capital 0/6) ____________ Pass I Fail
(i.C) Owner/Operator has a tangible net worth of at least $10 million dollars; ____________
a Total Assets ___________
b Intangible Assets ____________
c Tangible Assets (a-b) ____________
d Liabilities
e Tangible Net Worth (c-d) ____________ Pass! Fall
(i.D) OwnerlOperator ’s assets located in the United States amount to at least ninety percent (90%) of its total
assets or Its total assets In the United States are at least sIx (6) tImes the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets ___________
b Total U.S Assets ___________
c Total Non-U S Assets ___________
d >= 90% of Total Assets (bla)100 or, ___________ Pass / Fail
e Sum of closure/post-closure costs and plugging & abandonment costs _____________
1/6th Total Assets in the U S (b/6) Pass I Fail
PasslFail?
Overall
Pass/Fail
Pass/Fail
Pass I Fail
Pass! Fail
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
25

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_____________ Pass/Fail
_____________ Pass I Fail
Pass/Fail }
Pass IFail }
Corporate Financial Test: Case Study
Finest Chemical Inc. - Large Group Discussion, Corporate Financial Test Worksheet
TEST: ALTERNATIVE II
(il.A) Owner/Operators most recently issued bond Is rated “BBB or higher by Standard and Poors
Corporation, or “Baa” or higher by Moodys Investors Service, Inc.;
(ii.B) Owner/Operators tangible net worth Is at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
Sum of closure/post-closure costs and plugging & abandonment costs
g 1/6th Tangible Net Worth (e16)
(ii.C) Owner/Operator has a tangible net worth of at least $10 mIllion dollars;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
(liD) Owner/operators assets located in the United States amount to at least ninety percent (90%) of its totaT’
assets or its total assets in the United States are at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets
b Total U S Assets
C Total Non-U.S Assets
d >= 90% oF Total Assets (b/a)100 or, Pass / Fail
e Sum of closure/post-closure costs and plugging & abandonment costs
1/6th Total Assets in the U S (b16) Pass I Fail
Pass I Fail
Pass / Fail
Pass/Fail
Pass / Fail
a S&P
b Moody s
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
26

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Large Group Discussion, Corporate Financial Test Worksheet (Part 2)
Problem Set 4 :
Based on your review of Finest Chemical, Inc. and relying on the attached summary of modified financial
statistics for Finest Chemical, Inc., use the attached Corporate Financial Test Worksheet to reassess
whether Finest Chemical, Inc. meets the financial test metrics. Be prepared to discuss your findings with
the larger group.
Documents for your review include:
Summary of Modified Financial Statistics for Finest Chemical, Inc. (page 30)
Corporate Financial Test Worksheet (blank template to assist in your calculations)
Recommended Review Time: 15 mins
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 29

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Corporate Financial Test: Case Study
Finest Chemical Inc. - Large Group Discussion, Summary of Modified Financial Statistics for FCI
Alternate Scenano Reclassifvina FCI’s Current Asset to Lona-Term
(341
[ 35)
[ 36)
(37]
[ 38 ]
[ 39J=(34 ]. [ 38]
[ 40)
[ 41)
(421
[ 431
[ 44)
(45J= [ 39J: [ 44]
Common shareholders’ equity
(52) Common shares
(53] Additional paid-in capital
(54] Retained earnings
[ 551= [ 521 [ 54] Total Equity
[ 56j=(51]+ (55] Total Liabilities & Shareholders Equity
2,481,000
5,539,246
4,770,136
12,790,382
13,926,680
12,790,382
0
-98,413
284,488
0
13,926,680
n/a
n/a
Company Name
Finest Chemical Inc.
Line
Closure Costs
Post-Closure Costs
$0
$480,866
[ 33)
Sum
480,866
Balance Sheet Data
Assets
QQ
Current Assets
Cash and cash equivalents
0
Accounts receivable (Receivable from Finest Inc.)
141,417
Inventories
0
Deterred tax asset
3,308
Other current assets
0
Current assets
144,725
Property, plant and equipment, net ci depreciation
70,295
Other Assets
Goodwill
0
Other intangible assets
0
Deferred tax asset
430.867
Other (Receivable from Finest Inc., net of current portion)
13,280,793
Total Assets
13,926,680
Liabilities
Current liabilities
Accounts payable
243,138
Current portion of L-T debt
o
Current liabilities
243,138
Long-term debt (Long-term accrued environmental costs)
893,160
Other liabilities
0
Total Liabilities
1,136.298
[ 46]
[ 47]
[ 48j= [ 46 ) (47)
[ 491
[ 50]
[ 51J=(48].(50J
(57J=(45)- [ 51]
(58 )= [ 41)+(42)
(59]=(39J- [ 48]
[ 60 1
(61]
(62)
[ 63]
[ 64)
Other Key Data Inputs
Net worth (Total Assets minus Total Liabilities)
Intangible assets (Goodwill)
Working capital (Current Assets minus Current Liabilities)
Net income (From Income Statement)
Depreciation, Depletion and Amortization Expense
Total U.S assets
Standard & Poor Bond Rating
Moody’s Investor Service
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
30

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Corporate Financial Test: Case Study
Finest Chemical Inc. - Large Group Discussion, Corporate Financial Test Worksheet
Company Name
Sum of Closure/Post-Closure Costs _____________
Fiscal Year
2002 Individual
TEST: ALTERNATIVE I
(i.A) OwnerlOperator meets at least two (2) of the following three (3) financial ratIos;
1 The ratio of total liabilities to net worth is less than 2 1
a Total Assets
b Total Liabilities
C Net Worth (a-b)
Ratio (b/c) Pass I Fail
2 The ratio of the sum of net income plus depreciation, depletion,
liabilities is greater than 0 11
d Net Income
e Depreciation, depletion, and amortization
Total Liabilities
g Ratio (d+e)If Pass! Fail
3 The ratio of current assets to current liabilities is greater than 1 5 1
h Current Assets ______________
I Current Liabilities _______________
Ratio (h/i) ______________ Pass! Fail
(i.B) Owner/Operators net working capital and tangible net worth each are at least six (6) times the sum of
the current closure and post-closure cost estimates and the current plugging and abandonment cost
estimates; ______________
a Total Assets ____________
b intangible Assets ____________
c Tangible Assets (a-b) ____________
d Liabilities _____________
e Tangible Net Worth (c-cJ) ____________
Sum of closure/post-closure costs and plugging & abandonment costs _____________
g 1/6th Tangible Net Worth (e/6) Pass I Fail
h Current Assets
i Current Liabilities
j Working Capital (h-i)
k Sum of closure/post-closure costs and plugging & abandonment costs
I 1/6th Working Capital 0/6) Pass / Fail
(i.C) Owner/Operator has a tangible net worth of at least $10 million dollars; ____________
a Total Assets __________
b Intangible Assets ____________
c Tangible Assets (a-b) ____________
d Liabilities
e Tangible Net Worth (c-d) ____________ Pass I Fail
(I.D) Owner/Operator’s assets located in the United States amount to at least ninety percent (90%) of its total
assets or Its total assets in the United States are at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets __________
b Total U.S. Assets ____________
c Total Non-U S Assets __________
d > 90% of Total Assets (bla)100 or, ____________ Pass / Fail
e Sum of closure/post-dosure costs and plugging & abandonment costs
1 1/6th Total Assets in the U S (b/6) ____________ Pass / Fail
Pass/Fail?
i
Overall
Pass! Fail
Pass lFail
Pass / Fail
Pass / Fall
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TraIning
31

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}
Pass/Fail }
Pass/Fall }
Corporate Financial Test: Case Study
Finest Chemical Inc. - Large Group Discussion, Corporate Financial Test Worksheet
TEST: ALTERNATIVE II
(ii.A) OwnerlOperators most recently issued bond is rated “BBB’ or higher by Standard and Poors
Corporation, or “Baa” or higher by Moodys Investors Service, Inc.;
______________ Pass! Fail
______________ Pass! Fail
(ii.B) Owner/Operators tangible net worth is at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
Sum of closure/post-closure costs and plugging & abandonment costs
g 1/6th Tangible Net Worth (e16)
(ii.C) Owner/Operator has a tangible net worth of at least $10 million dollars;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
(ii.D) Owner/Operators assets located in the United States amount to at least ninety percent (90%) of its total
assets or its total assets in the United States are at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets
b Total U S Assets
c Total Non-U S. Assets
d >= 90% of Total Assets (b/a) ”100 or,
e Sum of closure/post-closure costs and plugging & abandonment costs
1/6th Total Assets in the U S (b/6)
Pass! Fail
Pass! Fail
Pass I Fail
Pass! Fail
a S&P
b Moodys
Pass
Pass
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
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Corporate Financial Test: Case Study Answers
Finest Chemical Inc. - Large Group Discussion, Corporate Financial Test Worksheet Key
Alternate Scenario Reclassifying PCI ’s Current Asset to Long-Term
Company Name Finest Chemical Inc.
Sum of ClosurelPost-Closure Costs 480866
Fiscal Year Pass/Fail?
2002 Individual v usu
TEST: ALTERNATIVE I
(i.A) Owner/Operator meets at least two (2) of the following three (3) financial ratios;
1 The ratio of total liabilities to net worth is less than 2 1
a Total Assets
b Total Liabilities
c Net Worth (a-b)
Ratio (b/c)
2 The ratio of the sum of net income plus depreciation, depletion, and amortization to total
liabilities is greater than 0 11
d Net Income
e Depreciation, depletion, and amortization
Total Liabilities
g Ratio (d+e/f)
3 The ratio of current assets to current liabilities is greater than 1 5 1
h Current Assets 144,725
‘Current Liabilities 243,138
Ratio (h/i) 0 60 FAIL
(i.B) Ownerloperator ’s net working capital and tangible net worth each are at least six (6) times the sum of
the current closure and post-closure cost estimates and the current plugging and abandonment cost
estimates;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
I Sum of closure/post-closure costs and plugging & abandonment costs FAIL
9 1/6th Tangible Net Worth (e/6) PASS
144,725
243,138
-98,413
480.866
-16,402 FAlL
13,926.680
0
13,926,680 PASS
1,136,298
e Tangible Net Worth (c-d) 12,790,382 PASS
(i.D) OwnerlOperator ’s assets located in the United States amount to at least ninety percent (90%) of its total
assets or its total assets in the United States are at least six (6) times the sum of the current closure and
post-closure cost estimates and the current plugging and abandonment cost estimates;
13.926.680
13,926,680 PASS
0
PASS
PASS
=
13,926,680
1,136,296
12,790,382
284,488
0
009 PASS
PASS
PASS
1,136,298
0.25
0
13,926,680
13,926,680
1,136,298
12,790,362
480,866
2,131,730
Data Source
From (45]
From [ 51]
From [ 60]
From [ 611
From [ 51]
From [ 39]
From [ 48]
From [ 451
From [ 58]
From [ 51)
From [ 33]
From (39]
From (48)
From [ 33]
From [ 451
From [ 58]
From (51)
From 1451
From [ 33]
h Current Assets
I Current Liabilities
j Working Capital (h-i)
k Sum of closure/post-closure costs and plugging & abandonment costs
I 116th Working Capital 0/6)
(i.C) Owner/Operator has a tangible net worth of at least $10 million dollars;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
a Total Assets
b Total U S Assets
c Total Non-U S Assets
d ‘ 90% of Total Assets (b/a)100 or;
e Sum of closure/post-closure costs and plugging & abandonment costs
1 1/6th Total Assets in the U S (b16)
100%
480,866
2.321.113
RCRA Subtitle C Closure and Post-Closure: EPA Financia’ Assurance Training
33

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Corporate Financial Test: Case Study Answers
Finest Chemical Inc. - Large Group Discussion, Corporate Financial Test Worksheet Key
Alternate Scenario Reclassifying FCI’s Current Asset to Long-Term
Company Name Finest Chemical Inc.
Sum of Closure/Post-Closure Costs 480.866
Fiscal Year Pass/Fail ? Data Source
2002 Individual Overall
TEST: ALTERNATIVE II
(ui.A) OwnerlOperator ’s most recently issued bond is rated BBB or higher by Standard and Poor’s
Corporation, or “Baa” or higher by Moody’s Investors Service, Inc.;
a S&P n/a FAIL FAIL
b Moody’s n/a FAIL
(ii.B) Owner!Operators tangilbe net worth is at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets 13.926.680 From [ 45)
b Intangible Assets 0 PASS From (58]
c Tangible Assets (a-b) 13,926,680
d Liabilities 1,136,298 From [ 511
e Tangible Net Worth (c-cl) 12.790.382
I Sum of closure/post-closure costs and plugging & abandonment costs 480.866 From (33)
g 1/6th Tangible Net Worth (e16) 2,131.730 PASS
(ii.C) Owner/Operator has a tangible net worth of at least $10 million dollars;
a Total Assets 13,926,680 ‘ From [ 45J
b Intangible Assets 0 From [ 58)
c Tangible Assets (a-b) 13,926,680 ?‘ PASS
d Liabilities 1,136,298 I From [ 51J
e Tangible Net Worth (c-d) 12,790,382 PASS J
(ii.D) Owner/Operator’s assets located in the United States amount to at least ninety percent (90%) of its
total assets or its total assets in the United States are at least six (6) times the sum of the current closure
and post-closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets 13,926,680 From (45]
b Total U S Assets 13,926.680 PASS
c Total Non-U S Assets 0
d >= 90% of Total Assets (b/a)900 or, 100% PASS
e Sum of closure/post-closure costs and plugging & abandonment costs 480.866 From [ 33]
1/6th Total Assets in the U.S (b16) 2,321,113 PASS
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance TraIning 34

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Corporate Financial Test: Case Study
Finest Chemical Inc. — Small Group Discussion, Conclusions and Recommendations
Problem Set 5 :
Make a recommendation for whether to accept Finest Chemical, Inc.’s demonstration of financial
assurance using the Corporate Financial Test. Pay particular attention to all of the information that you
have reviewed and your recent calculations.
In light of your findings, use Answer Table 3 to organize your thoughts. Highlight your primary areas of
concern (if any). Consider what additional information you might wish to request from Finest Chemical,
Inc. What are your recommendations/next steps for moving forward. Be prepared to discuss your findings
with the larger group.
Documents for your review include:
> Answer Table 3 (blank template to assist in your calculations)
Recommended Review Time: 20 mins
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 35

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Corporate Financial Test: Case Study
Finest Chemical Inc. - Answer Table 3, Conclusions and Recommendations
Question 1: Does FCI meet the requirements of the Corporate Financial Test
Yes No
Question 2: What (if any) are the key areas in which FCI’s submission is questionable?
p
F
p
p
Question 3:
What are your next steps? What additional information might you request
from FCI?
p
p
p
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 36

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Low
Risk
000
This document is intended to provide guidance to EPA staff It does not create any
legally binding requirements on EPA, States, or the regulated community, and does
not create any rig/it or benefit, substantive or procedural This document is not a
- ‘-wlete representation of RCR.A or ofEPA’s regulations and views, and may not
sarilv reflect the current position of EPA
Corporate Financial Test
Financial Assurance Mechanisms
RCRA Subtitle C Closure & Post-Closure December 2004
How it Works:
The owner/operator of a Subtitle C facility (“the Company”) may
demonstrate his ability to pay for the cost of closure and post-
closure care by passing one of two financial tests. The
Company is allowed to self insure as long as it continues to
pass either test. In other words, the Company is not required to
arrange with a third-party to guarantee payment of closure or
post-closure costs, nor is the Company required to set aside
funds now. When closure and post-closure costs need to be
paid, the Company is solely responsible for paying them
By design, the tests are intended to screen out companies with
insufficient tangible net worth or other financial constraints that
may impair their ability to meet the likely future costs of closure
1 post-closure care. Only companies with large net assets
net worth) relative to the total estimated costs of closure
- . post-closure are likely to pass either of the two tests.
The first test analyzes the financial strength of the Company by
measuring several financial ratios. These ratios assess: 1) the
magnitude of the Company’s outstanding debts, 2) its ability to
convert assets into cash; and 3) its working capital (or amount
of cash invested in short-term assets). The second test relies
on a subset of these financial ratios, as well as examines the
Company’s public bond ratings with Standard & Poor or
Moody’s.
In addition to measuring financial solvency, both tests require
that the Company have at least $10 million in tangible net worth
and rely on a ‘six-times multiple’. By virtue of this multiple, the
Company must demonstrate that its tangible net worth is at
least six times the sum of the current closure and post-closure
cost estimates for all facilities covered by the mechanism. As
such, all but the largest corporations are precluded from using
the Financial Test as a means of demonstrating financial
assurance.
Cost to the Company
M odium
What’s Required:
o As prescribed at §264.143(f) and §264.145(f) for
permitted facility closure and post-closure, and
§265.143(e) and §265.145(e) for interim status closure
and post-closure, the Company must meet or exceed
one of two alternative financial tests.
o The Company’s financial statements must be audited by
an independent Certified Public Accountant (CPA).
o The Company must submit the following three items:
• An original letter signed by the Company’s Chief
Financial Officer (CFO), including current cost
estimates for all relevant facilities. Wording of the
letter must be exactly as specified at 40 CFR
264.151(f),
• A copy of the CPA’s audit report of the Company’s
financial statements for the most recent fiscal year;
and
• A special report from the CPA stipulating no
discrepancies between the CFO’s letter and the
audited financial statements.
o The Regulator must carefully review all documents
submitted by the Company to ensure that they are
complete and accurate.
What Happens If...
The Company wants to use a corporate financial test for
purposes of demonstrating financial assurance?
o An independent CPA must provide an audit report and
issue an unqualified opinion of the Company’s financial
statements. The Regulator should confirm that the CPA
is certified by an officially recognized accreditation
organization [ see Resources fact sheet].
o The Company must forward the requisite documents
under 40CFR264 and 265 to the Regulator for its review.
The documents must address all facilities in the U.S., for
which the Company intends to demonstrate financial
assurance through the Financial Test.
o The Company must submit updated documents to the
Regulator within 90 days of each fiscal-year end.
o The Financial Test may be used only to cover the entire
cost estimate of a facility. The Company may not use
other mechanisms in combination with the Financial Test
to cover some of the facility’s costs.
High
Risk

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What Happens If
(Continued)
The Company changes its corporate status?
o The Regulator must be notified by the Company within
10 days of bankwptcy proceedings.
o If the Company is merged or sold, the re-formed
Company must meet the criteria of the Financial Test or
provide alternate financial assurance.
The closurelpost-closure estimates change?
o The Company must notify the Regulator of all cost
changes, regardless of whether such changes have an
impact on the Company’s ability to meet the criteria of
the Financial Test. Upon notification, the Regulator
should check that the Company still meets the standards
of the Test.
o The Company can no longer use the Financial Test if its
cost estimates increase beyond the maximum amount
that it can assure.
The Regulator doubts the validity of the financial data
submitted by the Company?
o The Regulator should immediately request copies of the
Company’s audited financial statements, including all
notes and attachments. Be wary of changes in the
Company’s fiscal-year ends.
o The Regulator should recalculate the financial ratios
using these data. The Regulator also should verify any
bond ratings claimed by the Company.
The Regulator believes that the Company may no longer
meet the financial test requirements?
o The Regulator may request that the Company submit
reports detailing its financial condition at any time, that
is, in addition to the requisite annual reports
c i If, after reviewing the documents, the Regulator
concludes that the Company no longer meets the
requirements of the Financial Test, the Company must
provide alternate financial assurance within 30 days of
being notified to do so by the Regulator.
The Company no longer meets the requirements of the
financial test?
ci If the fiscal year-end statements show that the
Company’s financial condition is such that it no longer
passes the Financial Test, then it must notify the
Regulator of this fact, and of its intent, to establish
alternative financial assurance within 90 days of its
fiscal-year end
ci The Company must provide alternate financial
assurance within 120 days of the fiscal-year end.
Why it Works:
o Only companies with large net assets relative to their
total estimated costs of closure and post-closure are
likely to pass the standards of the Financial Test.
ci The Financial Test represents a flexible, low cost option
for the Company. Unlike other mechanisms, the
Company neither is required to build a fund, nor pay
fees (or premiums) to a third party.
Challenges:
ci The Financial Test can be a relatively high risk
mechanism for the Regulator, and therefore requires at
least annual oversight.
ci The Financial Test presumes that the Company’s rer—--
past is a reasonable predictor of its future financial
performance That is, a company that passes the
prescribed metrics is less likely to enter bankruptcy. But,
the Test tends not to account for the sudden impact of
external (or market) shocks on the Company’s financial
wellbeing.
ci The ratios underpinning the Financial Test are only as
sound as the data used to compute them. If the
Company’s accounting of its net assets or liabilities is
questionable, or the quality of its assets is weak, the test
ratio(s) may not represent the Company’s true financial
condition.
ci Accurate and current cost estimates are essential when
analyzing the Company’s net working capital, tangible
net worth, and ‘six times multiple.’ Ensure that closure
and post-closure costs are aggregated across facilities.
ci The Company may have debts (or claims) against its
assets which are not transparent on its financial
statements To the extent such claims are disclosed in
the footnotes to its financial statements, the Regulator
may want to adjust the ratio calculations.
ci If a Company that self-insures later fails to pass the
Financial Test, it may become very difficult for the
Company to obtain alternative financial assurance.
Tips for Ensuring Success:
o The Financial Test requires that the Regulator be vigilant
when reviewing the Company’s annual submissions. If,
for any reason, the Regulator believes that the Company
may no longer meet the financial test requirements, it
must act without delay.
ci The Financial Test requires a prescriptive, detailed
review process; following each step is essential to
calculating accurate ratios.
ci The Regulator may want to regularly monitor the
business press for adverse news about the Company.
The Regulator should be wary if any of the following
events occur with respect to the Company:
• Decreases in reported net income or cash flow.
• Decreases in bond ratings or stock prices.
• De-listing from a public exchange.
• Mergers, acquisitions, asset divestitures.
• Bankruptcy proceedings.
• A ‘qualified’ opinion from an independent CPA.
ci Proofread all documents to ensure that the language is
comprehensive, precise, and conforms to the wording
required by the Subtitle C regulations.
ci Be wary of changes in the Company’s fiscal year en’
The fiscal year need not map to the calendar year. It
may be that reporting deadlines occur at odd times.
ci Check that the estimated closure/post-closure costs for
jj of the Company’s facilities that are not assured by a
third party are reported. This will impact the ratio test(s).
RCRA Subtitle C Ciosure and Post-Ciosure: Corporate Financial Test

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RCRA SUBTITLE C FINANCIAL ASSURANCE
CHECKLIST DOCUMENTS
Corporate Financial Test

-------
RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST INFORMATION
Company Name:_________________________________ EPA ID#:________
FINANCIAL TEST: An owner or operator with the financial assets to absorb the costs of closure, post-
closure care, and liability obligations may comply with financial assurance
requirements by using the financial test.
TEST COVERS: U CLOSURE U POST-CLOSURE CARE
U THIRD-PARTY LIABILITY-SUDDEN ACCIDENTAL OCCURRENCES
U THIRD-PARTY LIABILITY-NONSUDDEN ACCIDENTAL OCCURRENCES
COMPANY NAME:
ADDRESS:
CONTACT PERSON/TITLE:
CONTACT PHONE NO.:
COMPANY’S FISCAL YEAR ENDS:
CLOSURE COST ESTIMATE (Agency Approved):
SOURCE DOCUMENT/DATE:
POST-CLOSURE COST ESTIMATE (Agency Approved):
SOURCE DOCUMENT/DATE:
Reviewed by:
Date: _______

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST INFORMATION
Company Name:__________________ EPA ID#:
ANNUAL AGGREGATE AMOUNT
SUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
NONSUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR CLOSURE
Company Name:__________________________________ EPA ID#:______________
YES NO QUESTION COMMENTS
U Does the owner or operator pass one of the financial
tests outlined in Attachments A and B? [ 40 CFR
§264.143(0(1); 40 CFR §265. 143(e)(1)]
U LJ Has a letter been submitted that is properly executed
and signed by the owner’s or operator’s CFO and is
worded as specified in 40 CFR §264.151(0? [ 40
CFR §264.143(0(3)(i); 40 CFR §265. l43(e)(3)(i)]
U J Has a report from an independent CPA been
submitted that examines the owner’s or operator’s
financial statements for the latest completed fiscal
year? [ 40 CFR §264.143(f)(3)(ii); 40 CFR
§265.143(e)(3)(ii)] If a report has been submitted,
indicate the nature of the opinion rendered:
O Unqualified Opinion
O Disclaimer of Opinion or Adverse Opinion
O Qualified Opinion
J J Has a special report from the independent CPA been
submitted? [ 40 CFR §264.143(0(3); 40 CFR
§265. 143(e)(3)]
U Have updated versions of the three reports referenced
above been submitted within 90 days after the close
of each succeeding fiscal year? [ 40 CFR
§264.143(0(5); 40 CFR §265.143(e)(5)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR CLOSURE
ATTACHMENT A - TEST ALTERNATIVE 1*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Does the owner or operator meet at least two of the
three following ratios? (Indicate calculation results
under Comments.)
- total liabilities <2.0
net worth
- net income+deDreciation+depletion+amort . > 0.1
total liabilities
- current assets
current liabilities > 1.5
U Does the owner or operator have a net working
capital and tangible net worth each at least six times
the sum of the current closure and post-closure cost
estimates?
U U] Does the owner or operator have tangible net worth
of at least $10 million?
U Do the owner or operator’s U.S. assets equal to at
least 90 percent of total assets or six times the sum of
the current closure and post-closure cost estimates?
Reviewed by: ____________________________________________
Date: ____________________________________________________________
*As specified in 40 CFR 264.143(f)(l)(i) and 40 CFR 265.l43(e)(l)(i)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR CLOSURE
ATTACHMENT B - TEST ALTERNATIVE 11*
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J J Is the current bond rating of the owner or operator
adequate?
Indicate the appropriate bond rating and the source:
D Standard and Poor’s C] Moody’s
DAAA C]Aaa
C]AA C]Aa
DA DA
DBBB UBaa
U Does the owner or operator have tangible net worth at
least six times the sum of the current closure and
post-closure cost estimates?
U Does the owner or operator have tangible net worth
of at least $10 million?
U Do the owner or operator’s U.S. assets equal to at
least 90 percent of total assets or six times the sum of
the current closure and post-closure cost estimates?
Reviewed by: _________________________________________________
Date: _____________________________________________________________
* As specified in 40 CFR §264.143(f)(1)(ii) and 40 CFR §265.143(e)(l)(ii)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR POST-CLOSURE
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Does the owner or operator pass one of the financial
tests outlined in Attachments A arid B? [ 40 CFR
§264.145(0(1); 40 CFR §265.145(e)(1)]
U Has a letter been submitted that is properly executed
and signed by the owner’s or operator’s CFO and is
worded as specified in 40 CFR §264.151(0? [ 40
CFR §264.1 45(f)(3)(i); 40 CFR §265.1 45(e)(3)(i)]
U U Has a report from an independent CPA been
submitted that examines the owner’s or operator’s
financial statements for the latest completed fiscal
year? [ 40 CFR §264.145(f)(3)(ii); 40 CFR
§265.145(e)(3)(ii)] If a report has been submitted,
indicate the nature of the opinion rendered:
O Unqualified Opinion
O Disclaimer of Opinion or Adverse Opinion
O Qualified Opinion
U J Has a special report from the independent CPA been
submitted? [ 40 CFR §264.145(0(3); 40 CFR
§265. 145(e)(3)]
U U Have updated versions of the three reports referenced
above been submitted within 90 days after the close
of each succeeding fiscal year? [ 40 CFR
§264.145(0(5); 40 CFR §265.1 45(e)(5)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR POST-CLOSURE
ATTACHMENT A - TEST ALTERNATIVE 1*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U U Does the owner or operator meet at least two of the
three following ratios? (Indicate calculation results
under Comments.)
- total liabilities <2.0
net worth
- net income+depreciation+depletion+amort . > 0.1
total liabilities
- current assets
current liabilities > 1.5
U Does the owner or operator have a net working
capital and tangible net worth each at least six times
the sum of the current closure and post-closure cost
estimates?
J [ ] Does the owner or operator have tangible net worth
of at least $10 million?
U 1 Do the owner or operator’s U.S. assets equal to at
least 90 percent of total assets or six times the sum of
the current closure and post-closure cost estimates?
Reviewed by: ____________________________________________
Date: ____________________________________________________________
*As specified in 40 CFR 264. 145(f)(l)(i) and 40 CFR 265.l45(e)(l)(i)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR POST-CLOSURE
ATTACHMENT B - TEST ALTERNATIVE 11*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Is the current bond rating of the owner or operator
adequate?
Indicate the appropriate bond rating and the source:
I] Standard and Poor’s 0 Moody’s
OAAA DAaa
DAA DAa
UA DA
UBBB UBaa
Li [ ] Does the owner or operator have tangible net worth at
least six times the sum of the current closure and
post-closure cost estimates?
Does the owner or operator have tangible net worth
of at least $10 million?
U Do the owner or operator’s U.S. assets equal to at
least 90 percent of total assets or six times the sum of
the current closure and post-closure cost estimates?
Reviewed by: _________________________________________________
Date: _____________________________________________________________
* As specified in 40 CFR §264.145(f)(1)(ii) and 40 CFR §265.145(e)(1)(ii)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST
SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCE LIABILITY COVERAGE
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J j Does the owner or operator pass one of the financial
tests outlined in Attachments A and B? [ 40 CFR
§264.147(0(1); 40 CFR §265. 147(e)(1)]
U Has a letter been submitted that is properly executed
and signed by the owner’s or operator’s CFO? [ 40
CFR §264.147(f)(3)(i); 40 CFR §265.147(f)(3)(i)J
U (J Has a report from an independent CPA been
submitted that examines the owner’s or operator’s
financial statements for the latest completed fiscal
year? [ 40 CFR §264.147(f)(3)(ii); 40 CFR
§265.1 47(0(3)(i )]
U Has a special report from the independent CPA been
submitted? [ 40 CFR §264.147(0(3); 40 CFR
§265.147(0(3)1
U Have updated versions of the three reports referenced
above been submitted within 90 days after the close
of each succeeding fiscal year? [ 40 CFR
§264.147(0(5); 40 CFR §265.147(5)(5)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR LIABILITY COVERAGE
ATTACHMENT A - TEST ALTERNATIVE 1*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
LI Does the owner or operator meet at least two of the
three following ratios? (Indicate calculation results
under Comments.)
- total liabilities <2.0
net worth
- net income+depreciation+depletion+amort . > 0.1
total liabilities
- current assets
current liabilities > 1.5
LI Does the owner or operator have a net working
capital and tangible net worth each at least six times
the amount of liability coverage to be demonstrated
by this test?
J J Does the owner or operator have tangible net worth
of at least $10 million?
LI U Do the owner or operator’s U.S. assets equal to at
least 90 percent of total assets or six times the amount
of liability coverage to be demonstrated by this test?
Reviewed by: ____________________________________________
Date: _________________________________________________________
*As specified in 40 CFR 264.147(f)(l)(i) and 40 CFR 265.147(e)(I)(i)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
FINANCIAL TEST FOR LIABILITY COVERAGE
ATTACHMENT B - TEST ALTERNATIVE 11*
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J Is the current bond rating of the owner or operator
adequate?
Indicate the appropriate bond rating and the source:
C] Standard and Poor’s C] Moody’s
DAAA DAaa
C]AA C]Aa
DA UA
DBBB DBaa
U U Does the owner or operator have tangible net worth at
least six times the amount of liability coverage to be
demonstrated by this test?
U Does the owner or operator have tangible net worth
of at least $10 million?
J U Are the owner or operator’s U.S. assets equal to at
least 90 percent of total assets or at least six times the
amount of liability coverage to be demonstrated by
this test?
Reviewed by: _________________________________________________
Date: ________________________________________________________________
* As specified in 40 CFR §264.147(f)(l)(ii) and 40 CFR §265.147(e)(l)(ii)

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Corporate Guarantees

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- CORPORATE GUARANTEE
RCRA Subtitle C Closure and Post-Closure
Seattle, WA
December 7-10, 2004
co__. —.
- Key Points —
• The Basics
• Challenges & Tips for Success
• Final Thoughts
_______________________________________________________________I
The Basics:
What is a Corporate Guarantee?
An affiliated corporation can guarantee the
performance (or payment) of an owner/operator’s
closure/post-closure care requirements.
• Affiliated Corporation = Guarantor
• Owner/Operator = Company
R A flbCQ• sPS
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of
EPA
1

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The Basics:
- What is a Corporate Guarantee?
• The Guarantor must be:
• The direct (Or higher-tier) parent corporation of the
Company;
• A firm with the same parent corporation of the Company,
• A limi that has a ‘substantial business relationship’ with
the Company.
• The Corporate Guarantee is predicated on the
Guarantor’s ability to pass either Alternative I or
Alternative 2 of the Corporate Financial Test.
RwA U COn.. PflI .e.
The Basics:
What is a Corporate Guarantee?
• Relatively high risk mechanism for the Regulator:
• The test presumes that the Guarantor’s most recent past is
a reasonable predictor of its future financial performance.
• The ratios underpinning the Financial Test are only as
sound as the data used to compute them
• Flexible, low cost mechanism for the Company’
— • Essentially, the Guarantor provides the Company with lOw
(or no) cost financial backing
• The Conipany is not required to build a fund
- The Basics: Required Documents
• In addition to passing the Corporate Financial Test,
the Guarantor must submit:
• The items from the Financial Test (i e, Letter from the
Guarantor’s CFO, CPA Audit Report, and a special report
from the Guarantor’s CPA);
• A signed, certified copy of the wntten guarantee between
the Guarantor and the Company,
• A letter from the Guarantor ’t Chief Financial Officer (CFO)
detailing the value received by the Guarantor from the
Company for the Corporate Guarantee, and as applicable,
describe the subgantial business relationship between the
Company and the Guarantor.
• A
This document is intended to provide guidance to EPA staff It does not create any legally binding requirenients on EPA, States.
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA c regulations and views, and may not necessarily reflect the current positron of
EPA
2

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The Basics: What to do if.
The Regulator is concerned about the Guarantor’s
financial health
• The Regulator should immediately request copies of the
Guarantor’s updated it finanoal statements including
all notes and attachments
• The Regulator should recalculate the financial ratios and/or
verify the Guarantor’s bond ratings
• If, after reviewing the updated documents, the Regulator
concludes that the Guarantor no longer passes the Financial
Test, the Company must provide alternate finanoal
assurance within 30 days of being notified
R A a-C0,,. . SP.0...
The Basics: What to do if..
• The Company fails to perform at a facility covered by
the guarantee.
• The Guarantor must perform in lieu of the company and in
accordance with the approved closure and/or post-closure
plan, or
• The Guarantor must establish a Trust Fund as speofied at
§264 143(a) in the name of the company and deposit the full
amount of the estimated costs of closure and/or post-closure
into the fund
Pa- .*Ub C0S P0. I
The Basics: What to do If.
• The Guarantor wants to cancel the Corporate Guarantee.
• The Guarantor must send written notice to both the Company
the Regulator by certified mail
• The Company has 90 dan to secure alternative finanoal
assurance end the Regulator’s approval
• The Guarantor may not cancel the guarantee within 120 days of
receipt of wntten notice of cancellation by the Regulator
• If the Company fails to obtain the altemate assurance within 90
days, then the Guarantor must provide such assurance
- The Reguiator shouid ensure that this alternate ilnanoal assurance
Is In Øace wIthin 120 days
R A C a — . — P—Io— .
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCRA or of EPA ‘s regulations and views, and may not necessarily reflect the current position of
EPA
3

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Challenges -
• As with the Corporate Ananoal Test, the Corporate
Guarantee requires at least annual oversight.
• The Guarantor may have debts (or claims against its
assets) that are not transparent on its finanoal
statements.
For example, it may have guaranteed the debts (or
obligations) of other affiliateWsubsidianes.
• To the extent such claims are disclosed in the footnotes to
the financial statements, the Regulator may want to adjust
the ratio calculations.
a, s a m c e.,, sa w. I D
- Challenges (Continued )
• Accurate and current cost estimates are essential.
• In particular, the Regulator must ensure that closure/post-
closure costs are aggregated across ! l facilities
• If the Guarantor no longer meets the requirements
of the Finanoal Test, the Company may have
difficulty obtaining alternative (Inanoal assurance
within the required time frame of 90 days
S &amco,• Psa ,, -
Tips for Ensuring Success
• The Corporate Guarantee requires that the
Regulator be vigilant in reviewing the Guarantor’s
annual submissions.
• Ensure that the Guarantor’s Chief Financial Officer (not
the Company’s) submits the required documents to the
Regulator. This includes the Guarantor’s financial
statements.
• The Guarantor must submit updated documents to the
Regulator within 90 days of each fiscal year-end.
ma cma.,. .p ,. -
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States,
or the regulated community, and does not create any right or benefit, substantive or procedural This document is not a
complete representation of RCR,4 or ofEPA’s regulations and views, and may not necessarily reflect the current position of
EPA
4

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- Tips for Ensuring Success (continued)
• The Regulator should monitor the business press for
adverse news about the company the Guarantor
• Be wary of the following events
• Decrease in either company’s reported net income or
dramatic fluctuations in operating cash flow,
• Decrease in bond ratings or stock pnces,
• De-listing from public exchanges (e g , NYSE, AMSE); or
• Bankruptcy proceedings/filings
& C
- Tips for Ensuring Success (continued)
• The Regulator must act without delay if it believes
• The company faces financial distress, or
• The Guarantor no longer meets the requirements of
the corporate Financial Test
F Inal Thoughts
• Only companies with large asset bases relative to
their total estimated costs of dosure and postclosure
care are likely to pass the financial tests necessary to
post a corporate Guarantee.
• For companies with large corporate parents, the corporate
Guarantee can be a flexible, low cost mechanism for
demonstrating financial assurance
• Regardless of the size of the Guarantor, the Regulator
must be careful to continuously monitor the financial
condition of both the company the Guarantor.
a* a.susco.. . ..a .
This document is intended to provide guidance to EPA staff It doe.s not create any legally binding requirements on EPA, States,
or the regulated comniunity. and does not create any rig/it or benefit, substantive or pracedural This document is not a
complete representation of R L’RA or of EPA ‘s regulations and views. atid may not necessarily reflect the current position of
EPA
5

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CORPORATE GUARANTEE: CASE STUDY
ALTERNATIVE TECHNOLOGIES CORP.
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or
the regulated community, and does not create any right or benefit, substantive or procedural This document is not a complete
representation of RCRA or ofEPA ’s regulations and views, and may not necessarily reflect the current position of EPA
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Table of Contents
I. Background 3
I I. Problem Set 1: Corporate Guarantee Documentation 4
Ill. Problem Set 2: Letter from Chief Financial Officer and Financial Statements 11
IV. Problem Set 3: Conclusions and Recommendations 27
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 2

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This document is intended to provide guidance to EPA staff It does not Create any legally binding requirements on EPA, States, or
the regulated community, and does not create any right or benefit, substantive or procedural Tins docwnent is not a complete
representation of RCRA or ofEPA’s regulations and views, and may not necessarily reflect the current position of EPA
Corporate Guarantee: Case Study
Alternative Technologies Corp.
Background
On September 17, 2003, EPA Region Z issued a letter to Finest Chemical Inc. (FCI) warning it that
its effective net working capital did not meet the requirements of the Corporate Financial Test under
§265.145(f). FCI had proposed using the financial test to demonstrate financial assurance for its
Medford, WY and Somerville, NE facilities. As the regulator, you are writing a permit that will
address post-closure care.
In response to the warning letter from Region Z, FCI proposed to use a corporate guarantee from
its higher-tier parent corporation, Alternative Technologies Corporation (ATC). ATC is a $28 billion
global corporation specializing in technology and fuels. The company employs 155,000 people and
operates in more than 180 countries. Finest Inc. is the direct parent-corporation of FCI and is a
wholly owned subsidiary of ATC (See Figure 1).
Figure 1:
ATC submitted the following documents for your review for purposes of complying with the
corporate guarantee requirements, and in keeping with the timelune for reporting requirements
under Subpart H of 40 CFR Part 265:
• Corporate Guarantee from ATC.
• Letter from ATC’s Chief Financial Officer certifying use of the corporate financial
test, including an Independent Auditors’ Report from BIG3, LLP.
• ATC’s financial statements dated January 31, 2003, including Independent
Auditors’ Report, Balance Sheet, Statement of Income and Retained Earnings,
Statement of Cash Flows, and Notes to Financial Statements.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
3

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Large Group Discussion, Corporate Guarantee
Documentation
Problem Set 1 :
Review the attached corporate guarantee from ATC. Consider whether the guarantee is in
compliance with the regulatory wording at 40 CFR 264.151(h).
Based on your review of the attached documents, use Answer Table 1 to organize your thoughts
and recommendations. Be prepared to discuss your findings with the larger group.
Documents for your review include:
> Corporate Guarantee from Alternative Technologies Corp., effective October 10,
2003 (page 5)
> Answer Table I (blank template to assist in your review)
> Regulatory Wording for Corporate Guarantee, as specified at 40 CFR 264.151(h)
(page 9)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 4

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Large Group Discussion, Corporate Guarantee
Documentation
Corporate Guarantee
Guarantee made this October 10, 2003 by Alternative Technologies Corp., a business corporation
organized under the laws of the State of New York, herein referred to as guarantor. This guarantee is made on
behalf of Finest Chemical Inc , which is our subsidiary.
Recitals
1. Guarantor meets or exceeds the financial test criteria and agrees to comply with the reporting
requirements for guarantors as specified in 265.143(e) and 265.145(e).
2. Finest Chemical Inc. owns or operates the following hazardous waste management facilities covered
by this guarantee:
Finest Chemical Inc. Somerville, NE USA Facility
123 Green St.
Somerville, NE 04336 USA
Finest Chemical Inc. Medford, WY USA Facility
656 Pine Ave.
Medford, WY 25435 USA
3. “Closure plans” and “post-closure plans” as used below refer to the plans maintained as required by
subpart G of 40 CFR part 265 for the closure and post-closure care of facilities as identified above.
4. For value received from Finest Chemical Inc, guarantor guarantees to EPA that in the event that
Finest Chemical Inc. fails to perform post-closure care of the above facilities 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 265, as applicable, in the name of
Finest Chemical Inc. in the amount of the current closure or post-closure cost estimates as specified in subpart H
of 40 CFR part 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 for the Region in which the facility is located and to Finest Chemical Inc. that he
intends to provide alternate financial assurance as specified in subpart H of 40 CFR part 265, as applicable, in the
name of Finest Chemical Inc. Within 120 days after the end of such fiscal year, the guarantor shall establish such
financial assurance unless Finest Chemical Inc. has done so.
6. 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 265, as applicable, in the name of Finest Chemical Inc. unless Finest Chemical Inc. has done
so.
7. 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 265.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 5

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Large Group Discussion, Corporate Guarantee
Documentation
8. Guarantor agrees to remain bound under this guarantee for as long as Finest Chemical Inc. must
comply with the applicable financial assurance requirements of subpart H of 40 CFR part 265 for the above-listed
facilities, except as provided in paragraph 10 of this agreement.
9 Guarantor may terminate this guarantee 120 days following the receipt of notification, through
certified mail, by the EPA Regional Administrators for the Regions in which the facilities are located and by
Finest Chemical Inc.
10. Guarantor agrees that if Finest Chemical Inc. fails to provide alternate financial assurance as
specified in subpart H of 40 CFR part 265, as applicable, and obtain written approval of such assurance from
the EPA Regional Administrators 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 Finest Chemical Inc.
11. Guarantor expressly waives notice of acceptance of this guarantee by the EPA or by Finest
Chemical Inc 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 permits. I hereby certify that the wording
of this guarantee is identical to the wording specified in 40 CFR 264.151(h) as such regulations were
constituted on the date first above written.
Effective dateS October 10, 2003
Charlotte James
C. James
Chief Financial Officer
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 6

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Answer Table 1, Comparison of Corporate Guarantee to
Regulatory Wording
Issue(s) I Points of Consideration Implications I Additional Questions
a.
p
>
I.
p
p
p
)
p
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 7

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Large Group Discussion, Comparison of Corporate
Guarantee to Regulatory Wording
Regulatory Wording for Corporate Guarantee, as specified at 40 CFR 264.151(h)
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 C of 40 CFR parts 264 and 265 for the closure and post-closure care of facilities as identified
above
4. For value received from [ owner or operator], guarantor guarantees to EPA that in the event that
[ owner or operator] fails to perform [ insert “closure,” “post-closure care” or “closure and post-closure care’] of
the above facility(ies) in accordance with the closure or post-closure plans and other permit or interim status
requirements whenever required to do so, the guarantor shall do so or establish a trust fund as specified in
subpart H of 40 CFR part 264 or 265, as applicable, in the name of [ owner or operator] in the amount of the
current closure or post-closure cost estimates as specified in subpart H of 40 CFR parts 264 and 265.
5. Guarantor agrees that if, at the end of any fiscal year before termination of this guarantee, the
guarantor fails to meet the financial test criteria, guarantor shall send within 90 days, by certified mail, notice
to the EPA Regional Administrator(s) for the Region(s) in which the facility(ies) is(are) located and to [ owner
or operator] that he intends to provide alternate financial assurance as specified in subpart H of 40 CFR part
264 or 265, as applicable, in the name of [ owner or operator]. Within 120 days after the end of such fiscal
year, the guarantor shall establish such financial assurance unless [ owner or operator] has done so.
6. The guarantor agrees to notify the EPA Regional Administrator by certified mail, of a voluntary or
involuntary proceeding under Title 11 (Bankruptcy), U.S. Code, naming guarantor as debtor, within 10 days
after commencement of the proceeding
7. Guarantor agrees that within 30 days after being notified by an EPA Regional Administrator of a
determination that guarantor no longer meets the financial test criteria or that he is disallowed from continuing
as a guarantor of closure or post-closure care, he shall establish alternate financial assurance as specified in
subpart H of 40 CFR part 264 or 265, as applicable, in the name of [ owner or operatorj unless [ owner or
operator] has done so.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 9

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Large Group Discussion, Comparison of Corporate
Guarantee to Regulatory Wording
8. Guarantor agrees to remain bound under this guarantee notwithstanding any or all of the following:
amendment or modification of the closure or post-closure plan, amendment or modification of the permit, the
extension or reduction of the time of performance of closure or post-closure, or any other modification or
alteration of an obligation of the owner or operator pursuant to 40 CFR part 264 or 265.
9. Guarantor agrees to remain bound under this guarantee for as long as (owner or operator]
must comply with the applicable financial assurance requirements of subpart H of 40 CFR parts 264
and 265 for the above-listed facilities, except as provided in paragraph 10 of this agreement.
10 [ Insert the following language if the guarantor is (a) a direct or higher-tier corporate parent, or (b)
a firm whose parent corporation is also the parent corporation of the owner or operator]: Guarantor may
terminate this guarantee by sending notice by certified mail to the EPA Regional Administrator(s) for the
Region(s) in which the facility(ies) is(are) located and to (owner or operator], provided that this guarantee may
not be terminated unless and until [ the owner or operatorJ 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 264.151(h) as such regulations were constituted
on the date first above written.
Effective date:
[ Name of guarantor]
[ Authorized signature for guarantor]
[ Name of person signing]
[ Title of person signing]
Signature of witness or notary
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 10

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, CFO Letter and Financial
Statements
Problem Set 2 :
Review the letter from the Chief Financial Officer and the financial statements, including notes
provided by ATC. Use Answer Table 2 to organize your findings. In your opinion, does ATC meet
the financial test requirements for the Corporate Guarantee? Why or Why not? Anticipate sharing
your thoughts with the group.
Documents for your review include:
> Letter from the Chief Financial Officer for Alternative Technologies Corp., dated
October 15, 2003 (page 12)
> Financial Statements for Alternative Technologies Corp., for fiscal year end
January 31, 2003 (page 15)
> Answer Table 2 (blank template to assist in your review)
Recommended Review Time: 20 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 11

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, CEO Letter
Letter from the Chief Financial Officer
October 15, 2003
Sarah Jones
EPA, Region Z
Somewhere, USA 12345
Dear Ms. Jones:
I am Chief Financial Officer of Alternative Technologies Corp., 375 Madison Ave., New York,
NY, 10022, USA. 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 Part
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 Part 265. The current closure and/or post-closure cost estimates covered by
the test are shown for each facility: N/A
2. This firm guarantees, through the guarantee specified in Subpart H of 40 CFR Part 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:
Finest Chemical Inc. EPA ID# USA12345678
Somerville, USA Facility
123 Green St.
Somerville, NE 04336 USA
Estimated closure cost $ 0
Estimated post-closure cost 327,330
Finest Chemical Inc. EPA lD# USA87654321
Medford, USA Facility
456 Pine Ave.
Medford, WY 25435 USA
Estimated closure cost $ 0
Estimated post-closure cost 153,536
The firm identified above is the direct or higher-tier parent corporation of the owner or
operator.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 12

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, CFO Letter
3. In states where EPA is not administering the financial requirements of Subpart H of 40 CFR
Part 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
Part 265. The current closure and/or post-closure cost estimates covered by such a test are
shown for each facility: N/A
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 Part 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: N/A
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: N/A
This firm 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 January 31. The figures for the following items marked with an
asterisk are derived from this firm’s independently audited, year-end financial statement for the
latest completed fiscal year ended January 31, 2003.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 13

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, CFO Letter
ALTERNATIVE I
1. Sum of current closure and post-closure cost estimates $480,866
* 2. Total liabilities $15,735,000,000
3. Tangible net worth $6,374,000,000
* 4. Net worth $13,355,000,000
* 5. Current assets $11,751,000,000
* 6. Current liabilities $2,903,000,000
7. Net working capital $8,848,000,000
* 8. The sum of net income plus depreciation, depletion, and amortization $2,963,000,000
9. Total assets in U.S. $20,363,000,000
10. Is line 3 at least $10 million YES
11. Is line 3 at least 6 times line 1? YES
12. Is line 7 at least 6 times line 1? YES
13. Are at least 90% of firm’s assets located in the U.S.? If not, complete NO
line 14.
14. Is line 9 at least 6 times line 1? YES
15. Is line 2 divided by line 4 less than 2.00? YES
16. Is line 8 divided by line 2 greater than 0.1? YES
17. Is line 5 divided by line 6 greater than 1.5? YES
I hereby certify that the wording of this letter is identical to the wording specified in 40 CFR
264.151 (f) as such regulations were constituted on the date shown immediately below.
Signature. C. James
Name Charlotte James
Title Chief Financial Officer
Date October 15. 2003
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 14

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, Financial Statements
ALTERNATIVE TECHNOLOGIES CORP.
Financial Statements
January 31, 2003
(With Independent Auditors’ Report Thereon)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 15

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, Financial Statements
Independent Auditors’ Report
The Board of Directors
Alternative Technologies Corp.:
We have audited, in accordance with auditing standards generally accepted in the United States of
America, the balance sheet of Alternative Technology Corp. as of January 31, 2003, and the related
statements of income and retained earnings and cash flows for the year then ended, and have
issued our report thereon dated October 15, 2003.
We have compared the data, items 2 through 8 under Alternative I, which the attached letter from
the Chief Financial Officer of Alternative Technology Corp. specifies as having been derived from
the independently audited financial statements of Alternative Technology Corp., for the year ended
January 31, 2003, with the corresponding amounts in such financial statements.
We have also read items 9 through 17 of the attached letter and concur with the responses as they
relate to the aforementioned data.
In connection with those procedures, no matters came to our attention which caused us to believe
that the specified data should be adjusted.
This report is intended solely for the information and use of the Board of Directors and management
of Alternative Technology Corp., and the environmental regulator. It is not intended to be and
should not be used by anyone other than these specified parties.
BIG3, LLP
October 5, 2003
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 16

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Corporate Guarantee: Case Study
Alternative Technologies Corp. - Balance Sheet
( $ in thousands )
As of January 31, 2003
Line
Assets
Current assets:
[ A] Cash and cash equivalents $2,080,000
[ B] Accounts receivable $4,277,000
[ C] Inventories and contracts in progress $3,719,000
ED] Other current assets $1,675,000
[ E] Total current assets $11,751,000
[ F] Fixed assets $4,587,000
[ G] Goodwill and other intangibles $6,981,000
[ H] Other assets $5,771,000
[ I] Total Assets $29,090,000
Liabilities
[ J] Short term borrowings $197,000
[ K] Accounts payable and accrued liabilities $2,662,000
EL] Long-term debt currently due $44,000
EM] Total current liabilities $2,903,000
[ N] Long term-debt $4,632,000
[ 0] Future pension and post-retirement benefit obligations $5,088,000
[ P] Other long term liabilities $3,112,000
[ Q] Total Liabilities $15,735,000
Shareholder’s Equity
[ R] Common stock $5,447,000
[ S] Retained earnings $7,908,000
[ T] Total Shareholder’s Equity $13,355,000
[ U] Total Liabilities and Shareholder’s Equity $29,090,000
See accompanying notes to financial statements.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 17

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Corporate Guarantee: Case Study
Alternative Technologies Corp. - Statement of Income & Retained Earnings
($ in thousands)
Line
Fiscal year ended January 31 • 2003
Revenues
IV] Product sales
[ W] Service sales
EBB]
[ BB]
[ CC]
[ DO]
Costs and Expenses
Costs of products and services sold
Research and development
Selling, general and administrative
Total operating, general, and administrative expenses
$21,189,000
$7,023,000
$28,212,000
(EE] Net Income
See accompanying notes to financial statements.
$2,236,000
[ X]
m
RI
[ AA]
$20,161,000
$1,191,000
$3,203,000
$24,555,000
Income (Loss) from Operations
3,657,000
Less: Interest Expense
$381,000
Income before Income Taxes
$3,276,000
Less: Income tax expense
$1,040,000
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training
18

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Corporate Guarantee: Case Study
Alternative Technologies Corp. - Statement of Cash Flows
($ in thousands)
Fiscal year ended January 31, 2003
Line
Cash flows from Operating Activities:
[ GGJ Net income $2,236,000
Adjustments to reconcile net income to net cash flows provided by operating activities:
[ HHJ Depreciation and amortization $727,000
[ I I ] Deferred income tax provision $318,000
[ JJJ Minority interests in subsidiaries’ earnings $153,000
[ KK] Accounts receivable $80,000
ILL] Inventories and contracts in progress $327,000
[ MM] Other current assets $10,000
[ NN] Accounts payable and accrued liabilities ($301,000)
[ 00] Contribution to domestic pension plan ($500,000)
[ PP] Other, net ( $197,000 )
[ 00] Net cash provided by operating activities $2,853,000
Cash flows from Investing Activities:
ERR] Capital expenditures ($586,000)
[ SS] Increases in customer financing activities ($386,000)
[ TTJ Decrease in customer financing activities $222,000
[ UU] Business acquisitions ($402,000)
[ VVJ Disposition of businesses $26,000
[ WWJ Other, net $38,000
[ XX] Net cash used in investing activities ($1,088,000)
Cash flows from Financing Activities:
[ VY] Repayment of long-term debt ($357,000)
[ ZZ] (Decrease) increase in short term borrowing ($886,000)
[ AAA] Net cash used in financing activities ($1,243,000)
[ BBS] Net changes in cash $522,000
[ CCC] Cash, beginning of year $1,558,000
[ DDD] Cash, end of year $2,080,000
See accompanying notes to financial statements
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 19

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, Financial Statements
Notes to Financial Statements
ALTERNATIVE TECHNOLOGIES CORP.
January 31, 2003
(1) Borrowings and Lines of Credit
Short-term borrowings consist of the followingS
At January 31, 2003, approximately $800 million was available under short-term lines of credit with local
banks at the Corporation’s various international subsidiaries. At January 31, 2003, the Corporation had credit
commitments from banks totaling $1.5 billion under a Revolving Credit Agreement. There were no borrowings
under the Revolving Credit Agreement at January 31, 2003
(2) Guarantees
The Corporation extends a variety of financial, market value and product performance guarantees to third
parties. As of January 31, 2003 the following were outstanding
IN MILLIONS OF DOLLARS
Maximum Potential Payment Carrying Amount of Liability
Environmental remediation
No limit
$186 million
indemnification (See Note 3)
The Corporation accrues for costs associated with guarantees when it is probable that a liability has been
incurred and the amount can be reasonably estimated The most likely cost to be incurred is accrued based
on an evaluation of currently available facts, and where no amount within a range of estimates is more likely,
the minimum is accrued
(3) Commitments and Contingent Liabilities
LEASES. The Corporation occupies space and uses certain equipment under lease arrangements. Rental
commitments of $766 million at January 31, 2003 under long-term non-cancelable operating leases are
payable as follows: $212 million in 2003, $159 million in 2004, $115 million in 2005, $87 million in 2006, $59
million in 2007 and $134 million thereafter Rent expense was $214 million in 2002, $204 million in 2001 and
$194 million in 2000.
OTHER. The Corporation extends performance and operating cost guarantees beyond its normal warranty
and service policies for extended periods on some of its products, particularly commercial aircraft engines.
Liability under such guarantees is contingent upon future product performance and durability. In addition, the
Corporation incurs discretionary costs to service its products in connection with product performance issues.
The Corporation has accrued its estimated liability that may result under these guarantees and for service
costs which are probable and can be reasonably estimated The Corporation also has other commitments and
contingent liabilities related to legal proceedings and matters arising out of the normal course of
business The Corporation has accrued for environmental investigatory, remediation, operating and
maintenance costs, performance guarantees and other litigation and claims based on management’s estimate
of the probable outcome of these matters While it is possible that the outcome of these matters may differ
from the recorded
RCRA SubtItle C Closure and Post-Closure: EPA Financial Assurance Training 20

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Small Group Discussion, Financial Statements
liability, management believes that resolution of these matters will not have a material impact on the
Corporation’s financial position, results of operations or cash flows.
ENVIRONMENTAL. The Corporation’s operations are subject to environmental regulation by federal, state
and local authorities in the United States and regulatory authorities with jurisdiction over its foreign operations.
The Corporation has accrued for the costs of environmental remediation activities and periodically reassesses
these amounts. Management believes that the likelihood of incurring losses materially in excess of amounts
accrued is remote. The Corporation has had insurance in force over its history with a number of insurance
companies and has pursued litigation seeking indemnity and defense under these insurance policies in
relation to its environmental liabilities. In January 2002, the Corporation settled the last of these lawsuits
under an agreement providing for the Corporation to receive payments totaling approximately $100 million.
Accrued environmental liabilities are not reduced by potential insurance reimbursements.
RCRA Subtitle C Ciosure and Post-Ciosure: EPA Financial Assurance Training 21

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Answer Table 2, Letter from the Chief Financial Officer
and Financial Documents
Document Reviewed
Issue(s)
Implication(s)
Letter from the Chief
Financial Officer
>
.
—
>
>
.‘

>

Income Statement
>
—
)

)
.
p
>
—
>
Cash Flow Statement
>
)

>
)
>
)
>
>
)
Balance Sheet
>
.
>
>


Notes to Financial
Statements
>
.
>
.
>
p.
. .
p.
.
Auditors’ Opinion
>
.
).
.
>
>
>
.
.
>
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 22

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Corporate Guarantee: Case Study
Alternative Technologies Corp. — Large Group Discussion, Conclusions and
Recommendations
Problem Set 3 :
In light of your findings, and based on your review of the information provided, consider whether
ATC meets the requirements of the Corporate Guarantee. If not, why not? What is your
recommendation for going forward? Use Answer Table 4 to organize your thoughts. Be prepared
to discuss your findings and recommendations with the larger group.
Documents for your review include:
> Answer Table 3 (blank template to assist in your review)
Recommended Review Time: 10 mins.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 27

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Corporate Guarantee: Case Study
Alternative Technologies Corp. - Answer Table 3, Conclusions and Recommendations
Question 1: Does ATC meet the requirements of the Corporate Guarantee?
Yes No
Question 2: What (if any) are the key areas in which ATC’s submission is questionable ?
p
)
Question 3:
What are your next steps? What additional information might you
request from ATC?
)
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 28

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Low
Risk
000©
This document is intended to provide guidance to EPA staff Ii does no, create any
legally binding requirements on EPA, States, or the regulated community, and does
not create any right or benefit, substantive or procedural This document is not a
.-‘unpleie representation of RCRA or ofEPA’s regulations and views, and nay no,
sarilv reflect the current position of EPA
Corporate Guarantee
Financial Assurance Mechanisms
V
High
Risk
RCRA Subtitle C Closure & Post-Closure December 2004
How it Works:
An affiliated corporation (the “Guarantor”) of an owneri operator
of a Subtitle C facility (“the Company”) guarantees the
performance of (or payment for) the Company’s closure and
post-closure care. The guarantee is predicated on the
Guarantor’s ability to pass one of two financial tests. If the
Guarantor passes either test, the Company is allowed to use a
Corporate Guarantee as a means of demonstrating financial
assurance. The Company is not required to arrange with an
unaffihiated third-party, nor is the Company required to set aside
funds now. When closure and post-closure costs need to be
paid, the Company is responsible for paying them. However,
the Guarantor stipulates to the Regulator that it will satisfy the
Company’s closure and post-closure obligations, in the event
ompany is unable to do so.
- jesign, the financial tests underpinning the Corporate
Guarantee are intended to screen out companies with
insufficient tangible net worth, or other financial constraints that
may impair their ability, to meet the likely future costs of closure
and post-closure care. Only companies with large net assets
(or net worth) relative to the total estimated costs of closure and
post-closure are likely to pass.
The first test analyzes the financial strength of the Guarantor by
measuring several financial ratios. These ratios are intended to
assess 1) the magnitude of the Guarantor’s outstanding debts;
2) its ability to convert assets into cash; and 3) its working
capital (or amount of cash invested in short-term assets). The
second test relies on a subset of these financial ratios and the
Guarantor’s bond ratings.
In addition to measuring financial solvency, both tests require
that the Guarantor have at least $10 million in tangible net
worth and rely on a ‘six-times multiple’. By virtue of this
multiple, the Guarantor must demonstrate that its tangible net
worth is at least six times the sum of the current closure and
post-closure cost estimates for all facilities covered by the
mechanism.
Cost to the Company
M odium
Low

Whats Required:
o The Guarantor must be 1) the direct or higher-tier parent
corporation of the Company; 2) a firm whose parent
corporation is also the parent corporation of the
Company; 3) a firm with a ‘substantial business
relationship’ with the Company.
o The Guarantor must meet (or exceed) the standards of
the Corporate Financial Test and submit:
• The required reporting items of the Corporate
Financial Test, as specified at §264.143(f) and
§264.145(f) for permitted facility closure and post-
closure, and §265.143(e) and §265.145(e) for
interim status closure and post-closure.
• A signed, certified copy of the written guarantee
between the Guarantor and the Company. Wording
of the guarantee must be exactly as specified at 40
CFR 264.151(g).
• A letter from the Guarantor’s Chief Financial Officer
(CFO) detailing the value received by the Guarantor
from the Company for the guarantee. The
Guarantor’s CFO must submit its letter with the
Guarantor’s financial statements on behalf of the
Company.
What Happens If...
The Company wants to use a corporate guarantee for
purposes of demonstrating financial assurance?
o The Guarantor must arrange for an independent CPA to
complete an audit report of its financial statements. The
Regulator should confirm that the CPA is certified by an
officially recognized accreditation organization.
o The Company, on behalf of the Guarantor, must forward
the requisite documents under 40 CFR 264 and 265 to
the Regulator for its review. The documents must
address all facilities in the U.S., for which the Company
intends to demonstrate financial assurance using a
Corporate Guarantee or the Financial Test.
The Company must submit updated documents to the
Reguiator within 90 days of each fisca y.ear eo&
o The Corporate Guarantee may be used only to cover the
entire cost estimate of a facility. The Company may not
use other mechanisms in combination with the
guarantee to cover some of the facility’s costs.
0

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What Happens If...
(Continued)
The Guarantor changes its corporate status?
o The Regulator must be notified within 10 days, if either
the Guarantor or the Company initiates bankruptcy
proceedings.
o If the Company (or Guarantor) is merged or sold, the
successor company must meet the criteria of the
Financial Test or provide alternate financial assurance.
The closurelpost-closure estimates change?
o The Company must include all cost changes, regardless
of whether such changes have an impact on the
Guarantor’s ability to meet the criteria of the Financial
Test in its annual submission to the Regulator. The
Regulator should check that the Guarantor still meets
the standards of the Test by carefully reviewing this
annual submission.
o The Company can no longer use a corporate guarantee
if its cost estimates increase beyond the maximum
amount that the Guarantor can assure.
The Regulator doubts the validity of the financial data
submitted by the Guarantor?
U The Regulator should immediately request copies of the
Guarantor’s audited financial statements, including all
notes and attachments for the most recent fiscal period.
Be wary of changes in the Guarantor’s fiscal year end.
o The Regulator should recalculate the financial ratios
using these data. The Regulator also should verify any
bond ratings claimed by the Guarantor.
The Regulator believes that the Guarantor may no
longer meet the financial test requirements?
o The Regulator may request that the Guarantor submit
reports detailing its financial condition at any time, that
is, in addition to the requisite annual reports.
Q If, after reviewing the documents, the Regulator
concludes that the Guarantor no longer meets the
requirements of the Financial Test, the Company must
provide alternate financial assurance within 30 days of
being notified to do so by the Regulator
The Guarantor decides to cancel the guarantee?
o The Guarantor must send written notice to both the
Company the Regulator by certified mail. The
Guarantor can not cancel the guarantee within 120 days
of notifying the Regulator.
o The Company has 90 days to secure alternative
financial assurance the Regulator’s approval. If the
Company fails to provide alternate financial assurance
within the 90 days, the Regulator can direct the
Guarantor to deposit the full amount of the estimate
costs of closure and/or post-closure into a trust fund.
The Company fails to perform closure and post-closure
care?
o The Guarantor must perform the closure and post-
closure care or establish a trust fund in the name of the
Company
Why It Works:
o Companies with large net assets relative to their total
estimated costs of closure and post-closure are likely to
pass the standards of the Corporate Financial Test.
o The Corporate Guarantee represents a flexible, low c
option for the Company. Unlike other mechanisms, I
Company pays no fees (or premiums) to an unaffiliated
third party.
Challenges:
o The Corporate Guarantee can be a relatively high risk
mechanism for the Regulator and therefore requires at
least annual oversight.
o The Corporate Guarantee presumes that the
Guarantor’s recent past is a reasonable predictor of its
future financial performance. However, the tests
underpinning the Corporate Guarantee tend not to
account for the sudden impact of external (or market)
shocks on the Guarantor’s financial condition.
o The financial ratios underpinning the Corporate
Guarantee are only as sound as the data used to
compute them If the Guarantor’s accounting of its net
assets or liabilities is questionable, or the quality of its
assets is weak, the ratio(s) may not represent the
Guarantor’s true financial condition.
o Accurate and current cost estimates are essential when
analyzing the Guarantor’s net working capital, tangible
net worth, and six times multiple.’ Ensure that closure
and post-closure costs are aggregated across facilities
o The Guarantor may have debts (or claims) against its
assets which are not transparent on its financial
statements. To the extent such claims are disclosed in
the footnotes to its financial statements, the Regulator
may want to adjust the ratio calculations.
Tips for Ensuring Success:
o The Corporate Guarantee requires that the Regulator be
vigilant when reviewing the Guarantor’s annual
submissions. It, for any reason, the Regulator believes
that the Guarantor may no longer meet the financial test
requirements, it must act without delay.
o The tests underpinning the Corporate Guarantee require
a prescriptive, detailed review process.
o The Guarantor’s Chief Financial Officer must submit the
required letter with the Guarantor’s financial statements
on behalf of the Company. Do not accept a letter from
the Company’s CFO with the Guarantor’s financial
statements, as this is not a binding agreement.
a The Regulator may want to regularly monitor the
business press for adverse news about the Guarantor
The Regulator should be wary if any of the following
events occur with respect to the Guarantor, including
decreases in reported net income, cash flow, bond
ratings, or stock prices, de-listing from a public
exchange; mergers, acquisitions, asset divestitures;
bankruptcy proceedings; or a ‘qualified’ opinion from an
independent CPA.
o Proofread all documents to ensure that the language is
comprehensive, precise, and conforms to the wording
required by the Subtitle C regulations.
RCRA Subtitie C Ciosure and Post-Closure: Corporate Guarantee

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RCRA SUBTITLE C FINANCIAL ASSURANCE
CHECKLIST DOCUMENTS
Corporate Guarantee

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S INFORMATION
Company Name:__________________________________ EPA ID#:________
CORPORATE GUARANTEE: A guarantee where the owner or operator demonstrates that its corporate
parent, grandparent, or sibling, or other firm with which it has a substantial
business relationship, meets the financial test requirements on the owner’s or
operator’s behalf. The corporate guarantor is required to perform closure or
post-closure care, or to establish a trust fund where the owner or operator fails
to perform.
GURANTEE COVERS: U CLOSURE U POST-CLOSURE CARE
U THIRD-PARTY LIABILITY-SUDDEN ACCIDENTAL OCCURRENCES
U THIRD-PARTY LIABILITY-NONSUDDEN ACCIDENTAL OCCURRENCES
GUARANTOR’S NAME:
ADDRESS:
CONTACT PERSON/TITLE:
CONTACT PHONE NO.:
GUARANTOR’S FISCAL YEAR ENDS:
CLOSURE COST ESTIMATE (Agency Approved):
SOURCE DOCUMENTIDATE:
Reviewed by:
Date: _______

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S INFORMATION
Company Name:___________________________ - EPA ID#:________
POST-CLOSURE COST ESTIMATE (Agency Approved):
SOURCE DOCUMENT/DATE:
ANNUAL AGGREGATE AMOUNT:
SUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
NONSUDDEN (Agency Approved):
SOURCE DOCUMENT/DATE:
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J J Has a certified copy of the corporate guarantee that
uses wording identical to that in 40 CFR §264.151(h)
been submitted? [ 40 CFR §264.143(0(10); 40 CFR
§265.143(e)(10)]
U Li Is the guarantor one of the following? [ 40 CFR
§264.143(0(10); 40 CFR §265.1 43(e)(1 0)]
U The direct or higher-tier parent corporation
of the owner or operator
U A firm whose parent corporation is also the
parent corporation of the owner or operator
U A firm with a “substantial business
relationship” with the owner or operator
U U If the guarantor’s parent corporation is 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); 40 CFR §265.143(e)(10)]
Li U] 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
relationship and the value received in consideration
of the guarantee? [ 40 CFR §264.143(0(10); 40 CFR
§265.143(e)(10)]
Li 1 Does the guarantor pass one of the financial tests
outlined in Attachments A and B? [ 40 CFR
§264.143(0(1); 40 CFR §265. 143(e)(l)]
U Has a letter been submitted that is properly executed
and signed by the guarantor’s CFO and is worded as
specified in 40 CFR §264.151(f)? [ 40 CFR
§264.143(f)(3)(i); 40 CFR §265.143(e)(3)(i)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR CLOSURE
(continued)
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U Has a report from an independent CPA been
subinitted that examines the guarantor’s financial
statements for the latest completed fiscal year? [ 40
— CFR §264.143(f)(3)(ii); 40 CFR §265.143(e)(3)(ii)]
If a report has been submitted, indicate the nature of
the opinion rendered:
o Unqualified Opinion
O Disclaimer of Opinion or Adverse Opinion
O Qualified Opinion
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR CLOSURE
ATTACHMENT A - TEST ALTERNATIVE 1*
Company Name:___________________________________ EPA ID#:______________
YES NO QUESTION COMMENTS
U Does the guarantor meet at least two of the three
following ratios?
- total liabilities <2.0
net worth
- net income±depreciation+depletion+amort . > 0.1
total liabilities
- current assets
current liabilities > 1.5
U Does the guarantor have a net working capital and
tangible net worth each at least six times the sum of
the current closure and post-closure cost estimates?
U Does the guarantor have tangible net worth of at least
$10 million?
U Do the guarantor’s U.S. assets equal to at least 90
percent of total assets or six times the sum of the
current closure and post-closure cost estimates?
Reviewed by: ______________________________________________
Date: ____________________________________________________________
*As specified in 40 CFR 264.143(f)(1)(i) and 40 CFR 265.143(e)(l)(i)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR CLOSURE
ATTACHMENT B - TEST ALTERNATIVE 11*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J Is the current bond rating of the guarantor adequate?
Indicate the appropriate bond rating and the source:
I Standard and Poor’s Moody’s
1AAA DAaa
IAA DAa
UA
UBBB UBaa
J [ ] Does the guarantor have tangible net worth at least
six times the sum of the current closure and post-
closure cost estimates?
L] J Does the guarantor have tangible net worth of at least
$10 million?
J Are the guarantor’s U.S. assets equal to at least 90
percent of total assets or six times the sum of the
current closure and post-closure cost estimates?
Reviewed by: _________________________________________________
Date: ___________________________________________________________________
* As specified in 40 CFR §264.143(f)(1)(ii) and 40 CFR §265.143(e)(1)(ii)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR POST-CLOSURE
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U U] Has a certified copy of the corporate guarantee that
uses wording identical to that in 40 CFR §264.151(h)
been submitted? [ 40 CFR §264.145(0(11); 40 CFR
§265.145(0(11)]
U [ ] Is the guarantor one of the following? [ 40 CFR
§264.145(0(11); 40 CFR §265.145(e)(1 1)]
FJ The direct or higher-tier parent corporation
of the owner or operator
IJ A firm whose parent corporation is also the
parent corporation of the owner or operator
0 A firm with a “substantial business
relationship” with the owner or operator
U U] If the guarantor’s parent corporation is 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
§264.145(0(1 1); 40 CFR §265.145(e)(1 1)]
L] ] 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
relationship and the value received in consideration
of the guarantee? [ 40 CFR §264.145(0(11); 40 CFR
§265.145(e)(1 1)]
U Does the guarantor pass one of the financial tests
outlined in Attachments A and B? [ 40 CFR
§264.1 45(0(1); 40 CFR §265.1 45(e)( 1)]
U U Has a letter been submitted that is properly executed
and signed by the guarantor’s CFO and is worded as
specified in 40 CFR §264.151(f)? [ 40 CFR
§264.145(f)(3)(i); 40 CFR §265.145(e)(3)(i)]
Reviewed by:
Date: ________

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR POST-CLOSURE
(continued)
Company Name:____________________________________ EPA ID#:______________
YES NO QUESTION COMMENTS
U [ J Has a report from an independent CPA been
submitted that examines the guarantor’s financial
statements for the latest completed fiscal year? [ 40
CFR §264.1 45(f)(3)(ii); 40 CFR §265.1 45(e)(3)(ii)]
If a report has been submitted, indicate the nature of
the opinion rendered:
o Unqualified Opinion
o Disclaimer of Opinion or Adverse Opinion
O Qualified Opinion
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR POST-CLOSURE
ATTACHMENT A - TEST ALTERNATIVE 1*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
U [ ] Does the guarantor meet at least two of the three
following ratios? (Indicate calculation under
Comments.)
- total liabilities <2.0
net worth
- net income+depreciation+depletion+amort . > 0.1
total liabilities
- current assets
current liabilities > 1.5
U Does the guarantor have a net working capital and
tangible net worth each at least six times the sum of
the current closure and post-closure cost estimates?
U (] Does the guarantor have tangible net worth of at least
$10 million?
U J Do the guarantor’s U.S. assets equal to at least 90
percent of total assets or six times the sum of the
current closure and post-closure cost estimates?
Reviewed by: ____________________________________________
Date: ____________________________________________________________
*AS specified in 40 CFR 264. 145(f)(1)(i) and 40 CFR 265. 145(e)(l)(i)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR POST-CLOSURE
ATTACHMENT B - TEST ALTERNATIVE 11*
Company Name:__________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
Is the current bond rating of the guarantor adequate?
Indicate the appropriate bond rating and the source:
FJ Standard and Poor’s l Moody’s
lAaa
1AA UAa
UA
UBBB UBaa
Li Does the guarantor have tangible net worth at least
six times the sum of the current closure and post-
closure cost estimates?
[ J J Does the guarantor have tangible net worth of at least
$10 million?
Are the guarantor’s U.S. assets equal to at least 90
percent of total assets or six times the sum of the
current closure and post-closure cost estimates?
Reviewed by:
Date:
* As specified in 40 CFR §264.145(f)(1)(ii) and 40 CFR §265.145(e)(l)(ii)

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST
SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCE LIABILITY COVERAGE
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
J L] Has a certified copy of the corporate guarantee that
uses wording identical to that in 40 CFR
§264.151 (h)(2) been submitted? [ 40 CFR
§264.1 47(g)( 1); 40 CFR §265.1 47(g)(1 )J
L] [ J Is the guarantor one of the following? [ 40 CFR
§264.1 47(g)(1); 40 CFR §265. 147(g)(1)]
The direct or higher-tier parent corporation
of the owner or operator
0 A firm whose parent corporation is also the
parent corporation of the owner or operator
0 A firm with a “substantial business
relationship” with the owner or operator
L] Does the guarantor pass one of the financial tests
outlined in Attachments A and B? [ 40 CFR
§264.147(0(1); 40 CFR §265.147(0(1)]
EJ Has a letter been submitted that is properly executed
and signed by the guarantor’s CFO? [ 40 CFR
§264.147(f)(3)(i); 40 CFR §265.147(f)(3)(i)]
U U Has a special report from the independent CPA been
submitted? [ 40 CFR §264.147ffl(3)(iii); 40 CFR
§265. 147(f)(3)(iii)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST
SUDDEN AND NONSUDDEN ACCIDENTAL OCCURRENCE LIABILITY COVERAGE
(continued)
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
[ J [ J For a guarantor incorporated in the United States, has
a written statement been submitted by the Attorneys
General or Insurance Commissioners for each state in
which the guarantor is incorporated and in which
facilities covered by this guarantee are located,
indicating that a guarantee for liability coverage is a
legally valid and enforceable obligation in that state?
[ 40 CFR §264.147(g)(2)(i); 40 CFR
§265.1 47(g)(2)(i). If applicable, indicate the
appropriate source of the statements:
o Attorneys General
o Insurance Commissioners
o Not Applicable
L] [ J For a guarantor incorporated outside the United
States, has the guarantor identified a registered agent
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 principal place of
business? [ 40 CFR §264.1 47(g)(2)(ii)]
Reviewed by:
Date:

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RCRA SUBTITLE C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR LIABILITY COVERAGE
ATTACHMENT A - TEST ALTERNATIVE 1*
Company Name:__________________________________ EPA ID#:_____________________
YES NO QUESTION COMMENTS
U Does the owner or operator meet at least two of the
three following ratios?**
- total liabilities <2.0
net worth
- net income+depreciation+depletion+amort . > 0.1
total liabilities
- current assets
current liabilities > 1.5
J Does the guarantor have tangible net worth of at least
$10 million?
U Does the guarantor have a net working capital and
tangible net worth at least six times the amount of
liability coverage to be demonstrated?
Are the guarantor’s U.S. assets equal to at least 90
percent of total assets or at least six times the annual
amount of liability coverage to be demonstrated?
Reviewed by:
Date:
* As specified in 40 CFR §264.147(f)(1)(i) and 40 CFR §265.147(f)(1)(i)
**Gu&antors 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.

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RCRA SUBTITLE,C FINANCIAL ASSURANCE CHECKLIST
GUARANTOR’S FINANCIAL TEST FOR LIABILITY COVERAGE
ATTACHMENT B - TEST ALTERNATIVE 11*
Company Name:_________________________________ EPA ID#:_____________
YES NO QUESTION COMMENTS
LI Is the current bond rating of the guarantor adequate?
Indicate the appropriate bond rating and the source:
D Standard and Poor’s IJ Moody’s
UAAA IAaa
DAA JAa
DA
UBBB DBaa
U Does the guarantor have tangible net worth of at least
$10 million?
J U Does the guarantor have tangible net worth of at least
six times the amount of liability coverage to be
demonstrated by this test?
U LI Are the guarantor’s U.S. assets equal to at least 90
percent of total assets or at least six times the amount
of liability coverage to be demonstrated by this test?
Reviewed by: _______________________________________________
Date: _____________________________________________________________
* As specified in 40 CFR §264.147(O(1)(ii) and 40 CFR §265.147(f)(1)(ii)

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Corporate Guarantee: Case Study Answers
Alternative Technologies Inc. — Answer Key for Table 1, Comparison of Corporate
Guarantee to Regulatory Wording
Comparison of Corporate Guarantee Wording to Requirements
Issue Implication
- No address was given for Finest Chemical Inc - There are several substantive errors in the
In the opening paragraphs ATC omitted the corporate guarantee that could make it difficult
words ‘to the United States Environmental for the regulator to obtain payment from ATC for
Protection Agency (EPA)’. post-closure costs in the event that FCI defaults
on payment.
- In Recital 2: - ATC did not include the EPA ID
Numbers for FCI’s facilities - The Corporate Guarantee was not notarized, as
required under 40 CFR Part 265.
- There is a mistake in the address for the
Medlord facility The regulator should not allow FCI to use a
Corporate Guarantee from ATC for purposes of
- ATC did not indicate for each facility if the demonstrating financial assurance, unless ATC
guarantee was for closure, post-closure care submits a correctly worded and complete
or both corporate guarantee.
In Recital 5 ATC referred to the ‘facility’ as
opposed to ‘facilities’.
- Recital 6 has been omitted completely.
- Recital ‘9’ uses the language for a guarantor
qualifying based on a substantial business
relationship as opposed to that for a higher-tier
corporate parent.
The Corporate Guarantee was not notarized.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 8

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Corporate Guarantee: Case Study Answers
Alternative Technologies Corp. — Answer Key for Table 2, Letter from the Chief Financial
Officer and Financial Documents
Documents
Reviewed
Issues(s) to Consider
Implication(s)/Follow Up Questions
Letter from the Chief
Financial Officer
None to note.
- None to note.
Income Statement
- ATC’s total revenues equal $28.2
billion,
- After adjusting for costs and
expenses, the company generated
$2.2 billion in positive net income
- ATC is in good financial health. Its
net profit margins indicate a very
healthy firm.
- The company’s streamlined cost
structure suggests a well managed
firm.
Cash Flow Statement
- ATC’s positive net cash flow from
operating activities exceeds $2.8
billion dollars.
After accounting for investing and
financing activities, ATC generated
over $500 million in cash.
With more than $2.8 billion in cash
from operations, ATC demonstrates
a sound cash management strategy.
Balance Sheet
- The company’s working capital
(current assets - current liabilities) is
approximately $8.8 billion. This
suggests that, if needed, the
company has sufficient liquid capital
to its near-term payables with room
available to fully cover the estimated
post-closure cost estimates.
- ATC’s debt-to-equity ratio is 1.18
indicating moderately strong debt
capacity
ATC has $2 billion in cash and cash
equivalents
- ATC is in strong financial health, with
more than enough funds available to
cover FCI’s post-closure expenses.
Additionally, if needed, the company
could leverage a portion of its fixed
assets to secure a loan in the amount
of the post-closure expenses without
significantly impacting its net worth.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 23

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Corporate Guarantee: Case Study Answers
Alternative Technologies Corp. — Answer Key for Table 2, Letter from the Chief Financial
Officer and Financial Documents (continued)
Documents
Is
sues(s) to Consider
Im
plication(s)!Follow Up Questions
Reviewed
Notes to Financial
>
ATC has a short term borrowing
..
ATC appears to be a good candidate
Statements
capacity ($800 million) and a
revolving credit agreement ($1.5
billion) that far exceed the closure
and post closure costs of $536,084
(Note 1)
ATC has a history of extending
corporate guarantees to third parties,
and there is no limit to its maximum
potential payment for environmental
remediation (Note 2).
ATC accrues for the costs of its own
environmental remediation activities
and periodically reassesses these
amounts (Note_3).
to provide a corporate guarantee for
FCrs environmental liabilities
In addition, if need be, ATC could
post a letter of credit or fund a trust
fund by drawing down its revolver
without significantly impacting the
strength of its balance sheet.
Auditors’ Opinion
,
No issues identified; BIG3, LLP
issued ATC a clean opinion.
..
No follow up required.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 24

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Corporate Guarantee: Case Study Answers
Alternative Technologies Corp. - Corporate Guarantee Worksheet Key
(S in thousands)
Company Name Alternative Technologies Inc
Sum of ClosurelPost-Closure Costs 480,866
Fiscal Year PasslFail ? Data Source
2003 Individual Overall
TEST: ALTERNATIVE I
(i.A) OwnerlOperator meets at least two (2) of the following three (3) financial ratIos;
The ratio of total liabilities to net wo,lh is less than 2 1
a Total Assets 29,090.000 From (11)
b Total Liabilities 15,735.000 From (191
c Net Worth (a.b) 13,355,000
Ratio (b/c) 118 PASS
2 The ratio of the sum of net income plus depreciation, depletion, and amortization to total
liabilities is greater than 0 1 1
d Net Income 2.236,000 PASS From (27)
e Depreciation, depletion, and amortization 727,000 From (28]
Total Liabilities 15735,000 From 129]
g Ratio (d+e)/f 0.19 PASS
3 The ratio of current assets to current liabilities is oreater than 1 5 1
h Current Assets 11,751.000 From [ 6]
I Current Liabilities 2,903,000 From (15]
Ratio (h/i) 4.05 PASS
(i.B) OwnerlOperator ’s net working capital and tangible net worth each are at least six (6) times the sum of the current
closure and post-closure cost estimates;
a Total Assets 29,090,000 From (11]
b Intangible Assets 6981,000 I From (25]
c Tangible Assets (a-b) 22,109,000 I
d Liabilities 15.735.000 I From [ 19)
e Tangible Net Worth (c-d) 6,374,000 1
Sum of closure/post-closure costs 480.866 >- PASS From [ 1]
9 116th Tangible Net Worth (e16) 1,062.333 PASS
h Current Assets 11,751,000 I From [ 6]
i Current Liabilities 2,903,000 I From (15]
j Working Capital (g-h) 8,848,000 I
k Sum of closure/post-closure costs 480,866 J From [ 1]
11/6th Working Capital 0/6) 1,474,667 PASS .J
(i.C) OwnerfOperator has a tangible net worth of at least $10 million dollars;
a Total Assets 29,090,000 From [ 11)
b Intangible Assets 6,981 .000 From [ 25)
c Tangible Assets (a-b) 22,109,000 >‘ PASS
d Liabilities 15.735.000 I From [ 191
e Tangible Net Worth (c-d) 6.374,000 PASS J
(iD) OwnerlOperator’s assets located In the United States amount to at least ninety percent (90%) of its total assets or Its
total assets in the United States are at least six (6) times the sum of the current closure and post-closure cost estimates;
a Total Assets 29.090,000 From (11]
b Total U S Assets 20.363.000
c Total Non-U S. Assets 8,727,000
d >= 90% of Total Assets (b/a)100 or, 70% PAIL PASS
e Sum of closure/post-closure costs 480,866 From [ 1]
1/6th Total Assets in the U.S. (b16) 3,393,833 PASS
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 25

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Corporate Guarantee: Case Study Answers
Alternative Technologies Corp. - Corporate Guarantee Worksheet Key
($ in thousands)
Company Name Alternative Technologies Inc
Sum of Closure/Post-Closure Costs 480,866
Fiscal Year Pass/Fail ? Data Source
2003 Individual - Overall
TEST: ALTERNATIVE II
(ii.A) Owner/Operator’s most recently issued bond is rated “BBB” or higher by Standard and Poor’s
Corporation, or “Baa” or higher by Moody’s Investors Service, Inc.;
a SaP n/a FAIL FAIL From [ 301
b Moody’s n/a FAIL From [ 31]
(ii.B) Owner/Operator’s tangible net worth is at least six (6) times the sum of the current closure and post-
closure cost estimates;
a Total Assets 29,090,000 From (11)
b Intangible Assets 6,981,000 From [ 25)
c Tangible Assets (a-b) 22.109,000 PASS
d Liabilities 15,735,000 From [ 19]
e Tangible Net Worth (c-d) 6,374,000
Sum of closure/post-closure costs 480,866 From [ 1]
9 1/6th Tangible Net Worth (e16) 1,062,333 PASS
(ii.C) Owner/Operator has a tangible net worth of at least $10 million dollars;
a Total Assets 29,090,000 From [ 111
b Intangible Assets 6,981,000 I From (25)
c Tangible Assets (a-b) 22,109,000 “ PASS
d Liabilities 15.735.000 j From (19)
e Tangible Net Worth (c-d) 6,374,000 PASS J
(ii.D) OwnerlOperator ’s assets located in the United States amount to at least ninety percent (90%) of its
total assets or its total assets in the United States are at least six (6) times the sum of the current closure
and post-closure cost estimates;
a Total Assets 29,090,000 From [ 11)
b Total U.S. Assets 20,363,000 PASS
c Total Non-U.S. Assets 8,727,000
d > 90% of Total Assets (b/a)’lOOor, 70% FAIL.
e Sum of closure/post-closure costs 480,866 From [ 1)
1 1/6th Total Assets in the U S (b16) 3,393,833 PASS
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 26

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Corporate Guarantee: Case Study Answers
Alternative Technologies Corp. - Answer Key for Table 3, Conclusions and
Recommendations
Question 1: Does ATC meet the requirements of the Corporate Guarantee
Yes No
ATC is a very large corporation in good financial health, and therefore had no difficulty passing the financial
requirements of the corporate guarantee However, there were many errors in the wording of the corporate
guarantee that will need to be corrected before the regulator allows FCI to rely on a corporate guarantee as a
viable form of financial assurance.
Question 2: What (if any) are the key areas in which ATC’s submission is questionable ?
- The Corporate Guarantee does not match the requisite regulatory wording, as specified at 40 CFR
264 151(h)
Question 3:
What are your next steps?
What additional information might you
request from ATC?
- Issue a warning letter to FCI including a detailed
Other than a correctly worded corporate
assessment of the deficiencies in ATC’s Corporate
guarantee, no additional information is required
Guarantee
from ATC.
- Request that ATC submit a correctly worded
However, the regulator should monitor ATC and
Corporate Guarantee within 30 days of the
FCI’s financial health over time. In so doing, the
notification, or FCI must post alternate financial
regulator is better able to respond quickly if there
assurance
are adverse changes that could impact either
FCI’s ability to fund its post-closure costs, or ATC’s
ability to act as a guarantor on behalf of FCI.
The regulator should be vigilant in reviewing ATC’s
annual submissions, and monitoring the public
news media for information about both FCI and
ATC.
RCRA Subtitle C Closure and Post-Closure: EPA Financial Assurance Training 29

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Recent Developments

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Financial Responsibility-
Recent Developments
Dale Ruhter
EPA Office of Solid Waste
December 10, 2004
- Rulemaking
• The current active rulemaking that affects
financial assurance is the standardized permit
rulemaking. 66 Federal Register 52192
(October 12, 2001).
• Requested comments on minimum ratings on
insurers providing financial assurance
instruments.
Rulemaking - _______________________________
• Requested comments on the conclusions
about captive insurance of the EPA Inspector
General report on closure and post-closure
financial assurance.
• Additional information on the proposal is
available at
http://www.epa.gov/epaoswer/hazwaste/per
mit/std-perm.htm ____________________________________
• Currently idle proposed revisions to the
Subtitle C financial test. Proposed Juty 1,
1991
This document is intended to pmv,de guidance to EPA staff It does not create any legally binding iequirements on EPA. States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a complete representation of RCRA oral EPA ’s
regulations end views, and may not necessarily reflect the current position of EPA
1

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Inspector General Report
The overall objective of our audit was to
determine whether financial assurance
requirements and the implementation of those
requirements provided adequate funding for
facility closure and post-closure activities. We
found many cases where financial assurance
mechanisms appeared to be working as intended.
However, in some cases, financial assurance
might not provide adequate funding to ensure the
facilities will not pose a threat to human health
and the environment.
4 Inspector General Report
We specifically considered the following four questions’
• Does captive Insurance satisfy requirements for
closure and post-closure financial assurance’
• What are the nsks that funds 1mm financial
assurance mechanisms will not be available when
needed’
Inspector General Report
Questions Continued
Are funds being assured to cover the Mi penod of
necessary post-closure monitonng and
maintenance’
What can be done to improve the review process
for dosure and post-ciosure cost estimates?
The report can be found at
htto //www eoa aov/oiaireoortsl200l/finalreoort33
This document is intended to provide gwdance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a complete representation of RCRA orof EPA’S
regulations and views, and may not necessanly reflect the current position of EPA
2

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Report to Congress
Th. Committee ii concerned about the potential lack of
sound environmental Insurance coverage et solid waste
landfills. Currently, federal guidelines require landfill
operators to assume all costa of Closing a landfill and 30
yearn of po.t.ciosure care. A number of questions, however,
hey, been raised about the adequacy and structure of
•idsting financial assurance agreements covering landfill
closure obligations, raising the possibility that the public
could ultimately become liable for poat.closure costs. The
Committee therefore, directs the Administrator to conduct a
study of existing financial assurance agreemente to
determine if sufficisat safeguards have beenproperty
mabiteined and future liabilIties minimized, The results of
this study should be completed and shared with the
Committee as well as the public.”
meCqa,. au ,w 1 WS- , 0t,.* S Va .. Pt t nIwq MS Ifl ,
z ’,aw M, MSI.dy, fl A ,. ew. I en i , ,. U, en
ASTSWMO/EPA Work Group
Originated as a result of a paper presented to
EPA by the Association of State and Territorial
Solid Waste Management Organizations
(ASTSWMO).
e ASTSWMO/ EPA Work Group has 3 Subgroups
• Cost Estimating chaired by Robert G Stewart
• Key issues (with emphasis on insurance initially)
chaired by Dale Ruhter and Dick Swanson (GA)
• Training and Expertise chaired by Bob Borzeflari (CA)
Environmental Financial
Advisory Board
Organized as a Federal Advisory Committee.
In March the EFAB accepted the Agency’s
invitation to examine financial assurance
issues.
a Public meeting in New York City June 14 and
15, 2004 focused on the financial test and
insurance issues.
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA’S
regulations and views, and may not necessarily reflect the current position of EPA
3

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Superfund 120 Day Study
• Itse study induded 3 recommeridabons regarding flnanoal assurance.
risc i lwv ,w.to.rnwefurd !ners is2 t isavestv.si
• OSWER should evaluate the history of NFL linings and removal adsons to determine
what percent were A treatment, storage and dispoeal faoiitles or hazardous
waste geseators and to what extent these faohties present a contimitag buden to
the Supefiand program
lithe evaluation conflrme a high correiabon with RCRA’regulatnd faohbes, CSWER
and OECA thesid enainhne dlfeent approadnes to financial eseirance sit the
R A program to reduce the likelihood of R A-regulatnd facilities beonting part of
the futiae Superfuiel uidvese
For faohties riot covered rat RCRA, WER should study whether proms i gat lng
new regutatione under CERCAh broad financial aesteance authorities could reduce
thefutureneeds u tSuperfund -
05W. 09111, and 0 A are prepanng draft plans for responding to these
recemnondobons
Inspector General
Preliminary Research
• lire utica of Inspector Genera began pretmmary researth on R ate Fananoa!
R ssMiQ’Regufroniet Thispi tepartofthelG’s2go3to2QO5muIti-
year plan Tire rflr of this evaluation is Carolpo Copper and the Project
Manager is Steve Manna
• ‘Cu general objectives are to delannnse
• What actions Is SW oirrendy tang to address concemo associated with the
adequacy of ROtA linanoal reoponability requrenents’
• How eectrve are these actions in addressing the key encases and piorises’
• How elective have ow ending financial rssponalatty regulatory
requrenenis bees for ROtA faohdes that have wndo one dssure or cleanup
advibes’
• We plan to conduct wei Ss In the Otteof Solid Wane and Ensergency Response.
sS dotes, and selected EPA regienal oit ’
GAO Investigation
• The US. GAO is conducting a study for the Congress looking at
certain environmental liability issues The study has three
objectives:
• Detesmiw what Information Is available on the number of brininess
banbzsqacles with hazardous wane liabilities under federal law and on such
banbruptles that the Enveoninm’ntal Prote s Agency and the Deparbnent
of Justice have pursued in banhruplcy court
• Identify key diaterges that EPA and 00 ) face in pursuing hazardous waste ___________________________________________
cleanup costs from banbnfl and fiesnoally distressed buunesues
Assess what actions, If any, EPA and 003 should take to better ensure that _____________________________________________
the federal government idendfies, pursues, and cain hazardous waste
cleanup coals from bankrupt or otherwise finianoally distreenad buseesses to
tIre maximuw extent possible
This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA. States, or the regulated
community, and does not create any right or benefit, substantive or procedural This document is not a comptete representation of RCPA or of EPA ’s
regulations and views, and may not necessarily reflect the current position of EPA
4

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Resources

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This document is intended to provide guidance to EPA staff It does not create any legally binding requirements on EPA, States, or the regulated
community, and does not create any rig/it or benefit, substantive or procedural This document is not a complete representation of RCRA or of EPA ‘s
regulations and views, and niay not necessarily reflect the current position of EPA
Information Resources
Financial Assurance Mechanisms
RCRA Subtitle C Closure & Post-Closure December 2004
General Resources:
o Code of Federal Regulations, Title 40, Volume 22,
Chapter 1, Parts 264 and 265 www.ppoaccess gov/cfr
Permitted Facilities
• §264 143 Closure
• §264.145 Post-Closure
• §264.l47Third-Party Insurance
• Interim Status Facilities
§265.143 Closure
§265.145 Post-Closure
§265.147 Third-Party Insurance
o Federal Register, Volume 46, No. 7, January 12,
1981, pp.2821-2829 www.ppoaccess govlfr
o Guidance Manual, FinancialAssurance for Closure
and Post-Closure Care: Requirements for Owner and
Operators of Hazardous Waste Treatment, Storage,
and Disposal Facilities - A Guidance ManuaL U.S.
EPA, May 1982.
ci Office of Inspector General, Audit Report, RCRA
Financial Assurance for Closure and Post-Closure,
March 30, 2001.
www.epa.pov/oigearth/reports/200 1 Ifinalreport33O.pdf
o Estimating Costs for the Economic Benefits of
RCRA Noncompliance. U.S. EPA, December 1997
ci Inflation Information.
• U.S. Department of Labor (Producer Price Index)
www.bls.aov
• Economic Indices (GDP Implicit Price Deflator)
www.economa gic.com
ci Treasury Bill Rate(s). U.S. Department of Treasury,
Bureau of Public Debt www.publicdebt.treas gov
o Federal Reserve. www.federalreserve gov
o Guaranteed Rates for Tax-deferred Annuities
http://personal.fidelity com/products!annuities/taxdeferr
Researching Organizations...
FINANCIAL INSTITUTIONS
ci U.S. Department of the Treasury
• Comptroller of the Currency, Trust Division
regulates nationally-chartered commercial banks,
nationally-licensed foreign banks, and Washington
D.C. banks. www.occ.treas ov
• Office of Thrift Supervision regulates nationally-
chartered savings and loans institutions, as well as
nationally-chartered mutual savings banks.
www ots.treas QOV
ci National CredIt Union AdministratIon regulates
nationally-chartered credit unions. www.ncua.pov
o Various State Authorities. Regulate state-chartered
financial institutions, including commercial banks,
savings and loans, mutual savings banks, credit
unions, and state licensed foreign banks.
See also Appendix B of Financial Assurance for
Closure and Post-Closure Care: Requirements for
Owner and Operators of Hazardous Waste Treatment,
Storage, and Disposal Facilities - A Guidance Manual
U.S EPA, May 1982.
Links to State Banking Agencies:
dir.yahoo corn/Business and Economy/Finance and
lnvestment/BankinQ/Government Agencies/U S Sta
te Agencies /
o National Trade Associations/Organizations
• American Bankers Association www.aba.com
• Conference of State Bank Supervisors www.csbs.org
• Links to other banking organizations
dir.yahoo.comlBusiness and Economy/Finance and
Investment) Banking/Organizations !
ci Other Sources
. FDIC Bank Data http’//www fdic.gov/bank/index.html
ed/guaranteedRates frame.shtml

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SURETIES
CORPORATIONS & ACCOUNTING FIRMS
o U.S. Department of the Treasury, Circular 570
published annually on July 1 in the Federal Register.
The Circular lists companies qualified to write surety
bonds, as well as provides information on admitted
reinsurers, pools and associations, Lloyd’s syndicates
and surety underwriting limitations. It is recommended
that you sign up to receive email notifications at
www.fms.treas.gov/c570
o Code of Federal Regulations, Title 31, Chapter 2,
Volume 2, Parts 223 includes the regulations
governing sureties.
o National Trade Associations and other
Organizations
• National Association of Surety Bond Producers
www.nasbp.org
• Surety Association of America www.surety.org
o General Resources
• Securities Exchanae Commission (SEC ) regulate5
the securities market and provides copies of the
financial filings of publicly-traded corporations
www.sec gov
• Financial Accounting Standards Board (FASB )
establishes standards of financial accounting and
issues statements/guidance to educate the public
(including auditors) on generally accepted
accounting principles www.fasb.org
• American Institution of Certified Public
Accountants (AICPA) www aicpa org
• Value Line gathers financial information on
publicly-traded corporations.
o Corporate Bond Ratings
Moodys www moodys corn
INSURERS
0 State Insurance Commissioners gather information
on insurers that are licensed to transact business or
provide surplus or excess lines insurance in their state.
See also Appendix B of Financial Assurance for
Closure and Post-Closure Care: Requirements for
Owner and Operators of Hazardous Waste Treatment,
Storage, and Disposal Facilities - A Guidance Manual
U.S. EPA, May 1982.
0 Insurer Bond Ratings
Moodys www.moodys corn
• Standard and Poors www.standardandpoors.com
• A.M. Best www.ambest.com
• It is recommended that you sign up to receive e-
mail notifications.
o The Captive Insurance Manual - A Guide to Captive
Insurance Companies and Risk Retention Groups.
Volumes I-Ill. NILS Publishing Company. 2002-1
Revision. Manuals provide general information on
captives, as well as include copies of all state
regulations governing captive insurers
o National Trade Associations and other
Organizations:
• American Insurance Association www.aiadc.org
• Standard and Poors www.standardandpoors corn
• It is recommended that you sign up to receive e-
mail notifications.
0 Mergers and Acquisitions
• U.S. Mergers and Acquisitions Calendar
htt y//biz.yahoo.comIme /
0 Other Resources
The Financial Times www ft.com
• Cornell Legal Information Institute www law cornell edu
• Environmental Law Net
http //Iawvianet.cornfenforcelit html
SOURCES OF LEGAL INFORMATION
o Environmental Law Net provides links to federal
enforcement policies, guidance documents, agency
home pages, and decisions from key administrative,
state, and federal court cases
httD l/Iawvianet com/enforcelit.html
o United States Courts
http //www uscourts.ciov/allinks.html
o EPA’s Administrative Law Decisions
htt y//www.epa gov/oali/orders2.htm
• Captive.com www.captive.com
• Insurance Information Institute www.iii org
• National Association of Insurance Commissioners
www.naic.orci

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Corporate Financial Test Worksheet
Company Name ____________
Sum of Closure/Post-Closure Costs
Fiscal Year Pass/Fail? I
TEST: ALTERNATIVE I
(i.A) Owner/Operator meets at least two (2) of the following three (3) financial ratios;
1 The ratio of total liabilities to net worth is less than 2.1 ______________
a Total Assets ____________
b Total Liabilities ______________
c Net Worth (a-b) _____________
Ratio (b/c) ______________
2 The ratio of the sum of net income plus depreciation, depletion, and amoilizalion to total
liabilities is greater than 0 11 _______________
d Net Income ______________
e Depreciation, depletion, and amortization
I Total Liabilities ______________
g Ratio (d+e)/f ______________
3 The ratio of current assets to current liabilities is greater than 1 5 1
Individual
Pass / Fail
Pass I Fail
h Current Assets _______________
i Current Liabilities ________________
Ratio (h/i) ______________ Pass I Fail
(LB) Owner/Operator’s net working capital and tangible net worth each are at least six (6) tImes the sum of
the current closure and post-closure cost estimates and the current plugging and abandonment cost
estimates;
a Total Assets
b Intangible Assets
c Tangible Assets (a-b)
d Liabilities
e Tangible Net Worth (c-d)
Sum of closure/post-closure costs and plugging & abandonment costs
9 1/6th Tangible Net Worth (e/6)
h Current Assets ____________
I Current Liabilities _____________
j Working Capital (h-i) ____________
k Sum of dosure/post-ciosure costs and plugging & abandonment costs _____________
I 1/6th Working Capital (j16) _____________ Pass I Fail
(iC) Owner/Operator has a tangible net worth of at least $10 million dollars; ______________
a Total Assets
b Intangible Assets ______________
c Tangible Assets (a-b)
d Uabilities _______________
e Tangible Net Worth (c-d) ______________ Pass I Fall
(ID) Owner/Operator’s assets located in the United States amount to at least ninety percent (90%) of its total
assets or its total assets in the United States are at least six (6) times the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets
b Total U S Assets
c Total Non-U S Assets
d >= 90% of Total Assets (b/a)100 or,
e Sum of closure/post-closure costs and plugging & abandonment costs
1/6th Total Assets in the U S (bI6)
Pass/Fail }
Pass I Fail
Pass I Fall
}
}
Overall
Pass! Fail
Pass / Fall
Pass I Fail
Pass IFail

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Corporate Financial Test Worksheet
TEST: ALTERNATIVE Ii
(ii.A) Owner/Operator’s most recently issued bond is rated “BBB” or higher by Standard and Poor’s
Corporation, or “Baa” or higher by Moody’s Investors Service, Inc.; ______________
a S&P _____________ Pass I Fail Pass I Fail
bMoodys ____________ Pass/Fail J
(ii.B) Owner/Operator’s tangible net worth is at least six (6) tImes the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets ____________
b Intangible Assets ______________
c Tangible Assets (a-b) ______________ Pass I Fail
d Liabilities _______________
e Tangible Net Worth (c-d) _____________
Sum of closurelpost-closure costs and plugging & abandonment costs _______________
g 1/6th Tangible Net Worth (e16) ______________ Pass I Fail
(ii.C) OwnerlOperator has a tangible net worth of at least $10 million dollars; _____________
a Total Assets ____________
b Intangible Assets ______________
c Tangible Assets (a-b) ______________ Pass / Fail
d Liabilities ______________
e Tangible Net Worth (c-d) _____________ Pass I Fail
(iI.D) OwnerlOperator’s assets located in the United States amount to at least ninety percent (90%) of its total
assets or its total assets in the United States are at least six (6) tImes the sum of the current closure and post-
closure cost estimates and the current plugging and abandonment cost estimates;
a Total Assets
b Total U S. Assets
c Total Non-U.S. Assets Pass I Fail
d >= 90% of Total Assets (b/a)100 or, Pass I Fail
e Sum of dosure/post-closure costs and plugging & abandonment costs
1/6th Total Assets in the U S. (bIG) Pass I Fail

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FindLcPN
WWW F1FJDLAW COM
H. R. 3763
Bn undrtd tUtnth ongrtss
of th
%1nit d tat s of ni rica
AT THE SECOND SESSION
Begun and held at the City of Washington on Wednesday,
the twen:y-thsrd day of January, two thousand and two
fl (t
To protect investors by improving the accuracy and reliability of corporate disclosures
made pursuant to the securities laws, and for other purposes
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE —This Act. may be cited as the “Sarbanes-
Oxley Act of 2002”
(b) TABLE OF CONTENTS —The table of contents for this Act
is as follows
Sec 1 Short title, table of contenr,s
Sec 2 Definitions
Sec 3 Commission rules and enforcement
TITLE I—PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec 101 Establishment, administrative provisions
Sec 102 Registration with the Board
Sec 103 Auditing, quality control, and independence standards and rules
Sec 104 Inspections of registered public accounting firms
Sec 105 Investigations and disciplinary proceedings
Sec 106 Foreign public accounting firms
Sec 107 Commission oversight of the Board
Sec 108 Accounting standards
Sec 109 Funding
TITLE Il—AUDITOR INDEPENDENCE
Sec 201 Services outside the scope of practice of auditors
Sec 202 Preapproval requirements
Sec 203 Audit partner rotation
Sec 204 Auditor reports to audit committees
Sec 205 Conforming amendments
Sec 206 Conflicts of interest
Sec 207 Study of mandatory rotation of registered public accounting firms
Sec 208 Commission authority
Sec 209 Considerations by appropriate State regulatory authorities
TITLE Ill—CORPORATE RESPONSIBILITY
Sec 301 Public company audit committees
Sec 302 Corporate responsibility for financial reports
Sec 303 Improper influence on conduct of audits
Sec 304 Forfeiture of certain bonuses and profits
Sec 305 Oflicer and director bars and penalties
Sec 306 Insider trades during pension fund blackout periods
Soc 307 Rules of professional responsibiliiy for attorneys
Sec 308 Fair funds for Investors
TITLE lV—ENHANCED FINANCIAL DISCLOSURES
Sec 401 Disclosures in periodic reports
Sec 402 Enhanced conflict of interest pro ’isions
Sec 403 Disclosures of transactions involving management and principal stock-
holders

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H. R. 3763—2
Sec 404 Management assessment of internal controls
Sec 405. Exemption
Sec 406 Code of ethics for senior financial officers
Sec 407 Disclosure of audit committee financial expert
Sec 408 Enhanced review of periodic disclosures by issuers
Sec 409 Real time issuer disclosures
TITLE V—ANALYST CONFLICTS OF INTEREST
Sec 501 Treatment of securities analysts by registered securities associations and
national securities exchanges
TITLE VI—COMMISSION RESOURCES AND AUTHORITY
Sec 601 Authorization of appropriations
Sec 602 Appearance and practice before the Commission
Sec 603 Federal court authority to impose penny stock bars
Sec 604 Qualifications of associated persons of brokers and dealers
TITLE Vu—STUDIES AND REPORTS
Sec 701 GAO study and report regarding consolidation of public accounting firms
Sec 702 Commission study and report regarding credit rating agencies
Sec 703 Study and report on violators and violations
Sec 704 Study of enforcement actions
Sec 705 Study of investment banks
TITLE VIII—CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
Sec 801 Short title
Sec 802 Criminal penalties for altering documents
Sec 803 Debts nondischargeable if incurred in violation of securities fraud laws
Sec 804 Statute of limitations for securities fraud
Sec 805 Review of Federal Sentencing Guidelines for obstruction of justice and ex-
tensive criminal fraud
Sec 806 Protection for employees of publicly traded companies who provide evi-
dence of fraud
Sec 807 Cnminal penalties for defrauding shareholders of publicly traded compa-
nies
TITLE IX—WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
Sec 901 Short title
Sec 902 Attempts and conspiracies to commit criminal fraud ofFenses
Sec 903 Criminal penalties for mail and wire fraud
Sec 904 Criminal penalties for violations of the Employee Retirement Income Se-
curity Act of 1974
Sec 905 Amendment to sentencing guidelines relating to certain white-collar of-
fenses
Sec 906 Corporate responsibility for financial reports
TITLE X—CORPORATE TAX RETURNS
Sec 1001 Sense of the Senate regarding the signing of corporate tax returns by
chief executive officers
TITLE XI—CORPORATE FRAUD AND ACCOUNTABILITY
Sec 1101 Short title
Sec 1102 Tampering with a record or otherwise impeding an official proceeding
Sec 1103 Temporary freeze authority for the Secunties and Exchange Commis-
sion
Sec 1104 Amendment to the Federal Sentencing Guidelines
Sec 1105 Authority of the Commission to prohibit persons from serving as officers
or directors
Sec 1106 Increased criminal penalties under Securities Exchange Act of 1934
Sec 1107 Retaliation against informants
SEC. 2. DEFINITIONS.
(a) IN GENERAL.—In this Act, the following definitions shall
apply:
(1) APPROPRIATE STATE REGULATORY AUTHORITY —The term
“appropriate State regulatory authority” means the State
agency or other authority responsible for the licensure or other
regulation of the practice of accounting in the State or States

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H. R. 3763—3
having jurisdiction over a registered public accounting firm
or associated person thereof, with respect to the matter in
question
(2) AuDIT.—The term “audit” means an examination of
the financial statements of any issuer by an independent public
accounting firm in accordance with the rules of the Board
or the Commission (or, for the period preceding the adoption
of applicable rules of the Board under section 103, in accordance
with then-applicable generally accepted auditing and related
standards for such purposes), for the purpose of expressing
an opinion on such statements.
(3) AUDIT COMMIT1’EE —The term “audit committee”
means—
(A) a committee (or equivalent body) established by
and amongst the board of directors of an issuer for the
purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the financial
statements of the issuer; and
(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
(4) AUDIT REPORT.—The term “audit report” means a docu-
ment or other record—
(A) prepared following an audit performed for purposes
of compliance by an issuer with the requirements of the
securities laws; and
(B) in which a public accounting firm either—
(i) sets forth the opinion of that firm regarding
a financial statement, report, or other document; or
(ii) asserts that no such opinion can be expressed
(5) BOARD —The term “Board” means the Public Company
Accounting Oversight Board established under section 101.
(6) COMMISSION.—The term “Commission” means the Secu-
rities and Exchange Commission.
(7) IssuER.—The term “issuer” means an issuer (as defined
in section 3 of the Securities Exchange Act of 1934 (15 U_s_C
78c)), the securities of which are registered under section 12
of that Act (15 U.S.C. 781), or that is required to file reports
under section 15(d) (15 U.S.C. 78o(d)), or that files or has
filed a registration statement that has not yet become effective
under the Securities Act of 1933 (15 U.S.C 77a et seq.), and
that it has not withdrawn.
(8) NON-AUDIT SERVICES.—The term “non-audit services”
means any professional services provided to an issuer by a
registered public accounting firm, other than those provided
to an issuer in connection with an audit or a review of the
financial statements of an issuer.
(9) PERSON ASSOCIATED WITH A PUBLIC ACCOUNTING FIRM —
(A) IN GENERAL —The terms “person associated with
a public accounting firm” (or with a “registered public
accounting firm”) and “associated person of a public
accounting firm” (or of a “registered public accounting
firm”) mean any individual proprietor, partner, share-
holder, principal, accountant, or other professional
employee of a public accounting firm, or any other inde-
pendent contractor or entity that, in connection with the
preparation or issuance of any audit report—

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H.R 3763—4
(i) shares in the profits of, or receives compensation
in any other form from, that firm; or
(ii) participates as agent or otherwise on behalf
of such accounting firm in any activity of that firm
(B) EXEMPTION AUTHORITY.—The Board may, by rule,
exempt persons engaged only in ministerial tasks from
the definition in subparagraph (A), to the extent that the
Board determines that any such exemption is consistent
with the purposes of this Act, the public interest, or the
protection of investors.
(10) PROFESSIONAL STANDARDS.—The term “professional
standards” means—
(A) accounting principles that are—
(i) established by the standard setting body
described in section 19(b) of the Securities Act of 1933,
as amended by this Act, or prescribed by the Commis-
sion under section 19(a) of that Act (15 U.s_c 17a(s))
or section 13(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78a(m)); and
(ii) relevant to audit reports for particular issuers,
or dealt with in the quality control system of a par-
ticular registered public accounting firm; and
(B) auditing standards, standards for attestation
engagements, quality control policies and procedures, eth-
ical and competency standards, and independence stand-
ards (including rules implementing title H) that the Board
or the Commission determines—
(i) relate to the preparation or issuance of audit
reports for issuers; and
(ii) are established or adopted by the Board under
section 103(a), or are promulgated as rules of the
Commission.
(11) PUBLIC ACCOUNTING FIRM.—The term “public
accounting firm” means—
(A) a proprietorship, partnership, incorporated associa-
tion, corporation, limited liability company, limited liability
partnership, or other legal entity that is engaged in the
practice of public accounting or preparing or issuing audit
reports; and
(B) to the extent so designated by the rules of the
Board, any associated person of any entity descnbed in
subparagraph (A).
(12) REGISTERED PUBLIC ACCOUNTING FIRM.—The term “reg-
istered public accounting firm” means a public accounting firm
registered with the Board in accordance with this Act.
(13) RULES OF THE BOARD.—The term “rules of the Board”
means the bylaws and rules of the Board (as submitted to,
and approved, modified, or amended by the Commission, in
accordance with section 107), and those stated policies, prac-
tices, and interpretations of the Board that the Commission,
by rule, may deem to be rules of the Board, as necessary
or appropriate in the public interest or for the protection of
investors.
(14) SECuRITY —The term “security” has the same meaning
as in section 3(a) of the Securities Exchange Act of 1934 (15
U S C 78c(a)).

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H. R. 3763—5
(15) SECuRITIEs LAWS.—The term “securities laws” means
the provisions of law referred to in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as
amended by this Act, and includes the rules, regulations, and
orders issued by the Commission thereunder
(16) STATE.—The term “State” means any State of the
United States, the District of Columbia, Puerto Rico, the Virgin
Islands, or any other territory or possession of the United
States.
(b) CONFORMING AMENDMENT.—Section 3(a)(47) of the Secun-
ties Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is amended by
inserting “the Sarbanes-Oxley Act of 2002,” before “the Public”
SEC. 3. COMMISSION RULES AND ENFORCEMENT.
(a) REGULATORY ACTION—The Commission shall promulgate
such rules and regulations, as may be necessary or appropriate
in the public interest or for the protection of investors, and in
furtherance of this Act.
(b) ENFORCEMENT.—
(1) IN GENERAL.—A violation by any person of this Act,
any rule or regulation of the Commission issued under this
Act, or any rule of the Board shall be treated for all purposes
in the same manner as a violation of the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq) or the rules and regulations
issued thereunder, consistent with the provisions of this Act,
and any such person shall be subject to the same penalties,
and to the same extent, as for a violation of that Act or
such rules or regulations
(2) INVESTIGATIONS, INJUNCTIONS, AND PROSECUTION OF
OFFENSES.—Section 21 of the Securities Exchange Act of 1934
(15 U.S.C 78u) is amended—
(A) in subsection (a)(1), by inserting “the rules of the
Public Company Accounting Oversight Board, of which such
person is a registered public accounting firm or a person
associated with such a firm,” after “is a participant,”;
(B) in subsection (d)(1), by inserting “the rules of the
Public Company Accounting Oversight Board, of which such
person is a registered public accounting firm or a person
associated with such a firm,” after “is a participant,”;
(C) in subsection (e), by inserting “the rules of the
Public Company Accounting Oversight Board, of which such
person is a registered public accounting firm or a person
associated with such a firm,” after “is a participant,”; and
(D) in subsection (f), by inserting “or the Public Com-
pany Accounting Oversight Board” after “self-regulatory
organization” each place that term appears.
(3) CEASE-AND-DESIST PROCEEDINGS —Section 21C(c)(2) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u—3(c)(2))
is amended by inserting “registered public accounting firm (as
defined in section 2 of the Sarbanes-Oxley Act of 2002),” after
“government secunties dealer,”.
(4) ENFORCEMENT BY FEDERAL BANKING AGENCIES —Section
12(i) of the Securities Exchange Act of 1934 (15 U.S.C. 781(i))
is amended by—
(A) striking “sections 12,” each place it appears and
inserting “sections 1OA(m), 12,”; and

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H.R 3763—6
(B) striking “and 16,” each place it appears and
inserting “and 16 of this Act, and sections 302, 303, 304,
306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act
of 2002,”.
(c) EFFECT ON CoMwssroN AuTHORrFY.—Nothing in this Act
or the rules of the Board shall be construed to impair or limit—
(1) the authority of the Commission to regulate the
accounting profession, accounting firms, or persons associated
with such firms for purposes of enforcement of the securities
laws;
(2) the authority of the Commission to set standards for
accounting or auditing practices or auditor independence,
derived from other provisions of the secunties laws or the
rules or regulations thereunder, for purposes of the preparation
and issuance of any audit report, or otherwise under applicable
law; or
(3) the ability of the Commission to take, on the initiative
of the Commission, legal, administrative, or disciplinary action
against any registered public accounting firm or any associated
person thereof.
TITLE I—PUBLIC COMPANY
ACCOUNTING OVERSIGHT BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATWE PROVISIONS.
(a) ESTABLISHMENT OF Bo .iw —There is established the Public
Company Accounting Oversight Board, to oversee the audit of public
companies that are subject to the securities laws, and related mat-
ters, in order to protect the interests of investors and further
the public interest in the preparation of informative, accurate,
and independent audit reports for companies the securities of which
are sold to, and held by and for, public investors. The Board shall
be a body corporate, operate as a nonprofit corporation, and have
succession until dissolved by an Act of Congress.
(b) STATUS.—The Board shall not be an agency or establishment
of the United States Government, and, except as otherwise provided
in this Act, shall be subject to, and have all the powers conferred
upon a nonprofit corporation by, the District of Columbia Nonprofit
Corporation Act. No member or person employed by, or agent for,
the Board shall be deemed to be an officer or employee of or
agent for the Federal Government by reason of such service
(c) DUTIES OF THE BOARD—The Board shall, subject to action
by the Commission under section 107, and once a determination
is made by the Commission under subsection (d) of this section—
(1) register public accounting firms that prepare audit
reports for issuers, in accordance with section 102;
(2) establish or adopt, or both, by rule, auditing, quality
control, ethics, independence, and other standards relating to
the preparation of audit reports for issuers, in accordance with
section 103;
(3) conduct inspections of registered public accounting
firms, in accordance with section 104 and the rules of the
Board;
(4) conduct investigations and disciplinary proceedings con-
cerning, and impose appropriate sanctions where justified upon,

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H. R. 3763—7
registered public accounting firms and associated persons of
such firms, in accordance with section 105;
(5) perform such other duties or functions as the Board
(or the Commission, by rule or order) determines are necessary
or appropriate to promote high professional standards among,
and improve the quality of audit services offered by, registered
public accounting firms and associated persons thereof, or other-
wise to carry out this Act, in order to protect investors, or
to further the public interest;
(6) enforce compliance with this Act, the rules of the Board,
professional standards, and the securities laws relating to the
preparation and issuance of audit reports and the obligations
and liabilities of accountants with respect thereto, by registered
public accounting firms and associated persons thereof; and
(7) set the budget and manage the operations of the Board
and the staff of the Board.
(d) COMMISSION DETERMINATION —The members of the Board
shall take such action (including hiring of staff, proposal of rules,
and adoption of initial and transitional auditing and other profes-
sional standards) as may be necessary or appropriate to enable
the Commission to determine, not later than 270 days after the
date of enactment of this Act, that the Board is so organized
and has the capacity to carry out the requirements of this title,
and to enforce compliance with this title by registered public
accounting firms and associated persons thereof. The Commission
shall be responsible, prior to the appointment of the Board, for
the planning for the establishment and administrative transition
to the Board’s operation.
Ce) BOARD MEMBERSHIP.—
(1) COMPOSITION.—The Board shall have 5 members,
appointed from among prominent individuals of integrity and
reputation who have a demonstrated commitment to the
interests of investors and the public, and an understanding
of the responsibilities for and nature of the financial disclosures
required of issuers under the securities laws and the obligations
of accountants with respect to the preparation and issuance
of audit reports with respect to such disclosures.
(2) LIMITATION—Two members, and only 2 members, of
the Board shall be or have been certified public accountants
pursuant to the laws of 1 or more States, provided that, if
1 of those 2 members is the chairperson, he or she may not
have been a practicing certified public accountant for at least
5 years prior to his or her appointment to the Board.
(3) FULL-TIME INDEPENDENT SERVICE.—Each member of the
Board shall serve on a full-time basis, and may not, concurrent
with service on the Board, be employed by any other person
or engage in any other professional or business activity No
member of the Board may share in any of the profits of,
or receive payments from, a public accounting firm (or any
other person, as determined by rule of the Commission), other
than fixed continuing payments, subject to such conditions as
the Commission may impose, under standard arrangements
for the retirement of members of public accounting firms.
(4) APPOINTMENT OF BOARD MEMBERS —
(A) INITIAL BOARD.—Not later than 90 days after the
date of enactment of this Act, the Commission, after con-
sultation with the Chairman of the Board of Governors

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H R. 3763—8
of the Federal Reserve System and the Secretary of the
Treasury, shall appoint the chairperson and other initial
members of the Board, and shall designate a term of service
for each.
(B) VACANCIES.—A vacancy on the Board shall not
affect the powers of the Board, but shall be filled in the
same manner as provided for appointments under this
section.
(5) TERM OF SERVICE —
(A) IN GENERAL.—The term of service of each Board
member shall be 5 years, and until a successor is appointed,
except that—
(i) the terms of office of the initial Board members
(other than the chairperson) shall expire in annual
increments, 1 on each of the first 4 anniversaries of
the initial date of appointment; and
(ii) any Board member appointed to fill a vacancy
occurring before the expiration of the term for which
the predecessor was appointed shall be appointed only
for the remainder of that term.
(B) TERM LIMITATION —No person may serve as a
member of the Board, or as chairperson of the Board,
for more than 2 terms, whether or not such terms of
service are consecutive
(6) REMOVAL FROM OFFICE —A member of the Board may
be removed by the Commission from office, in accordance with
section 107(d)(3), for good cause shown before the expiration
of the term of that member.
(t) POWERS OF THE BoAJ n —In addition to any authority
granted to the Board otherwise in this Act, the Board shall have
the power, subject to section 107—
(1) to sue and be sued, complain and defend, in its corporate
name and through its own counsel, with the approval of the
Commission, in any Federal, State, or other court;
(2) to conduct its operations and maintain offices, and
to exercise all other rights and powers authorized by this Act,
in any State, without regard to any qualification, licensing,
or other provision of law in effect in such State (or a political
subdivision thereof);
(3) to lease, purchase, accept gifts or donations of or other-
wise acquire, improve, use, sell, exchange, or convey, all of
or an interest in any property, wherever situated;
(4) to appoint such employees, accountants, attorneys, and
other agents as may be necessary or appropriate, and to deter-
mine their qualifications, define their duties, and fix their
salaries or other compensation (at a level that is comparable
to private sector self-regulatory, accounting, technical, super-
visory, or other staff or management positions);
(5) to allocate, assess, and collect accounting support fees
established pursuant to section 109, for the Board, and other
fees and charges imposed under this title; and
(6) to enter into contracts, execute instruments, incur liabil-
ities, and do any and all other acts and things necessary,
appropriate, or incidental to the conduct of its operations and
the exercise of its obligations, rights, and powers imposed or
granted by this title.

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H. R. 3 763—9
(g) RULES OF THE Boi iw.—The rules of the Board shall, subject
to the approval of the Commission—
(1) provide for the operation and administration of the
Board, the exercise of its authority, and the performance of
its responsibilities under this Act;
(2) permit, as the Board determines necessary or appro-
priate, delegation by the Board of any of its functions to an
individual member or employee of the Board, or to a division
of the Board, including functions with respect to hearing, deter-
mining, ordering, certifying, reporting, or otherwise acting as
to any matter, except that—
(A) the Board shall retain a discretionary right to
review any action pursuant to any such delegated function,
upon its own motion;
(B) a person shall be entitled to a review by the Board
with respect to any matter so delegated, and the decision
of the Board upon such review shall be deemed to be
the action of the Board for all purposes (including appeal
or review thereof); and
(C) if the right to exercise a review described in
subparagraph (A) is declined, or if no such review is sought
within the time stated in the rules of the Board, then
the action taken by the holder of such delegation shall
for all purposes, including appeal or review thereof, be
deemed to be the action of the Board;
(3) establish ethics rules and standards of conduct for Board
members and staff, including a bar on practice before the
Board (and the Commission, with respect to Board-related mat-
ters) of 1 year for former members of the Board, and appropriate
periods (not to exceed 1 year) for former staff of the Board;
and
(4) provide as otherwise required by this Act.
(h) ANNu REPORT TO THE COMMIsSI0N.—The Board shall
submit an annual report (including its audited financial statements)
to the Commission, and the Commission shall transmit a copy
of that report to the Committee on Banking, Housing, and Urban
Affairs of the Senate, and the Committee on Financial Services
of the House of Representatives, not later than 30 days after the
date of receipt of that report by the Commission
SEC. 102. REGISTRATION WITH THE BOARD.
(a) MANDATORY REGI5TRAT ION.—Beginning 180 days after the
date of the determination of the Commission under section 101(d),
it shall be unlawful for any person that is not a registered public
accounting firm to prepare or issue, or to participate in the prepara-
tion or issuance of, any audit report with respect to any issuer.
(b) APPLICATIONS FOR REGISTRATION.—
(1) Foiui OF APPLICATION.—A public accounting firm shall
use such form as the Board may prescribe, by rule, to apply
for registration under this section.
(2) CoNTENTs OF APPLICATIONS.—Each public accounting
firm shall submit, as part of its application for registration,
in such detail as the Board shall specify—
(A) the names of all issuers for which the firm prepared
or issued audit reports during the immediately preceding
calendar year, and for which the firm expects to prepare
or issue audit reports during the current calendar year;

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H R 3763—10
(B) the annual fees received by the firm from each
such issuer for audit services, other accounting services,
and non-audit services, respectively;
(C) such other current financial information for the
most recently completed fiscal year of the firm as the
Board may reasonably request;
(D) a statement of the quality control policies of the
firm for its accounting and auditing practices;
(E) a list of all accountants associated with the firm
who participate in or contribute to the preparation of audit
reports, stating the license or certification number of each
such person, as well as the State license numbers of the
firm itself,
(F) information relating to criminal, civil, or adminis-
trative actions or disciplinary proceedings pending against
the firm or any associated person of the firm in connection
with any audit report;
(G) copies of any periodic or annual disclosure filed
by an issuer with the Commission during the immediately
preceding calendar year which discloses accounting dis-
agreements between such issuer and the firm in connection
with an audit report furnished or prepared by the firm
for such issuer; and
(H) such other information as the rules of the Board
or the Commission shall specif ’ as necessary or appropriate
in the public interest or for the protection of investors
(3) CONSENTS —Each application for registration under this
subsection shall include—
(A) a consent executed by the public accounting firm
to cooperation in and compliance with any request for
testimony or the production of documents made by the
Board in the furtherance of its authority and responsibil-
ities under this title (and an agreement to secure and
enforce similar consents from each of the associated persons
of the public accounting firm as a condition of their contin-
ued employment by or other association with such firm);
and
(B) a statement that such firm understands and agrees
that cooperation and compliance, as described in the con-
sent required by subparagraph (A), and the securing and
enforcement of such consents from its associated persons,
in accordance with the rules of the Board, shall be a
condition to the continuing effectiveness of the registration
of the firm with the Board
(c) ACTION ON APPLICATIONS.—
(1) TIMING.—The Board shall approve a completed applica-
tion for registration not later than 45 days after the date
of receipt of the application, in accordance with the rules of
the Board, unless the Board, prior to such date, issues a written
notice of disapproval to, or requests more information from,
the prospective registrant.
(2) TREATMENT.—A written notice of disapproval of a com-
pleted application under paragraph (1) for registration shall
be treated as a disciplinary sanction for purposes of sections
105(d) and 107(c).
Cd) PERIODIC REPORTS —Each registered public accounting firm
shall submit an annual report to the Board, and may be required

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H. R. 3763—11
to report more frequently, as necessary to update the information
contained in its application for registration under this section, and
to provide to the Board such additional information as the Board
or the Commission may specify, in accordance with subsection (b)(2)
(e) PUBLIC AVAILABILITY.—Registration applications and annual
reports required by this subsection, or such portions of such applica-
tions or reports as may be designated under rules of the Board,
shall be made available for public inspection, subject to rules of
the Board or the Commission, and to applicable laws relating to
the confidentiality of proprietary, personal, or other information
contained in such applications or reports, provided that, in all
events, the Board shall protect from public disclosure information
reasonably identified by the subject accounting firm as proprietary
information.
(f) REGISTRATION AND ANNUAL FEES.—The Board shall assess
and collect a registration fee and an annual fee from each registered
public accounting firm, in amounts that are sufficient to recover
the costs of processing and reviewing applications and annual
reports.
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STAND-
ARDS ANI) RULES.
(a) AUDITING, QUALITY CONTROL, AND ETHICS STANDARDS —
(1) IN GENERAL.—The Board shall, by rule, establish,
including, to the extent it determines appropriate, through
adoption of standards proposed by 1 or more professional groups
of accountants designated pursuant to paragraph (3)(A) or
advisory groups convened pursuant to paragraph (4), and
amend or otherwise modify or alter, such auditing and related
attestation standards, such quality control standards, and such
ethics standards to be used by registered public accounting
firms in the preparation and issuance of audit reports, as
required by this Act or the rules of the Commission, or as
may be necessary or appropriate in the public interest or for
the protection of investors
(2) RuLE REQUIREMENTS.—In carrying out paragraph (1),
the Board—
(A) shall include in the auditing standards that it
adopts, requirements that each registered public accounting
firm shall—
(i) prepare, and maintain for a period of not less
than 7 years, audit work papers, and other information
related to any audit report, in sufficient detail to sup-
port the conclusions reached in such report;
(ii) provide a concurring or second partner review
and approval of such audit report (and other related
information), and concurnng approval in its issuance,
by a qualified person (as prescribed by the Board)
associated with the public accounting firm, other than
the person in charge of the audit, or by an independent
reviewer (as prescribed by the Board), and
(iii) describe in each audit report the scope of
the auditor’s testing of the internal control structure
and procedures of the issuer, required by section
404(b), and present (in such report or in a separate
report)—

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H R. 3763—12
(I) the findings of the auditor from such
testing;
(II) an evaluation of whether such internal
control structure and procedures—
(aa) include maintenance of records that
in reasonable detail accurately and fairly
reflect the transactions and dispositions of the
assets of the issuer;
(bb) provide reasonable assurance that
transactions are recorded as necessary to
permit preparation of financial statements in
accordance with generally accepted accounting
principles, and that receipts and expenditures
of the issuer are being made only in accord-
ance with authorizations of management and
directors of the issuer; and
(III) a description, at a minimum, of material
weaknesses in such internal controls, and of any
material noncompliance found on the basis of such
testing.
(B) shall include, in the quality control standards that
it adopts with respect to the issuance of audit reports,
requirements for every registered public accounting firm
relating to—
(i) monitoring of professional ethics and independ-
ence from issuers on behalf of which the firm issues
audit reports;
(ii) consultation within such firm on accounting
and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development, and advance-
ment of personnel;
(v) the acceptance and continuation of engage-
ments;
(vi) internal inspection; and
(vii) such other requirements as the Board may
prescribe, subject to subsection (a)(1).
(3) AUTHORITY TO ADOFF OTHER STANDARDS.—
(A) IN GENERAL —In carrying out this subsection, the
Board—
(i) may adopt as its rules, subject to the terms
of section 107, any portion of any statement of auditing
standards or other professional standards that the
Board determines satisf ’ the requirements of para-
graph (1), and that were proposed by 1 or more profes-
sional groups of accountants that shall be designated
or recognized by the Board, by rule, for such purpose,
pursuant to this paragraph or 1 or more advisory
groups convened pursuant to paragraph (4); and
(ii) notwithstanding clause (i), shall retain full
authority to modify, supplement, revise, or subse-
quently amend, modify, or repeal, in whole or in part,
any portion of any statement described in clause Ci)
(B) INITIAL AND TRANSITIONAL STANDARDS —The Board
shall adopt standards described in subparagraph (A)(i) as
initial or transitional standards, to the extent the Board
determines necessary, prior to a determination of the

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H.R 3763—13
Commission under section 101(d), and such standards shall
be separately approved by the Commission at the time
of that determination, without regard to the procedures
required by section 107 that otherwise would apply to
the approval of rules of the Board.
(4) ADVISORY GROUPS —The Board shall convene, or
authorize its staff to convene, such expert advisory groups
as may be appropriate, which may include practicing account-
ants and other experts, as well as representatives of other
interested groups, subject to such rules as the Board may
prescribe to prevent conflicts of interest, to make recommenda-
tions concerning the content (including proposed drafts) of
auditing, quality control, ethics, independence, or other stand-
ards required to be established under this section.
(b) INDEPENDENCE STANDARDS AND RULES —The Board shall
establish such rules as may be necessary or appropriate in the
public interest or for the protection of investors, to implement,
or as authorized under, title II of this Act
(c) COOPERATION WITH DESIGNATED PROFESSIONAL GROUPS OF
ACCOUNTANTS AND ADVISORY GROUPS —
(1) IN GENERAL.—The Board shall cooperate on an ongoing
basis with professional groups of accountants designated under
subsection (a)(3)(A) and advisory groups convened under sub-
section (a)(4) in the examination of the need for changes in
any standards subject to its authority under subsection (a),
recommend issues for inclusion on the agendas of such des-
ignated professional groups of accountants or advisory groups,
and take such other steps as it deems appropriate to increase
the effectiveness of the standard setting process.
(2) BOARD RESPONSES —The Board shall respond in a timely
fashion to requests from designated professional groups of
accountants and advisory groups referred to in paragraph (1)
for any changes in standards over which the Board has
authority
(d) EVALUATION OF STANDARD SE’rFING PROCESS.—The Board
shall include in the annual report required by section 101(h) the
results of its standard setting responsibilities during the period
to which the report relates, including a discussion of the work
of the Board with any designated professional groups of accountants
and advisory groups described in paragraphs (3)(A) and (4) of sub-
section (a), and its pending issues agenda for future standard setting
projects
SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.
(a) IN GENERAL.—The Board shall conduct a continuing pro-
gram of inspections to assess the degree of compliance of each
registered public accounting firm and associated persons of that
firm with this Act, the rules of the Board, the rules of the Commis-
sion, or professional standards, in connection with its performance
of audits, issuance of audit reports, and related matters involving
issuers.
(b) INSPECTION FREQUENCY —
(1) IN GENERAL—Subject to paragraph (2), inspections
required by this section shall be conducted—
(A) annually with respect to each registered public
accounting firm that regularly provides audit reports for
more than 100 issuers; and

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H R. 3763—14
(B) not less frequently than once every 3 years with
respect to each registered public accounting firm that regu-
larly provides audit reports for 100 or fewer issuers.
(2) ADJUSTMENTS TO SCBEDULES.—The Board may, by rule,
adjust the inspection schedules set under paragraph (1) if the
Board finds that different inspection schedules are consistent
with the purposes of this Act, the public interest, and the
protection of investors. The Board may conduct special inspec-
tions at the request of the Commission or upon its own motion
(c) PROCEDURES.—The Board shall, in each inspection under
this section, and in accordance with its rules for such inspections—
(1) identify any act or practice or omission to act by the
registered public accounting firm, or by any associated person
thereof, revealed by such inspection that may be in violation
of this Act, the rules of the Board, the rules of the Commission,
the firm’s own quality control policies, or professional stand-
ards;
(2) report any such act, practice, or omission, if appropriate,
to the Commission and each appropriate State regulatory
authority; and
(3) begin a formal investigation or take disciplinary action,
if appropriate, with respect to any such violation, in accordance
with this Act and the rules of the Board
(d) CONDUCT OF INSPECTIONS.—In conducting an inspection
of a registered public accounting firm under this section, the Board
shall—
(1) inspect and review selected audit and review engage-
ments of the firm (which may include audit engagements that
are the subject of ongoing litigation or other controversy
between the firm and 1 or more third parties), performed at
various offices and by various associated persons of the firm,
as selected by the Board;
(2) evaluate the sufficiency of the quality control system
of the firm, and the manner of the documentation and commu-
nication of that system by the firm; and
(3) perform such other testing of the audit, supervisory,
and quality control procedures of the firm as are necessary
or appropriate in light of the purpose of the inspection and
the responsibilities of the Board.
(e) RECORD RETENTION.—The rules of the Board may require
the retention by registered public accounting firms for inspection
purposes of records whose retention is not otherwise required by
section 103 or the rules issued thereunder.
(f) PROCEDURES FOR REvIEw —The rules of the Board shall
provide a procedure for the review of and response to a draft
inspection report by the registered public accounting firm under
inspection The Board shall take such action with respect to such
response as it considers appropriate (including revising the draft
report or continuing or supplementing its inspection activities before
issuing a final report), but the text of any such response, appro-
priately redacted to protect information reasonably identified by
the accounting firm as confidential, shall be attached to and made
part of the inspection report.
(g) REPORT.—A written report of the findings of the Board
for each inspection under this section, subject to subsection (h),
shall be—

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H. R. 3763—15
(1) transmitted, in appropriate detail, to the Commission
and each appropriate State regulatory authority, accompanied
by any letter or comments by the Board or the inspector,
and any letter of response from the registered public accounting
firm; and
(2) made available in appropriate detail to the public (sub-
ject to section 105(bX5)(A), and to the protection of such con-
fidential and proprietary information as the Board may deter-
mine to be appropriate, or as may be required by law), except
that no portions of the inspection report that deal with criti-
cisms of or potential defects in the quality control systems
of the firm under inspection shall be made public if those
criticisms or defects are addressed by the firm, to the satisfac-
tion of the Board, not later than 12 months after the date
of the inspection report.
(h) INTERIM COMMISSION REVIEW.—
(1) REVIEWABLE MATFERS.—A registered public accounting
firm may seek review by the Commission, pursuant to such
rules as the Commission shall promulgate, if the firm—
(A) has provided the Board with a response, pursuant
to rules issued by the Board under subsection (f), to the
substance of particular items in a draft inspection report,
and disagrees with the assessments contained in any final
report prepared by the Board following such response; or
(B) disagrees with the determination of the Board that
criticisms or defects identified in an inspection report have
not been addressed to the satisfaction of the Board within
12 months of the date of the inspection report, for purposes
of subsection (g)(2)
(2) TREATMENT OF REVIEW —Any decision of the Commis-
sion with respect to a review under paragraph (1) shall not
be reviewable under section 25 of the Securities Exchange
Act of 1934 (15 U.S C ‘78y), or deemed to be “final agency
action” for purposes of section 704 of title 5, United States
Code.
(3) TIMING—Review under paragraph (1) may be sought
during the 30-day penod following the date of the event giving
rise to the review under subparagraph (A) or (B) of paragraph
(1).
SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.
(a) IN GEr a 1.—The Board shall establish, by rule, subject
to the requirements of this section, fair procedures for the investiga-
tion and disciplining of registered public accounting firms and asso-
ciated persons of such firms
(b) INVESTIGATIONS.—
(1) AUTHORITY —In accordance with the rules of the Board,
the Board may conduct an investigation of any act or practice,
or omission to act, by a registered public accounting firm,
any associated person of such firm, or both, that may violate
any provision of this Act, the rules of the Board, the provisions
of the secunties laws relating to the preparation and issuance
of audit reports and the obligations and liabilities of account-
ants with respect thereto, including the rules of the Commission
issued under this Act, or professional standards, regardless
of how the act, practice, or omission is brought to the attention
of the Board.

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H R.3763—16
(2) TESTIMONY AND DOCUMENT PRODUCTION—In addition
to such other actions as the Board determines to be necessary
or appropriate, the rules of the Board may—
(A) require the testimony of the firm or of any person
associated with a registered public accounting firm, with
respect to any matter that the Board considers relevant
or material to an investigation;
(B) require the production of audit work papers and
any other document or information in the pc ssession of
a registered public accounting firm or any associated person
thereof, wherever domiciled, that the Board considers rel-
evant or material to the investigation, and may inspect
the books and records of such firm or associated person
to verify the accuracy of any documents or information
supplied;
(C) request the testimony of, and production of any
document in the possession of, any other person, including
any client of a registered public accounting firm that the
Board considers relevant or material to an investigation
under this section, with appropriate notice, subject to the
needs of the investigation, as permitted under the rules
of the Board; and
(D) provide for procedures to seek issuance by the
Commission, in a manner established by the Commission,
of a subpoena to require the testimony of, and production
of any document in the possession of, any person, including
any client of a registered public accounting firm, that the
Board considers relevant or material to an investigation
under this section
(3) NONCOOPERATION WITH INVESTIGATIONS.—
(A) IN GENERAL —If a registered public accounting firm
or any associated person thereof refuses to testify, produce
documents, or otherwise cooperate with the Board in
connection with an investigation under this section, the
Board may—
(i) suspend or bar such person from being associ-
ated with a registered public accounting firm, or
require the registered public accounting firm to end
such association:
(ii) suspend or revoke the registration of the public
accounting firm; and
(iii) invoke such other lesser sanctions as the Board
considers appropriate, and as specified by rule of the
Board
(B) PROCEDURE —Any action taken by the Board under
this paragraph shall be subject to the terms of section
107(c).
(4) COORDINATION ANI) REFERRAL OF INVESTIGATIONS.—
(A) COORDINATION —The Board shall notify the
Commission of any pending Board investigation involving
a potential violation of the securities laws, and thereafter
coordinate its work with the work of the Commission’s
Division of Enforcement. as necessary to protect an ongoing
Commission investigation
(B) REFERRAL —The Board may refer an investigation
under this section—
(i) to the Commission;

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H. R. 3763—17
(ii) to any other Federal functional regulator (as
defined in section 509 of the Gramm-Leach-Bliley Act
(15 U.s.c 6809)), in the case of an investigation that
concerns an audit report for an institution that is
subject to the jurisdiction of such regulator; and
(iii) at the direction of the Commission, to—
(I) the Attorney General of the United States;
(II) the attorney general of 1 or more States;
and
(III) the appropriate State regulatory
authority.
(5) USE OF DOCUMENTS.—
(A) CONFIDENT [ ALITY.—Except as provided in subpara-
graph (B), all documents and information prepared or
received by or specifically for the Board, and deliberations
of the Board and its employees and agents, in connection
with an inspection under section 104 or with an investiga-
tion under this section, shall be confidential and privileged
as an evidentiary matter (and shall not be subject to civil
discovery or other legal process) in any proceeding in any
Federal or State court or administrative agency, and shall
be exempt from disclosure, in the hands of an agency
or establishment of the Federal Government, under the
Freedom of Information Act (5 U.S.C. 552a), or otherwise,
unless and until presented in connection with a public
proceeding or released in accordance with subsection (c)
(B) AvA1L rnuTY TO GOVERNMENT AGENCIES.—Without
the loss of its status as confidential and privileged in
the hands of the Board, all information referred to in
subparagraph (A) may—
(i) be made available to the Commission; and
(ii) in the discretion of the Board, when determined
by the Board to be necessary to accomplish the pur-
poses of this Act or to protect investors, be made avail-
able to—
(I) the Attorney General of the United States;
(II) the appropriate Federal functional regu-
lator (as defined in section 509 of the Gramm-
Leach-Bliley Act (15 U.S.C. 6809)), other than the
Commission, with respect to an audit report for
an institution subject to the jurisdiction of such
regulator;
(III) State attorneys general in connection with
any criminal investigation; and
(TV) any appropriate State regulatory
authonty,
each of which shall maintain such information as confiden-
tial and privileged.
(6) IMMuNrrv.—Any employee of the Board engaged in
carrying out an investigation under this Act shall be immune
from any civil liability arising out of such investigation in
the same manner and to the same extent as an employee
of the Federal Government in similar circumstances.
(c) DISCIPLINARY PROCEDURES.—
(1) NOTIFICATION; RECORDKEEPING —The rules of the Board
shall provide that in any proceeding by the Board to determine

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H. R. 3763—18
whether a registered public accounting firm, or an associated
person thereof, should be disciplined, the Board shall—
(A) bring specific charges with respect to the firm
or associated person;
(B) notif r such firm or associated person of, and provide
to the firm or associated person an opportunity to defend
against, such charges; and
(C) keep a record of the proceedings.
(2) PuBLIC H ARINGS.—Hearings under this section shall
not be public, unless otherwise ordered by the Board for good
cause shown, with the consent of the parties to such hearing.
(3) SUPPORTING STATEMENT.—A determination by the Board
to impose a sanction under this subsection shall be supported
by a statement setting forth—
(A) each act or practice in which the registered public
accounting firm, or associated person, has engaged (or
omitted to engage), or that forms a basis for all or a
part of such sanction;
(B) the specific provision of this Act, the securities
laws, the rules of the Board, or professional standards
which the Board determines has been violated; and
(C) the sanction imposed, including a justification for
that sanction.
(4) SANcTioNs.—If the Board finds, based on all of the
facts and circumstances, that a registered public accounting
firm or associated person thereof has engaged in any act or
practice, or omitted to act, in violation of this Act, the rules
of the Board, the provisions of the securities laws relating
to the preparation and issuance of audit reports and the obliga-
tions and liabilities of accountants with respect thereto,
including the rules of the Commission issued under this Act,
or professional standards, the Board may impose such discipli-
nary or remedial sanctions as it determines appropriate, subject
to applicable limitations under paragraph (5), including—
(A) temporary suspension or permanent revocation of
registration under this title;
(B) temporary or permanent suspension or bar of a
person from further association with any registered public
accounting firm;
(C) temporary or permanent limitation on the activi-
ties, functions, or operations of such firm or person (other
than in connection with required additional professional
education or training);
(D) a civil money penalty for each such violation, in
an amount equal to—
(i) not more than $100,000 for a natural person
or $2,000,000 for any other person; and
(ii) in any case to which paragraph (5) applies,
not more than $750,000 for a natural person or
$15,000,000 for any other person;
(E) censure;
(F) required additional professional education or
training; or
(G) any other appropriate sanction provided for in the
rules of the Board

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H. R. 3763—19
(5) INTENTIONAL OR OTHER KNOWING CONDUCT—The sanc-
tions and penalties described in subparagraphs (A) through
(C) and (D)(ii) of paragraph (4) shall only apply to—
(A) intentional or knowing conduct, including reckless
conduct, that results in violation of the applicable statutory,
regulatory, or professional standard; or
(B) repeated instances of negligent conduct, each
resulting in a violation of the applicable statutory, regu-
latory, or professional standard.
(6) FAILURE TO SUPERVISE —
(A) IN GENERAL.—The Board may impose sanctions
under this section on a registered accounting firm or upon
the supervisory personnel of such firm, if the Board finds
that—
(i) the firm has failed reasonably to supervise an
associated person, either as required by the rules of
the Board relating to auditing or quality control stand-
ards, or otherwise, with a view to preventing violations
of this Act, the rules of the Board, the provisions
of the securities laws relating to the preparation and
issuance of audit reports and the obligations and liabil-
ities of accountants with respect thereto, including the
rules of the Commission under this Act, or professional
standards; and
(ii) such associated person commits a violation of
this Act, or any of such rules, laws, or standards.
(B) RULE OF CONSTRUCTION.—No associated person of
a registered public accounting firm shall be deemed to
have failed reasonably to supervise any other person for
purposes of subparagraph (A), if—
(i) there have been established in and for that
firm procedures, and a system for applying such proce-
dures, that comply with applicable rules of the Board
and that would reasonably be expected to prevent and
detect any such violation by such associated person;
and
(ii) such person has reasonably discharged the
duties and obligations incumbent upon that person
by reason of such procedures and system, and had
no reasonable cause to believe that such procedures
and system were not being complied with.
(7) EFFECT OF SUSPENSION.—
(A) ASSOCIATION WITH A PUBLIC ACCOUNTING FIRM —
It shall be unlawful for any person that is suspended
or barred from being associated with a registered public
accounting firm under this subsection willfully to become
or remain associated with any registered public accounting
firm, or for any registered public accounting firm that
knew, or, in the exercise of reasonable care should have
known, of the suspension or bar, to permit such an associa-
tion, without the consent of the Board or the Commission
(B) ASSOCIATION WITH AN ISSUER.—It shall be unlawful
for any person that is suspended or barred from being
associated with an issuer under this subsection willfully
to become or remain associated with any issuer in an
accountancy or a financial management capacity, and for
any issuer that knew, or in the exercise of reasonable

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H. R. 3763—20
care should have known, of such suspension or bar, to
permit such an association, without the consent of the
Board or the Commission.
(d) REPORTING OF S cT1oNs.—
(1) RECIPIENTS.—If the Board imposes a disciplinary sanc-
tion, in accordance with this section, the Board shall report
the sanction to—
(A) the Commission;
(B) any appropriate State regulatory authority or any
foreign accountancy licensing board with which such firm
or person is licensed or certified; and
(C) the public (once any stay on the imposition of
such sanction has been lifted).
(2) CONTENTS —The information reported under paragraph
(1) shall include—
(A) the name of the sanctioned person;
(B) a description of the sanction and the basis for
its imposition; and
(C) such other information as the Board deems appro-
priate.
(e) STAY OF SANCTIONS.—
(1) IN GENERAL —Application to the Commission for review,
or the institution by the Commission of review, of any discipli-
nary action of the Board shall operate as a stay of any such
disciplinary action, unless and until the Commission orders
(summarily or after notice and opportunity for hearing on the
question of a stay, which hearing may consist solely of the
submission of afl1dav ts or presentation of oral arguments) that
no such stay shall continue to operate
(2) EXPEDITED PROCEDURES —The Commission shall estab-
lish for appropriate cases an expedited procedure for consider-
ation and determination of the question of the duration of
a stay pending review of any disciplinary action of the Board
under this subsection.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) APPLICABILITY TO CERTAIN FOREIGN FIRMS —
(1) IN GENERAL.—Any foreign public accounting firm that
prepares or furnishes an audit report with respect to any issuer,
shall be subject to this Act and the rules of the Board and
the Commission issued under this Act, in the same manner
and to the same extent as a public accounting firm that is
organized and operates under the laws of the United States
or any State, except that registration pursuant to section 102
shall not by itself provide a basis for subjecting such a foreign
public accounting firm to the jurisdiction of the Federal or
State courts, other than with respect to controversies between
such firms and the Board.
(2) BOARD AUTHORITY.—The Board may, by rule, determine
that a foreign public accounting firm (or a class of such firms)
that does not issue audit reports nonetheless plays such a
substantial role in the preparation and furnishing of such
reports for particular issuers, that it is necessary or appro-
priate, in light of the purposes of this Act and in the public
interest or for the protection of investors, that such firm (or
class of firms) should be treated as a public accounting firm

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H. R. 3763—21
(or firms) for purposes of registration under, and oversight
by the Board in accordance with, this title.
(b) PRODUCTION OF AUDIT WORKPAPERS —
(1) CONSENT BY FOREIGN FIRMS.—If a foreign public
accounting firm issues an opinion or otherwise performs mate-
rial services upon which a registered public accounting firm
relies in issuing all or part of any audit report or any opinion
contained in an audit report, that foreign public accounting
firm shall be deemed to have consented—
(A) to produce its audit workpapers for the Board
or the Commission in connection with any investigation
by either body with respect to that audit report; and
(B) to be subject to the jurisdiction of the courts of
the United States for purposes of enforcement of any
request for production of such workpapers.
(2) CONSENT BY DOMESTIC FIRMS —A registered public
accounting firm that relies upon the opinion of a foreign public
accounting firm, as described in paragraph (1), shall be
deemed—
(A) to have consented to supplying the audit
workpapers of that foreign public accounting firm in
response to a request for production by the Board or the
Commission; and
(B) to have secured the agreement of that foreign public
accounting firm to such production, as a condition of its
reliance on the opinion of that foreign public accounting
firm.
Cc) EXEMPTION AumORrrY.—The Commission, and the Board,
subject to the approval of the Commission, may, by rule, regulation,
or order, and as the Commission (or Board) determines necessary
or appropriate in the public interest or for the protection of inves-
tors, either unconditionally or upon specified terms and conditions
exempt any foreign public accounting firm, or any class of such
firms, from any provision of this Act or the rules of the Board
or the Commission issued under this Act.
(d) DEFINITION.—In this section, the term “foreign public
accounting firm” means a public accounting firm that is organized
and operates under the laws of a foreign government or political
subdivision thereof
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) GENERAL OVERSIGHT RESPONSIBILITY.—The Commission
shall have oversight and enforcement authority over the Board,
as provided in this Act. The provisions of section 17(a)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)), and of section
17(b)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(b)(1))
shall apply to the Board as fully as if the Board were a “registered
securities association” for purposes of those sections 17(a)(1) and
17(b)(1).
(b) RULES OF THE BOARD.—
Cl) DEFINITION.—In this section, the term “proposed rule”
means any proposed rule of the Board, and any modification
of any such rule.
(2) PRIOR APPROVAL REQUIRED—No rule of the Board shall
become effective without prior approval of the Commission in
accordance with this section, other than as provided in section
103(a)(3)(B) with respect to initial or transitional standards.

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H.R 3763—22
(3) APPROVAL cRI’rEIUA.—The Commission shall approve
a proposed rule, if it finds that the rule is consistent with
the requirements of this Act and the securities laws, or is
necessary or appropriate in the public interest or for the protec-
tion of investors.
(4) PROPOSED RULE PROCEDURES.—The provisions of para-
graphs (1) through (3) of section 19(b) of the Securities
Exchange Act of 1934 (15 U.S.C 78s(b)) shall govern the pro-
posed rules of the Board, as fully as if the Board were a
“registered securities association” for purposes of that section
19(b), except that, for purposes of this paragraph—
(A) the phrase “consistent with the requirements of
this title and the rules and regulations thereunder
applicable to such organization” in section 19(b)(2) of that
Act shall be deemed to read “consistent with the require-
ments of title I of the Sarbanes-Oxley Act of 2002, and
the rules and regulations issued thereunder applicable to
such organization, or as necessary or appropriate in the
public interest or for the protection of investors”; and
(B) the phrase “otherwise in furtherance of the pur-
poses of this title” in section 19(b)(3)(C) of that Act shall
be deemed to read “otherwise in furtherance of the purposes
of title I of the Sarbanes-Oxley Act of 2002”
(5) COMMISSION AUTHORITY TO AMEND RULES OF THE
BOARD —The provisions of section 19(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(c)) shall govern the abroga-
tion, deletion, or addition to portions of the rules of the Board
by the Commission as fully as if the Board were a “registered
securities association” for purposes of that section 19(c), except
that the phrase “to conform its rules to the requirements of
this title and the rules and regulations thereunder applicable
to such organization, or otherwise in furtherance of the pur-
poses of this title” in section 19(c) of that Act shall, for purposes
of this paragraph, be deemed to read “to assure the fair
administration of the Public Company Accounting Oversight
Board, conform the rules promulgated by that Board to the
requirements of title I of the Sarbanes-Oxley Act of 2002,
or otherwise further the purposes of that Act, the securities
laws, and the rules and regulations thereunder applicable to
that Board”.
(C) COMMISSION REVIEW OF DISCIPLINARY ACTION TAKEN BY
THE B0AIw.—
(1) NOTICE OF SANCTION—The Board shall promptly file
notice with the Commission of any final sanction on any reg-
istered public accounting firm or on any associated person
thereof, in such form and containing such information as the
Commission, by rule, may prescribe.
(2) REvIEW OF SANCTIONS.—The provisions of sections
19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 78s (d)(2) and (e)(1)) shall govern the review by
the Commission of final disciplinary sanctions imposed by the
Board (including sanctions imposed under section 105(b)(3) of
this Act for noncooperation in an investigation of the Board),
as fully as if the Board were a self-regulatory organization
and the Commission were the appropriate regulatory agency
for such organization for purposes of those sections 19(d)(2)
and 19(e)(1), except that, for purposes of this paragraph—

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H. R. 3 763—23
(A) section 105(e) of this Act (rather than that section
19(d)(2)) shall govern the extent to which application for,
or institution by the Commission on its own motion of,
review of any disciplinary action of the Board operates
as a stay of such action;
(B) references in that section 19(e)(1) to “members”
of such an organization shall be deemed to be references
to registered public accounting firms;
(C) the phrase “consistent with the purposes of this
title” in that section 19(e)(1) shall be deemed to read “con-
sistent with the purposes of this title and title I of the
Sarbanes-Oxley Act of 2002”;
(D) references to rules of the Municipal Securities Rule-
making Board in that section 19(e)(1) shall not apply; and
(E) the reference to section 19(e)(2) of the Securities
Exchange Act of 1934 shall refer instead to section 107(c)(3)
of this Act.
(3) Coan issior.z MODIFICATION AUTHORITY.—The Commis-
sion may enhance, modify, cancel, reduce, or require the remis-
sion of a sanction imposed by the Board upon a registered
public accounting firm or associated person thereof, if the
Commission, having dun regard for the public interest and
the protection of investors, finds, after a proceeding in accord-
ance with this subsection, that the sanction—
(A) is not necessary or appropriate in furtherance of
this Act or the securities laws; or
(B) is excessive, oppressive, inadequate, or otherwise
not appropriate to the finding or the basis on which the
sanction was imposed
(d) CENSURE OF THE BOARD; OTHER Siu’JcTIoNs.—
(1) RESCISSION OF BOARD AUTHORITY —The Commission,
by rule, consistent with the public interest, the protection of
investors, and the other purposes of this Act and the securities
laws, may relieve the Board of any responsibility to enforce
compliance with any provision of this Act, the securities laws,
the rules of the Board, or professional standards.
(2) CENSURE OF THE BOARD; LIMITATIONS.—The Commission
may, by order, as it determines necessary or appropriate in
the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this Act or the securities
laws, censure or impose limitations upon the activities, func-
tions, and operations of the Board, if the Commission finds,
on the record, after notice and opportunity for a hearing, that
the Board—
(A) has violated or is unable to comply with any provi-
sion of this Act, the rules of the Board, or the securities
laws; or
(B) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by a registered public
accounting firm or an associated person thereof.
(3) CENSuRE OF BOARD MEMBERS; REMOVAL FROM OFFICE.—
The Commission may, as necessary or appropriate in the public
interest, for the protection of investors, or otherwise in further-
ance of the purposes of this Act or the securities laws, remove

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H R 3763—24
from office or censure any member of the Board, if the Commis-
sion finds, on the record, after notice and opportunity for a
hearing, that such member—
(A) has willfully violated any provision of this Act,
the rules of the Board, or the securities laws;
(B) has willfully abused the authority of that member;
or
(C) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by any registered public
accounting firm or any associated person thereof.
SEC. 108. ACCOUNTING STANDARDS.
(a) AMENDMENT TO SECURITIES ACT OF 1933 —Section 19 of
the Securities Act of 1933 (15 U.S.C. 77s) is amended—
(1) by redesignating subsections (b) and (c) as subsections
(C) and (d), respectively; and
(2) by inserting after subsection (a) the following:
“(b) RECOGNITION OF ACCOUNTING STANDARDS.—
“(1) IN GENERAL.—In carrying out its authority under sub-
section (a) and under section 13(b) of the Securities Exchange
Act of 1934, the Commission may recognize, as ‘generally
accepted’ for purposes of the securities laws, any accounting
principles established by a standard setting body—
“(A) that—
“(i) is organized as a private entity;
“(ii) has, for administrative and operational pur-
poses, a board of trustees (or equivalent body) serving
in the public interest, the majority of whom are not,
concurrent with their service on such board, and have
not been during the 2-year period preceding such
service, associated persons of any registered public
accounting firm;
“(iii) is funded as provided in section 109 of the
Sarbanes-Oxley Act of 2002;
“(iv) has adopted procedures to ensure prompt
consideration, by majority vote of its members, of
changes to accounting principles necessary to reflect
emerging accounting issues and changing business
practices; and
“(v) considers, in adopting accounting pnnciples,
the need to keep standards current in order to reflect
changes in the business environment, the extent to
which international convergence on high quality
accounting standards is necessary or appropriate in
the public interest and for the protection of investors;
and
“(B) that the Commission determines has the capacity
to assist the Commission in fulfilling the requirements
of subsection (a) and section 13(b) of the Securities
Exchange Act of 1934, because, at a minimum, the standard
setting body is capable of improving the accuracy and
effectiveness of financial reporting and the protection of
investors under the securities laws.

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H R 3763—25
“(2) ANNUAL REPORT —A standard setting body described
in paragraph (1) shall submit an annual report to the Commis-
sion and the public, containing audited financial statements
of that standard setting body “.
(b) COMMISSION AUTHORITY.—The Commission shall promul-
gate such rules and regulations to carry out section 19(b) of the
Securities Act of 1933, as added by this section, as it deems nec-
essary or appropriate in the public interest or for the protection
of investors.
(c) No EFFECT ON COMMISSION POWERS —Nothing in this Act,
including this section and the amendment made by this section,
shall be construed to impair or limit the authority of the Commis-
sion to establish accounting principles or standards for purposes
of enforcement of the securities laws
(d) STUDY AND REPORT ON ADOPTING PRINCIPLES-BASED
ACCOUNTING.—
(1) STUDY —
(A) IN GENERAL—The Commission shall conduct a
study on the adoption by the United States financial
reporting system of a principles-based accounting system
(B) STUDY ‘ropics —The study required by subpara-
graph (A) shall include an examination of—
(i) the extent to which principles-based accounting
and financial reporting exists in the United States;
(ii) the length of time required for change from
a rules-based to a principles-based financial reporting
system;
(iii) the feasibility of and proposed methods by
which a principles-based system may be implemented;
and
(iv) a thorough economic analysis of the
implementation of a principles-based system.
(2) REPORT —Not later than 1 year after the date of enact-
ment of this Act, the Commission shall submit a report on
the results of the study required by paragraph (1) to the Com-
mittee on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Financial Services of the House of Rep-
resentatives
SEC. 109. FUNDING.
(a) IN GENERiu .—The Board, and the standard setting body
designated pursuant to section 19(b) of the Securities Act of 1933,
as amended by section 108, shall be funded as provided in this
section
(b) ANNUAL BUDGETS —The Board and the standard setting
body referred to in subsection (a) shall each establish a budget
for each fiscal year, which shall be reviewed and approved according
to their respective internal procedures not less than 1 month prior
to the commencement of the fiscal year to which the budget pertains
(or at the beginning of the Board’s first fiscal year, which may
be a short fiscal year) The budget of the Board shall be subject
to approval by the Commission The budget for the first fiscal
year of the Board shall be prepared and approved promptly fol-
lowing the appointment of the initial five Board members, to permit
action by the Board of the organizational tasks contemplated by
section 101(d).
(c) SOURCES AND USES OF FUNDS —

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H. R. 3763—26
(1) RECOVERABLE BUDGET EXPENSES.—The budget of the
Board (reduced by any registration or annual fees received
under section 102(e) for the year preceding the year for which
the budget is being computed), and all of the budget of the
standard setting body referred to in subsection (a), for each
fiscal year of each of those 2 entities, shall be payable from
annual accounting support fees, in accordance with subsections
(d) and (e). Accounting support fees and other receipts of the
Board and of such standard-setting body shall not be considered
public monies of the United States.
(2) FUNDS GENERATED FROM THE COLLECTION OF MONETARY
PENALTIES.—Subject to the availability in advance in an appro-
priations Act, and notwithstanding subsection (i), all funds
collected by the Board as a result of the assessment of monetary
penalties shall be used to fund a merit scholarship program
for undergraduate and graduate students enrolled in accredited
accounting degree programs, which program is to be adminis-
tered by the Board or by an entity or agent identified by
the Board.
(d) A u AccouI TING SUPPORT FEE FOR THE BoARD —
(1) ESTABLISHMENT OF FEE—The Board shall establish,
with the approval of the Commission, a reasonable annual
accounting support fee (or a formula for the computation
thereof), as may be necessary or appropriate to establish and
maintain the Board. Such fee may also cover costs incurred
in the Board’s first fiscal year (which may be a short fiscal
year), or may be levied separately with respect to such short
fiscal year.
(2) ASSESSMENTS.—The rules of the Board under paragraph
(1) shall provide for the equitable allocation, assessment, and
collection by the Board (or an agent appointed by the Board)
of the fee established under paragraph (1), among issuers,
in accordance with subsection (g), allowing for differentiation
among classes of issuers, as appropriate.
(e) ANNUAL ACCOUNTING SUPPORT FEE FOR STANDARD SE’rFING
BODY.—The annual accounting support fee for the standard setting
body referred to in subsection (a)—
(1) shall be allocated in accordance with subsection (g),
and assessed and collected against each issuer, on behalf of
the standard setting body, by 1 or more appropriate designated
collection agents, as may be necessary or appropriate to pay
for the budget and provide for the expenses of that standard
setting body, and to provide for an independent, stable source
of funding for such body, subject to review by the Commission;
and
(2) may differentiate among different classes of issuers
(fl LIMITATION ON FEE.—The amount of fees collected under
this section for a fiscal year on behalf of the Board or the standards
setting body, as the case may be, shall not exceed the recoverable
budget expenses of the Board or body, respectively (which may
include operating, capital, and accrued items), referred to in sub-
section (c)(1).
(g) ALLOCATION OF ACCOuNTING SUPPORT FEES AMONG
Issu s.—Any amount due from issuers (or a particular class of
issuers) under this section to fund the budget of the Board or
the standard setting body referred to in subsection (a) shall be
allocated among and payable by each issuer (or each issuer in

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H. R. 3763—27
a particular class, as applicable) in an amount equal to the total
of such amount, multiplied by a fraction—
(1) the numerator of which is the average monthly equity
market capitalization of the issuer for the 12-month period
immediately preceding the beginning of the fiscal year to which
such budget relates; and
(2) the denominator of which is the average monthly equity
market capitalization of all such issuers for such 12-month
period
(h) CONFORMING AMENDMENTS.—Section 13(b)(2) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78m(bX2)) is amended—
(1) in subparagraph (A), by striking “and” at the end;
and
(2) in subparagraph (B), by striking the period at the
end and inserting the following: “; and
“(C) notwithstanding any other provision of law, pay the
allocable share of such issuer of a reasonable annual accounting
support fee or fees, determined in accordance with section 109
of the Sarbanes-Oxley Act of 2002”
(i) RULE OF CONSTRUCTION—Nothing in this section shall be
construed to render either the Board, the standard setting body
referred to in subsection (a), or both, subject to procedures in
Congress to authorize or appropriate public funds, or to prevent
such organization from utilizing additional sources of revenue for
its activities, such as earnings from publication sales, provided
that each additional source of revenue shall not jeopardize, in
the judgment of the Commission, the actual and perceived independ-
ence of such organization.
(j) START-UP EXPENSES OF THE BOARD.—From the unexpended
balances of the appropriations to the Commission for fiscal year
2003, the Secretary of the Treasury is authorized to advance to
the Board not to exceed the amount necessary to cover the expenses
of the Board during its first fiscal year (which may be a short
fiscal year)
TITLE Il—AUDITOR INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.
(a) PROHIBITED Ac’rlvrrlEs.—Section 1OA of the Securities
Exchange Act of 1934 (15 U S.C. 78 j—1) is amended by adding
at the end the following:
“(g) PROHIBITED ACT!VITIES.—EXCept as provided in subsection
(h), it shall be unlawful for a registered public accounting firm
(and any associated person of that firm, to the extent determined
appropriate by the Commission) that performs for any issuer any
audit required by this title or the rules of the Commission under
this title or, beginning 180 days after the date of commencement
of the operations of the Public Company Accounting Oversight
Board established under section 101 of the Sarbanes-Oxley Act
of 2002 (in this section referred to as the ‘Board’), the rules of
the Board, to provide to that issuer, contemporaneously with the
audit, any non-audit service, including—
“(1) bookkeeping or other services related to the accounting
records or financial statements of the audit client;
“(2) financial information systems design and implements-
tion;

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H. R. 3763—28
“(3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
“(4) actuanal services;
“(5) internal audit outsourcing services;
“(6) management functions or human resources;
“(7) broker or dealer, investment adviser, or investment
banking services;
“(8) legal services and expert services unrelated to the
audit; and
“(9) any other service that the Board determines, by regula-
tion, is impermissible
“(h) PREAPPROVAL REQUIRED FOR NoN-AUDIT SERVIcEs.—A reg-
istered public accounting firm may engage in any non-audit service,
including tax services, that is not described in any of paragraphs
(1) through (9) of subsection (g) for an audit client, only if the
activity is approved in advance by the audit committee of the
issuer, in accordance with subsection (i)”
(b) ExEMPTION AUTHORITY —The Board may, on a case by
case basis, exempt any person, issuer, public accounting firm, or
transaction from the prohibition on the provision of services under
section 1OA(g) of the Securities Exchange Act of 1934 (as added
by this section), to the extent that such exemption is necessary
or appropriate in the public interest and is consistent with the
protection of investors, and subject to review by the Commission
in the same manner as for rules of the Board under section 107
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 1OA of the Securities Exchange Act of 1934 (15 U S.C.
as amended by this Act, is amended by adding at the
end the following:
“(i) PREAPPROVAL REQUIREMENTS —
“(1) IN GENERAL —
“(A) AUDIT COMMITTEE ACTION.—Al1 auditing services
(which may entail providing comfort letters in connection
with securities underwrit.ings or statutory audits required
for insurance companies for purposes of State law) and
non-audit services, other than as provided in subparagraph
(B), provided to an issuer by the auditor of the issuer
shall be preapproved by the audit committee of the issuer.
“(B) DE MININUS EXCEPTION —The preapproval require-
ment under subparagraph (A) is waived with respect to
the provision of non-audit services for an issuer, if—
“(i) the aggregate amount of all such non-audit
services provided to the issuer constitutes not more
than 5 percent of the total amount of revenues paid
by the issuer to its auditor during the fiscal year
in which the nonaudit services are provided;
“(ii) such services were not. recognized by the issuer
at the time of the engagement to be non-audit services;
and
“(iii) such services are promptly brought to the
attention of the audit committee of the issuer and
approved pnor to the completion of the audit by the
audit committee or by 1 or more members of the audit
committee who are members of the board of directors
to whom authority to grant such approvals has been
delegated by the audit committee

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H. R. 3763—29
“(2) DISCLOSURE TO INVESTORS.—Approval by an audit com-
mittee of an issuer under this subsection of a non-audit service
to be performed by the auditor of the issuer shall be disclosed
to investors in periodic reports required by section 13(a).
“(3) DELEGATION AUTHORITY.—The audit committee of an
issuer may delegate to 1 or more designated members of the
audit committee who are independent directors of the board
of directors, the authority to grant preapprovals required by
this subsection. The decisions of any member to whom authority
is delegated under this paragraph to preapprove an activity
under this subsection shall be presented to the full audit com-
mittee at each of its scheduled meetings.
“(4) APPROVAL OF AUDIT SERVICES FOR OTHER PURPOSES.—
In carrying out its duties under subsection (m)(2), if the audit
committee of an issuer approves an audit service within the
scope of the engagement of the auditor, such audit service
shall be deemed to have been preapproved for purposes of
this subsection “.
SEC. 203. AUDIT PARTNER ROTATION.
Section 1OA of the Securities Exchange Act of 1934 (15 U.s.c.
78j—1), as amended by this Act, is amended by adding at the
end the following:
“(j) AUDIT PARTNER R0TATI0N.—It shall be unlawful for a reg-
istered public accounting firm to provide audit services to an issuer
if the lead (or coordinating) audit partner (having primary responsi-
bility for the audit), or the audit partner responsible for reviewing
the audit, has performed audit services for that issuer in each
of the 5 previous fiscal years of that issuer”
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 1OA of the Securities Exchange Act of 1934 (15 U.S c
78j—1), as amended by this Act, is amended by adding at the
end the following:
“(k) REPORTS TO AUDIT CoMMrrrEEs.—Each registered public
accounting firm that performs for any issuer any audit required
by this title shall timely report to the audit committee of the
issuer—
“(1) all critical accounting policies and practices to be used;
“(2) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management otficia]s of the issuer, ramifications
of the use of such alternative disclosures and treatments, and
the treatment preferred by the registered public accounting
firm; and
“(3) other material written communications between the
registered public accounting firm and the management of the
issuer, such as any management letter or schedule of
unadjusted differences.”.
SEC. 206. CONFORMING AMENDMENTS.
(a) DEFINITIONS.—Section 3(a) of the Securities Exchange Act
of 1934 (15 U.S c. 78c(a)) is amended by adding at the end the
following
“(58) AUDIT COMMITTEE.—The term ‘audit committee’
means—
“(A) a committee (or equivalent body) established by
and amongst the board of directors of an issuer for the

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H. R. 3 763—30
purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the financial
statements of the issuer; and
“(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
“(59) REGISTERED PUBLIC ACCOUNTING FIRM.—The term
‘registered public accounting firm’ has the same meaning as
in section 2 of the Sarbanes-Oxley Act of 2002.”.
(b) AUDITOR REQurnEMEN’rs.—Section 1OA of the Securities
Exchange Act of 1934 (15 U.S.C. 78j—1) is amended—
(1) by striking “an independent public accountant” each
place that term appears and inserting “a registered public
accounting firm”;
(2) by striking “the independent public accountant” each
place that term appears and inserting “the registered public
accounting firm”;
(3) in subsection (c), by striking “No independent public
accountant” and inserting “No registered public accounting
firm”; and
(4) in subsection (b)—
(A) by striking “the accountant” each place that term
appears and inserting “the firm”;
(B) by striking “such accountant” each place that term
appears and inserting “such firm”; and
(C) in paragraph (4), by striking “the accountant’s
report” and inserting “the report of the firm”.
(c) OThER REFERENCES.—The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.) is amended—
(1) in section 12(b)(1) (15 U.S C 78l(b)(1)), by striking
“independent public accountants” each place that term appears
and inserting “a registered public accounting firm”; and
(2) in subsections (e) and (i) of section 17 (15 U.S c. 78q),
by striking “an independent public accountant” each place that
term appears and inserting “a registered public accounting
firm”.
(d) CONFORMING AMENDMENT —Section 1OA(f) of the Securities
Exchange Act of 1934 (15 U.S C. 78k(f)) is amended—
(1) by striking “DEFINITION” and inserting “DEFINITIONS”;
and
(2) by adding at the end the following: “As used in this
section, the term ‘issuer’ means an issuer (as defined in section
3), the securities of which are registered under section 12,
or that is required to file reports pursuant to section 15(d),
or that files or has filed a registration statement that has
not yet become effective under the Securities Act of 1933 (15
U.S.C. 77a et seq.), and that it has not withdrawn “.
SEC. 206. CONFLICTS OF INTEREST.
Section 1OA of the Securities Exchange Act of 1934 (15 U.S.C.
as amended by this Act, is amended by adding at the
end the following:
“(1) CONFLICTS OF INTEREST.—It shall be unlawful for a reg-
istered public accounting firm to perform for an issuer any audit
service required by this title, if a chief executive officer, controller,
chief financial officer, chief accounting officer, or any person serving
in an equivalent position for the issuer, was employed by that
registered independent public accounting firm and participated in

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H. R. 3763—31
any capacity in the audit of that issuer during the 1-year period
preceding the date of the initiation of the audit.”.
SEC. 207. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC
ACCOUNTING FIRMS.
(a) STUDY AND REVIEW REQUIRED—The Comptroller General
of the United States shall conduct a study and review of the
potential effects of requiring the mandatory rotation of registered
public accounting firms.
(b) REPORT REQuIRED.—Not later than 1 year after the date
of enactment of this Act, the Comptroller General shall submit
a report to the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the
House of Representatives on the results of the study and review
required by this section.
(c) DEFINITION.—For purposes of this section, the term “manda-
tory rotation” refers to the imposition of a limit on the period
of years in which a particular registered public accounting firm
may be the auditor of record for a particular issuer
SEC. 208. COMMISSION AUTHORITY.
(a) COMMISSION REGULATIONS —Not later than 180 days after
the date of enactment of this Act, the Commission shall issue
final regulations to carry out each of subsections (g) through (1)
of section 1OA of the Securities Exchange Act of 1934, as added
by this title.
(b) AUDITOR INDEPENDENCE —It shall be unlawful for any reg-
istered public accounting firm (or an associated person thereof,
as applicable) to prepare or issue any audit report with respect
to any issuer, if the firm or associated person engages in any
activity with respect to that issuer prohibited by any of subsections
(g) through (I) of section 1OA of the Securities Exchange Act of
1934, as added by this title, or any rule or regulation of the
Commission or of the Board issued thereunder.
SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY
AUTHORITIES.
In supervising nonregistered public accounting firms and their
associated persons, appropriate State regulatory authorities should
make an independent determination of the proper standards
applicable, particularly taking into consideration the size and
nature of the business of the accounting firms they supervise and
the size and nature of the business of the clients of those firms.
The standards applied by the Board under this Act should not
be presumed to be applicable for purposes of this section for small
and medium sized nonregistered public accounting firms.
TITLE Ill—CORPORATE
RESPONSIBILITY
SEC. 301. PUBLIC COMPAI’4Y AUDIT COMMITFEES.
Section 1OA of the Securities Exchange Act of 1934 (15 U S.C.
781) is amended by adding at the end the following:
“(m) STANDARDS RELATING TO AuDIT COMMITrEES.—
“(1) COMMISSION RULES.—

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H. R. 3763—32
“(A) IN GENERAL—Effective not later than 270 days
after the date of enactment of this subsection, the Commis-
sion shall, by rule, direct the national securities exchanges
and national securities associations to prohibit the listing
of any security of an issuer that is not in compliance
with the requirements of any portion of paragraphs (2)
through (6).
“(B) OPPORTUNITY TO CURE DEFECTS.—The rules of the
Commission under subparagraph (A) shall provide for
appropriate procedures for an issuer to have an opportunity
to cure any defects that would be the basis for a prohibition
under subparagraph (A), before the imposition of such
prohibition.
“(2) RESPONSIBILITIES RELATING TO REGISTERED PUBLIC
ACCOUNTING FIRMS.—The audit committee of each issuer, in
its capacity as a committee of the board of directors, shall
be directly responsible for the appointment, compensation, and
oversight of the work of any registered public accounting firm
employed by that issuer (including resolution of disagreements
between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit
report or related work, and each such registered public
accounting firm shall report directly to the audit committee
“(3) INDEPENDENCE.—
“(A) IN GENERAL —Each member of the audit com-
mittee of the issuer shall be a member of the board of
directors of the issuer, and shall otherwise be independent.
“(B) CRITEaz.A.—In order to be considered to be inde-
pendent for purposes of this paragraph, a member of an
audit committee of an issuer may not, other than in his
or her capacity as. a member of the audit committee, the
board of directors, or any other board committee—
“(i) accept any consulting, advisory, or other
compensatory fee from the issuer; or
“(ii) be an affiliated person of the issuer or any
subsidiary thereof.
“(C) EXEMPTION AUTHORITY —The Commission may
exempt from the requirements of subparagraph (B) a par-
ticular relationship with respect to audit committee mem-
bers, as the Commission determines appropriate in light
of the circumstances.
“(4) COMPLAINTS —Each audit committee shall establish
procedures for—
“(A) the receipt, retention, and treatment of complaints
received by the issuer regarding accounting, internal
accounting controls, or auditing matters; and
“(B) the confidential, anonymous submission by
employees of the issuer of concerns regarding questionable
accounting or auditing matters.
“(5) AUThORITY TO ENGAGE ADVISERS.—Each audit com-
mittee shall have the authority to engage independent counsel
and other advisers, as it determines necessary to carry out
its duties.
“(6) FtJNDING.—EaCh issuer shall provide for appropriate
funding, as determined by the audit committee, in its capacity
as a committee of the board of directors, for payment of
compensation—

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H. R. 3763—33
“(A) to the registered public accounting firm employed
by the issuer for the purpose of rendering or issuing an
audit report; and
“(B) to any advisers employed by the audit committee
under paragraph (5) “.
SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) REGULATIONS REQUIItED.—The Commission shall, by rule,
require, for each company filing periodic reports under section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m,
78o(d)), that the principal executive officer or officers and the prin-
cipal financial officer or officers, or persons performing similar
functions, certif ’ in each annual or quarterly report filed or sub-
mitted under either such section of such Act that—
(1) the signing officer has reviewed the report;
(2) based on the officer’s knowledge, the report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
made, in light of the circumstances under which such state-
ments were made, not misleading;
(3) based on such officer’s knowledge, the financial state-
ments, and other financial information included in the report,
fairly present in all material respects the financial condition
and results of operations of the issuer as of, and for, the
periods presented in the report,
(4) the signing officers—
(A) are responsible for establishing and maintaining
internal controls;
(B) have designed such internal controls to ensure
that material information relating to the issuer and its
consolidated subsidiaries is made known to such officers
by others within those entities, particularly during the
period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s
internal controls as of a date within 90 days prior to
the report; and
(D) have presented in the report their conclusions
about the effectiveness of their internal controls based on
their evaluation as of that date;
(5) the signing officers have disclosed to the issuer’s audi-
tors and the audit committee of the board of directors (or
persons fulfilling the equivalent function)—
(A) all significant deficiencies in the design or operation
of internal controls which could adversely affect the issuer’s
ability to record, process, summarize, and report financial
data and have identified for the issuer’s auditors any mate-
rial weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the issuer’s internal controls; and
(6) the signing officers have indicated in the report whether
or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any correc-
tive actions with regard to significant deficiencies and material
weaknesses.

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H. R. 3763—34
(b) FoREIGN REINCORPORATIONS HAvE No EFFEcT.—Nothing
in this section 302 shall be interpreted or applied in any way
to allow any issuer to lessen the legal force of the statement
required under this section 302, by an issuer having reincorporated
or having engaged in any other transaction that resulted in the
transfer of the corporate domicile or offices of the issuer from
inside the United States to outside of the United States.
(c) DEADLINE.—The rules required by subsection (a) shall be
effective not later than 30 days after the date of enactment of
this Act.
SEC. 803. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) RuLEs To PROHIBrr.—It shall be unlawful, in contravention
of such rules or regulations as the Commission shall prescribe
as necessary and appropriate in the public interest or for the
protection of investors, for any officer or director of an issuer,
or any other person acting under the direction thereof, to take
any action to fraudulently influence, coerce, manipulate, or mislead
any independent public or certified accountant engaged in the
performance of an audit of the financial statements of that issuer
for the purpose of rendering such financial statements materially
misleading.
(b) ENFORCEMENT.—In any civil proceeding, the Commission
shall have exclusive authority to enforce this section and any rule
or regulation issued under this section
(c) No PREEMPTION OF OTHER LAw—The provisions of sub-
section (a) shall be in addition to, and shall not supersede or
preempt, any other provision of law or any rule or regulation
issued thereunder.
Cd) DEADLINE FOR RULEMAKING —The Commission shall—
(1) propose the rules or regulations required by this section,
not later than 90 days after the date of enactment of this
Act; and
(2) issue final rules or regulations required by this section,
not later than 270 days after that date of enactment
SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.
(a) ADDITIONAL COMPENSATION PRIOR To NONCOMPLIANCE WITH
COMMISSION FINANCIAL REPORTING REQUIREMENTS.—If an issuer
is required to prepare an accounting restatement due to the material
noncompliance of the issuer, as a result of misconduct, with any
financial reporting requirement under the secunties laws, the chief
executive officer and chief financial officer of the issuer shall
reimburse the issuer for—
(1) any bonus or other incentive-based or equity-based com-
pensation received by that person from the issuer during the
12-month period following the first public issuance or filing
with the Commission (whichever first occurs) of the financial
document embodying such financial reporting requirement; and
(2) any profits realized from the sale of securities of the
issuer during that 12-month period.
(b) COMMISSION EXEMPTION AUTHORITY —The Commission may
exempt any person from the application of subsection (a), as it
deems necessary and appropriate
SEC. 305. OFFICER AND DIRECTOR BARS AN!) PENALTIES.
(a) UNFITNESS STANDARD —

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H R 3763—35
(1) SECURITIEs EXCHANGE ACT OF 1934.—Section 21(d)(2)
of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2))
is amended by striking “substantial unfitness” and inserting
“unfitness”.
(2) SECURITIES ACT OF 1933.—Section 20(e) of the Securities
Act of 1933 (15 U.S.C. 77t(e)) is amended by striking “substan-
tial unfitness” and inserting “unfitness”
(b) EQUITABLE RELIEF.—Section 21(d) of the Secunties
Exchange Act of 1934 (15 U.S.C 78u(d)) is amended by adding
at the end the following:
“(5) EQUITABLE RELIEF.—In any action or proceeding brought
or instituted by the Commission under any provision of the securi-
ties laws, the Commission may seek, and any Federal court may
grant, any equitable relief that may be appropriate or necessary
for the benefit of investors”
SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT
PERIODS.
(a) PROHIBITION OF INSIDER TRADING DUmNG PENSION FUND
BLACKOUT PERIoDs.—
(1) IN GENERAL.—Except to the extent otherwise provided
by rule of the Commission pursuant to paragraph (3), it shall
be unlawful for any director or executive officer of an issuer
of any equity security (other than an exempted security),
directly or indirectly, to purchase, sell, or otherwise acquire
or transfer any equity security of the issuer (other than an
exempted security) during any blackout penod with respect
to such equity security if such director or officer acquires such
equity security in connection with his or her service or employ-
ment as a director or executive officer
(2) REMEDY.—
(A) IN GENERAL.—Any profit realized by a director
or executive officer referred to in paragraph (1) from any
purchase, sale, or other acquisition or transfer in violation
of this subsection shall inure to and be recoverable by
the issuer, irrespective of any intention on the part of
such director or executive officer in entering into the trans-
action.
(B) AcrIoNS TO RECOVER PROFITS.—An action to
recover profits in accordance with this subsection may be
instituted at law or in equity in any court of competent
jurisdiction by the issuer, or by the owner of any security
of the issuer in the name and in behalf of the issuer
if the issuer fails or refuses to bring such action within
60 days after the date of request, or fails diligently to
prosecute the action thereafter, except that no such suit
shall be brought more than 2 years after the date on
which such profit was realized
(3) RULEMAKING AUTHORIZED —The Commission shall, in
consultation with the Secretary of Labor, issue rules to clarify
the application of this subsection and to prevent evasion thereof
Such rules shall provide for the application of the requirements
of paragraph (1) with respect to entities treated as a single
employer with respect to an issuer under section 414(b), (c),
(m), or (0) of the Internal Revenue Code of 1986 to the extent
necessary to clarify the application of such requirements and
to prevent evasion thereof Such rules may also provide for

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H. R. 3 763—36
appropriate exceptions from the requirements of this sub-
section, including exceptions for purchases pursuant to an auto-
matic dividend reinvestment program or purchases or sales
made pursuant to an advance election.
(4) BLAcKOUT PERIOD.—For purposes of this subsection,
the term “blackout period”, with respect to the equity securities
of any issuer—
(A) means any period of more than 3 consecutive busi-
ness days during which the ability of not fewer than 50
percent of the participants or beneficiaries under all indi-
vidual account plans maintained by the issuer to purchase,
sell, or otherwise acquire or transfer an interest in any
equity of such issuer held in such an individual account
plan is temporarily suspended by the issuer or by a fidu-
ciary of the plan; and
(B) does not include, under regulations which shall
be prescribed by the Commission—
(i) a regularly scheduled period in which the
participants and beneficiaries may not purchase, sell,
or otherwise acquire or transfer an interest in any
equity of such issuer, if such period is—
(I) incorporated into the individual account
plan; and
(II) timely disclosed to employees before
becoming participants under the individual
account plan or as a subsequent amendment to
the plan; or
(ii) any suspension described in subparagraph (A)
that is imposed solely in connection with persons
becoming participants or beneficiaries, or ceasing to
be participants or beneficiaries, in an individual
account plan by reason of a corporate merger, acquisi-
tion, divestiture, or similar transaction involving the
plan or plan sponsor.
(5) INDIVIDUAL ACCOUNT PLAN —For purposes of this sub-
section, the term “individual account plan” has the meaning
provided in section 3(34) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(34), except that such
term shall not include a one-participant retirement plan (within
the meaning of section 101(i)(8)(B) of such Act (29 U.s.c
102 1(i)(8)(B))).
(6) NoTIcE TO DIRECTORS, EXECUTIVE OFFICERS, AND THE
COMMJSSION.—In any case in which a director or executive
officer is subject to the requirements of this subsection in
connection with a blackout period (as defined in paragraph
(4)) with respect to any equity securities, the issuer of such
equity securities shall timely notit i such director or officer
and the Securities and Exchange Commission of such blackout
period.
(b) NOTICE REQUIREMENTS ‘O PARTICIPANTS AND BENEFICIARIES
UNDER ERISA.—
(1) IN GENERAL —Section 101 of the Employee Retirement
Income Security Act of 1974 (29 U.S c 1021) is amended by
redesignating the second subsection (h) as subsection (j), and
by inserting after the first subsection (h) the following new
subsection:

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H.R 3763—37
“(i) NOTICE OF BLACKOUT PERIODS TO PARTICIPANT OR BENE-
FICIARY UNDER INDIVIDUAL AccouNT PLAN —
“(1) DUTIEs OF PLAN ADMINISTRATOR.—In advance of the
commencement of any blackout period with respect to an indi-
vidual account plan, the plan administrator shall notif r the
plan participants and beneficiaries who are affected by such
action in accordance with this subsection
“(2) NoTIcE REQUIREMENTS —
“(A) IN GENERAL —The notices described in paragraph
(I) shall be written in a manner calculated to be understood
by the average plan participant and shall include—
“(i) the reasons for the blackout period,
“(ii) an identification of the investments and other
rights affected,
“(iii) the expected beginning date and length of
the blackout period,
“(iv) in the case of investments affected, a state-
ment that the participant or beneficiary should
evaluate the appropriateness of their current invest-
ment decisions in light of their inability to direct or
diversify assets credited to their accounts during the
blackout period, and
“(v) such other matters as the Secretary may
require by regulation
“(B) NOTICE TO PARTICIPANTS AND BENEFICIARIES.—
Except as otherwise provided in this subsection, notices
described in paragraph (1) shall be furnished to all partici-
pants and beneficiaries under the plan to whom the black-
out period applies at least 30 days in advance of the black-
out period
“(C) ExCEPTIoN TO 30-DAY NOTICE REQUIREMENT.—In
any case in which—
“(i) a deferral of the blackout period would violate
the requirements of subparagraph (A) or (B) of section
404(a)(1), and a fiduciary of the plan reasonably so
determines in writing, or
“(ii) the inability to provide the 30-day advance
notice is due to events that were unforeseeable or
circumstances beyond the reasonable control of the
plan administrator, and a fiduciary of the plan reason-
ably so determines in writing,
subparagraph (B) shall not apply, and the notice shall
be furnished to all participants and beneficiaries under
the plan to whom the blackout period applies as soon
as reasonably possible under the circumstances unless such
a notice in advance of the termination of the blackout
period is impracticable
“(D) WRITTEN NOTICE —The notice required to be pro-
vided under this subsection shall be in writing, except
that such notice may be in electronic or other form to
the extent that such form is reasonably accessible to the
recipient.
“CE) NOTICE TO ISSUERS OF EMPLOYER SECURITIES SUB-
JECT TO BLACKOUT PERIOD —In the case of any blackout
period in connection with an individual account plan, the
plan administrator shall provide timely notice of such

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H. R. 3 763—38
blackout period to the issuer of any employer securities
subject to such blackout period
“(3) EXCEFFION FOR BLACKOUT PERIODS WITH LIMITED
APPLICABILITY.—In any case in which the blackout period
applies only to 1 or more participants or beneficiaries in connec-
tion with a merger, acquisition, divestiture, or similar trans-
action involving the plan or plan sponsor and occurs solely
in connection with becoming or ceasing to be a participant
or beneficiary under the plan by reason of such merger, acquisi-
tion, divestiture, or transaction, the requirement of this sub-
section that the notice be provided to all participants and
beneficiaries shall be treated as met if the notice required
under paragraph (1) is provided to such participants or bene-
ficiaries to whom the blackout period applies as soon as reason-
ably practicable.
“(4) CHANGES IN LENGTH OF BLACKOUT PEEIOD.—If, fol-
lowing the furnishing of the notice pursuant to this subsection,
there is a change in the beginning date or length of the blackout
period (specified in such notice pursuant to paragraph
(2)(A)(iii)), the administrator shall provide affected participants
and beneficiaries notice of the change as soon as reasonably
practicable. In relation to the extended blackout period, such
notice shall meet the requirements of paragraph (2)(D) and
shall specif r any material change in the matters referred to
in clauses Ci) through (v) of paragraph (2)(A)
“(5) REGULATORY EXCEPTIONS.—The Secretary may provide
by regulation for additional exceptions to the requirements
of this subsection which the Secretary determines are in the
interests of participants and beneficiaries
“(6) GUIDANcE AND MODEL NOTICES —The Secretary shall
issue guidance and model notices which meet the requirements
of this subsection
“(7) BLACKOUT PERIOD.—For purposes of this subsection—
“(A) IN GENERAL.—The term ‘blackout penod’ means,
in connection with an individual account plan, any period
for which any ability of participants or beneficiaries under
the plan, which is otherwise available under the terms
of such plan, to direct or diversify assets credited to their
accounts, to obtain loans from the plan, or to obtain dis-
tributions from the plan is temporarily suspended, limited,
or restricted, if such suspension, limitation, or restriction
is for any period of more than 3 consecutive business days.
“(B) EXCLuSIONS.—The term ‘blackout period’ does not
include a suspension, limitation, or restriction—
“(i) which occurs by reason of the application of
the securities laws (as defined in section 3(a)(47) of
the Secunties Exchange Act of 1934),
“(ii) which is a change to the plan which provides
for a regularly scheduled suspension, limitation, or
restriction which is disclosed to participants or bene-
ficiaries through any summary of material modifica-
tions, any materials describing specific investment
alternatives under the plan, or any changes thereto,
or
“(iii) which applies only to 1 or more individuals,
each of whom is the participant, an alternate payee

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H. R. 3 763—39
(as defined in section 206(d)(3)(K)), or any other bene-
ficiary pursuant to a qualified domestic relations order
(as defined in section 206(d)(3)(B)(i)).
“(8) INDIVIDUAL ACCOUNT PLAN.—
“(A) IN GENERAL.—For purposes of this subsection, the
term ‘individual account plan’ shall have the meaning pro-
vided such term in section 3(34), except that such term
shall not include a one-participant retirement plan.
“(B) ONE-PARTICiPANT RETIREMENT PLAN.—For pur-
poses of subparagraph (A), the term ‘one-participant retire-
ment plan’ means a retirement plan that—
“(i) on the first day of the plan year—
“(I) covered only the employer (and the
employer’s spouse) and the employer owned the
entire business (whether or not incorporated), or
“(II) covered only one or more partners (and
their spouses) in a business partnership (including
partners in an S or C corporation (as defined in
section 136 1(a) of the Internal Revenue Code of
1986)),
“(ii) meets the minimum coverage requirements
of section 4 10(b) of the Internal Revenue Code of 1986
(as in effect on the date of the enactment of this
paragraph) without being combined with any other
plan of the business that covers the employees of the
business,
“(iii) does not provide benefits to anyone except
the employer (and the employer’s spouse) or the part-
ners (and their spouses),
“(iv) does not cover a business that is a member
of an affiliated service group, a controlled group of
corporations, or a group of businesses under common
control, and
“(v) does not cover a business that leases
employees.”.
(2) ISSUANCE OF INITIAL GUIDANCE AND MODEL NOTICE.—
The Secretary of Labor shall issue initial guidance and a model
notice pursuant to section 101(i)(6) of the Employee Retirement
Income Security Act of 1974 (as added by this subsection)
not later than January 1, 2003. Not later than 75 days after
the date of the enactment of this Act, the Secretary shall
promulgate interim final rules necessary to carry out the
amendments made by this subsection.
(3) C vn. PENALTIES FOR FAILURE TO PROVIDE NOTICE.—
Section 502 of such Act (29 U.S C 1132) is amended—
(A) in subsection (a)(6), by striking “(5), or (6)” and
inserting “(5), (6), or (7)”;
(B) by redesignating paragraph (7) of subsection (c)
as paragraph (8); and
(C) by inserting after paragraph (6) of subsection (c)
the following new paragraph:
“(7) The Secretary may assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan adminis-
trator’s failure or refusal to provide notice to participants and
beneficiaries in accordance with section 101(i). For purposes of
this paragraph, each violation with respect to any single participant
or beneficiary shall be treated as a separate violation.”.

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H R 3763—40
(3) PLAN AMENDMENTS —If any amendment made by this
subsection requires an amendment to any plan, such plan
amendment shall not be required to be made before the first
plan year beginning on or after the effective date of this section,
(A) during the period after such amendment made
by this subsection takes effect and before such first plan
year, the plan is operated in good faith compliance with
the requirements of such amendment made by this sub-
section, and
(B) such plan amendment applies retroactively to the
period after such amendment made by this subsection takes
effect and before such first plan year.
(c) EFi ’zcrrvE DATE —The provisions of this section (including
the amendments made thereby) shall take effect 180 days after
the date of the enactment of this Act Good faith compliance with
the requirements of such provisions in advance of the issuance
of applicable regulations thereunder shall be treated as compliance
with such provisions.
SEC. 307. RULES OF PROFESSIONAL RESPONSIBILITY FOR ATFORNEYS.
Not later than 180 days after the date of enactment of this
Act, the Commission shall issue rules, in the public interest and
for the protection of investors, setting forth minimum standards
of professional conduct for attorneys appearing and practicing before
the Commission in any way in the representation of issuers,
including a rule—
(1) requiring an attorney to report evidence of a material
violation of securities law or breach of fiduciary duty or similar
violation by the company or any agent thereof, to the chief
legal counsel or the chief executive officer of the company
(or the equivalent thereof’); and
(2) if the counsel or officer does not appropriately respond
to the evidence (adopting, as necessary, appropriate remedial
measures or sanctions with respect to the violation), requiring
the attorney to report the evidence to the audit committee
of the board of directors of the issuer or to another committee
of the board of directors comprised solely of directors not
employed directly or indirectly by the issuer, or to the board
of directors.
SEC. 308. FAIR FUNDS FOR INVESTORS.
(a) CIvIL PENALTIES ADDED TO DISGORGEMENT FUNDS FOR THE
RELIEF OF ViCTIMS—If in any judicial or administrative action
brought by the Commission under the securities laws (as such
term is defined in section 3(a)(47) of the Securities Exchange Act
of 1934 (15 U.S.C 78c(a)(47)) the Commission obtains an order
requiring disgorgement against any person for a violation of such
laws or the rules or regulations thereunder, or such person agrees
in settlement of any such action to such disgorgement, and the
Commission also obtains pursuant to such laws a civil penalty
against such person, the amount of such civil penalty shall, on
the motion or at the direction of the Commission, be added to
and become part of the disgorgement fund for the benefit of the
victims of such violation
(b) ACCEPTANCE OF ADDITIONAL DONATIONS —The Commission
is authorized to accept, hold, administer, and utilize gifts, bequests
and devises of property, both real and personal, to the United

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H. R. 3763—41
States for a disgorgement fund described in subsection (a). Such
gifts, bequests, and devises of money and proceeds from sales of
other property received as gifts, bequests, or devises shall be depos-
ited in the disgorgement fund and shall be available for allocation
in accordance with subsection (a).
(c) STUDY REQUIRED.—
(1) SUBJECT OF STuDY—The Commission shall review and
analyze—
(A) enforcement actions by the Commission over the
five years preceding the date of the enactment of this
Act that have included proceedings to obtain civil penalties
or disgorgements to identi& areas where such proceedings
may be utilized to efficiently, effectively, and fairly provide
restitution for injured investors; and
(B) other methods to more efficiently, effectively, and
fairly provide restitution to injured investors, including
methods to improve the collection rates for civil penalties
and disgorgements.
(2) REPORT REQuIRED.—The Commission shall report its
findings to the Committee on Financial Services of the House
of Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate within 180 days after of
the date of the enactment of this Act, and shall use such
findings to revise its rules and regulations as necessary. The
report shall include a discussion of regulatory or legislative
actions that are recommended or that may be necessary to
address concerns identified in the study.
(d) CONFORMING AMENDMENTS —Each of the following provi-
sions is amended by inserting “, except as otherwise provided in
section 308 of the Sarbanes-Oxley Act of 2002” after “Treasury
of the United States”:
(1) Section 21(d)(3)(C)(i) of the Securities Exchange Act
of 1934 (15 U.S C. 78u(d)(3)(C)(i)).
(2) Section 21A(d)(1) of such Act (15 U S.C 78u-1(d)(1)).
(3) Section 20(d)(3)(A) of the Securities Act of 1933 (15
U.S.C 77t(d)(3)(A))
(4) Section 42(e)(3)(A) of the Investment Company Act of
1940 (15 U.S.C. 80a—41(e)(3)(A)).
(5) Section 209(e)(3)(A) of the Investment Advisers Act
of 1940 (15 U.S C. 80b—9(e)(3)(A)).
(e) DEFINITION—AS used in this section, the term
“disgorgement fund” means a fund established in any administra-
tive or judicial proceeding described in subsection (a)
TITLE JV—ENHANCED FINANCIAL
DISCLOSURES
SEC. 401. DISCLOSURES IN PERIODIC REPORTS.
(a) DIscLosua s REQUIRED.—Section 13 of the Securities
Exchange Act of 1934 (15 U.S.C 78m) is amended by adding at
the end the followingS
“(i) AccuRAcY OF FINANCIAL REPORTS.—Each financial report
that contains financial statements, and that is required to be pre-
pared in accordance with (or reconciled to) generally accepted
accounting principles under this title and filed with the Commission
shall reflect all material correcting adjustments that have been

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H.R 3763—42
identified by a registered public accounting firm in accordance
with generally accepted accounting principles and the rules and
regulations of the Commission.
g ( j) OFF-BALANCE SHEET TRANsACTIONS.—Not later than 180
days after the date of enactment of the Sarbanes-Oxley Act of
2002, the Commission shall issue final rules providing that each
annual and quarterly financial report required to be filed with
the Commission shall disclose all material off-balance sheet trans-
actions, arrangements, obligations (including contingent obliga-
tions), and other relationships of the issuer with unconsolidated
entities or other persons, that may have a material current or
future effect on financial condition, changes in financial condition,
results of operations, liquidity, capital expenditures, capital
resources, or significant components of revenues or expenses”
(b) COMMISSION RULES ON PRO F0RMA FIGURES.—Not later
than 180 days after the date of enactment of the Sarbanes-Oxley
Act fo 2002, the Commission shall issue final rules providing that
pro forma financial information included in any periodic or other
report filed with the Commission pursuant to the securities laws,
or in any public disclosure or press or other release, shall be
presented in a manner that—
(1) does not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to
make the pro forma financial information, in light of the cir-
cumstances under which it is presented, not misleading; and
(2) reconciles it with the financial condition and results
of operations of the issuer under generally accepted accounting
principles.
(c) STUDY AND REPORT ON SPECIAL PURPOSE ENTITIES —
(1) STuDY REQUIRED.—The Commission shall, not later
than 1 year after the effective date of adoption of off-balance
sheet disclosure rules required by section 13(j) of the Securities
Exchange Act of 1934, as added by this section, complete a
study of filings by issuers and their disclosures to determine—
(A) the extent of off-balance sheet transactions,
including assets, liabilities, leases, losses, and the use of
special purpose entities; and
(B) whether generally accepted accounting rules result
in financial statements of issuers reflecting the economics
of such off-balance sheet transactions to investors in a
transparent fashion.
(2) REPORT AND RECOMMENDATIONS —Not later than 6
months after the date of completion of the study required
by paragraph (1), the Commission shall submit a report to
the President, the Committee on Banking, Housing, and Urban
Affairs of the Senate, and the Committee on Financial Services
of the House of Representatives, setting forth—
(A) the amount or an estimate of the amount of off-
balance sheet transactions, including assets, liabilities,
leases, and losses of, and the use of special purpose entities
by, issuers filing periodic reports pursuant to section 13
or 15 of the Securities Exchange Act of 1934;
(B) the extent to which special purpose entities are
used to facilitate off-balance sheet transactions;

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H R. 3763—43
(C) whether generally accepted accounting principles
or the rules of the Commission result in financial state-
ments of issuers reflecting the economics of such trans-
actions to investors in a transparent fashion;
(D) whether generally accepted accounting principles
specifically result in the consolidation of special purpose
entities sponsored by an issuer in cases in which the issuer
has the majority of the risks and rewards of the special
purpose entity; and
(E) any recommendations of the Commission for
improving the transparency and quality of reporting off-
balance sheet transactions in the financial statements and
disclosures required to be filed by an issuer with the
Commission.
SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.
(a) PROHIBITION ON PERSONAL LoANs TO ExEcuTivEs.—Section
13 of the Securities Exchange Act of 1934 (15 U.S.C 78m), as
amended by this Act, is amended by adding at the end the following:
“(k) PROHIBITION ON PERSONAL LoANs TO ExEctrnvEs —
“(1) IN GENERAL.—It shall be unlawful for any issuer (as
defined in section 2 of the Sarbanes-Oxley Act of 2002), directly
or indirectly, including through any subsidiary, to extend or
maintain credit, to arrange for the extension of credit, or to
renew an extension of credit, in the form of a personal loan
to or for any director or executive officer (or equivalent thereof)
of that issuer An extension of credit maintained by the issuer
on the date of enactment of this subsection shall not be subject
to the provisions of this subsection, provided that there is
no material modification to any term of any such extension
of credit or any renewal of any such extension of credit on
or after that date of enactment.
“(2) LIMIrA’r IoN.—Paragraph (1) does not preclude any
home improvement and manufactured home loans (as that term
is defined in section 5 of the Home Owners’ Loan Act (12
U.S.C. 1464)), consumer credit (as defined in section 103 of
the Truth in Lending Act (15 U.S.C 1602)), or any extension
of credit under an open end credit plan (as defined in section
103 of the Truth in Lending Act (15 U.S.C. 1602)), or a charge
card (as defined in section 127(c)(4)(e) of the Truth in Lending
Act (15 U.S.C. 1637(c)(4)(e)), or any extension of credit by
a broker or dealer registered under section 15 of this title
to an employee of that broker or dealer to buy, trade, or
carry securities, that is permitted under rules or regulations
of the Board of Governors of the Federal Reserve System pursu-
ant to section 7 of this title (other than an extension of credit
that would be used to purchase the stock of that issuer), that
is—
“(A) made or provided in the ordinary course of the
consumer credit business of such issuer;
“(B) of a type that is generally made available by
such issuer to the public; and
“(C) made by such issuer on market terms, or terms
that are no more favorable than those offered by the issuer
to the general public for such extensions of credit
“(3) RULE OF CONSTRUCTION FOR CERTAIN LOANS.—Para-
graph (1) does not apply to any loan made or maintained

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H. R. 3763—44
by an insured depository institution (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813)), if
the loan is subject to the insider lending restrictions of section
22(h) of the Federal Reserve Act (12 U.S C 375b).”.
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT
AND PRINCIPAL STOCKHOLDERS.
(a) AMENDMENT.—Section 16 of the Securities Exchange Act
of 1934 (15 U.S.C. ‘78p) is amended by striking the heading of
such section and subsection (a) and inserting the following:
“SEC. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.
“(a) DIsCLOSuRES REQUIRED.—
“(1) DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS
REQUIRED TO FILE.—Every person who is directly or indirectly
the beneficial owner of more than 10 percent of any class
of any equity security (other than an exempted security).which
is registered pursuant to section 12, or who is a director or
an officer of the issuer of such security, shall file the statements
required by this subsection with the Commission (and, if such
security is registered on a national securities exchange, also
with the exchange).
“(2) TIME OF FILING.—The statements required by this sub-
section shall be filed—
“(A) at the time of the registration of such security
on a national securities exchange or by the effective date
of a registration statement filed pursuant to section 12(g);
“(B) within 10 days after he or she becomes such
beneficial owner, director, or officer;
“(C) if there has been a change in such ownership,
or if such person shall have purchased or sold a security-
based swap agreement (as defined in section 206(b) of
the Gramm-Leach-Bliley Act (15 U.S.C. 78c note)) involving
such equity security, before the end of the second business
day following the day on which the subject transaction
has been executed, or at such other time as the Commission
shall establish, by rule, in any case in which the Commis-
sion determines that such 2-day period is not feasible
“(3) CONTENTS OF STATEMENTS.—A statement filed—
“(A) under subparagraph (A) or (B) of paragraph (2)
shall contain a statement of the amount of all equity securi-
ties of such issuer of which the filing person is the beneficial
owner; and
“(B) under subparagraph (C) of such paragraph shall
indicate ownership by the filing person at the date of
filing, any such changes in such ownership, and such pur-
chases and sales of the security-based swap agreements
as have occurred since the most recent such filing under
such subparagraph
“(4) ELECTRONIC FILING AND AVAILABILITY.—Beginning not
later than 1 year after the date of enactment of the Sarbanes-
Oxley Act of 2002—
“(A) a statement filed under subparagraph (C) of para-
graph (2) shall be filed electronically;
“(B) the Commission shall provide each such statement
on a publicly accessible Internet site not later than the
end of the business day following that filing; and

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H. R. 3763—45
“(C) the issuer (if the issuer maintains a corporate
website) shall provide that statement on that corporate
website, not later than the end of the business day following
that filing “.
(b) EFFECTIVE DATE —The amendment made by this section
shall be effective 30 days after the date of the enactment of this
Act
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) RuLEs REQUIRED —The Commission shall prescribe rules
requiring each annual report required by section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d))
to contain an internal control report, which shall—
(1) state the responsibility of management for establishing
and maintaining an adequate internal control structure and
procedures for financial reporting; and
(2) contain an assessment, as of the end of the most recent
fiscal year of the issuer, of the effectiveness of the internal
control structure and procedures of the issuer for financial
reporting.
(b) I ’rEar’ iu. CONTROL EVALUATION AND REPORTING.—With
respect to the internal control assessment required by subsection
(a), each registered public accounting firm that prepares or issues
the audit report for the issuer shall attest to, and report on, the
assessment made by the management of the issuer. An attestation
made under this subsection shall be made in accordance with stand-
ards for attestation engagements issued or adopted by the Board.
Any such attestation shall not be the subject of a separate engage-
ment.
SEC. 405. E MPTION.
Nothing in section 401, 402, or 404, the amendments made
by those sections, or the rules of the Commission under those
sections shall apply to any investment company registered under
section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a—
8)
SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.
(a) CODE OF ETHICS DISCLOSURE —The Commission shall issue
rules to require each issuer, together with periodic reports required
pursuant to section 13(a) or 15(d) of the Securities Exchange Act
of 1934, to disclose whether or not, and if not, the reason therefor,
such issuer has adopted a code of ethics for senior financial officers,
applicable to its principal financial officer and comptroller or prin-
cipal accounting officer, or persons performing similar functions.
(b) CHANGES IN CODES OF ETHICS.—The Commission shall
revise its regulations concerning matters requiring prompt disclo-
sure on Form 8—K (or any successor thereto) to require the imme-
diate disclosure, by means of the filing of such form, dissemination
by the Internet or by other electronic means, by any issuer of
any change in or waiver of the code of ethics for senior financial
officers
(c) DEFINrFION.—In this section, the term “code of ethics” means
such standards as are reasonably necessary to promote—
(1) honest and ethical conduct, including the ethical han-
dling of actual or apparent conflicts of interest between personal
and professional relationships;

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H. R. 3763—46
(2) full, fair, accurate, timely, and understandable disclo-
sure in the periodic reports required to be filed by the issuer;
and
(3) compliance with applicable governmental rules and
regulations.
(d) DEADLINE FOR RULEMAIUNG.—The Commission shall—
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT.
(a) RuLEs DEFINING “FINANCIAL ExpERT”.—The Commission
shall issue rules, as necessary or appropriate in the public interest
and consistent with the protection of investors, to require each
issuer, together with periodic reports required pursuant to sections
13(a) and 15(d) of the Securities Exchange Act of 1934, to disclose
whether or not, and if not, the reasons therefor, the audit committee
of that issuer is comprised of at least 1 member who is a financial
expert, as such term is defined by the Commission
(b) CONSIDERATIONS—In defining the term “financial expert”
for purposes of subsection (a), the Commission shall consider
whether a person has, through education and experience as a public
accountant or auditor or a principal financial officer, comptroller,
or principal accounting officer of an issuer, or from a position
involving the performance of similar functions—
(1) an understanding of generally accepted accounting prin-
ciples and financial statements;
(2) experience in—
(A) the preparation or auditing of financial statements
of generally comparable issuers; and
(B) the application of such principles in connection
with the accounting for estimates, accruals, and reserves;
(3) experience with internal accounting controls; and
(4) an understanding of audit committee functions
(c) DEADLINE FOR RULEMAKING.—The Commission shall—
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment
SEC. 408. ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS.
(a) REGULAR AND SYSTEMATIC REVIEW.—The Commission shall
review disclosures made by issuers reporting under section 13(a)
of the Securities Exchange Act of 1934 (including reports filed
on Form 10—K), and which have a class of securities listed on
a national securities exchange or traded on an automated quotation
facility of a national securities association, on a regular and system-
atic basis for the protection of investors. Such review shall include
a review of an issuer’s financial statement
(b) REVIEW CIUiEmA.—For purposes of scheduling the reviews
required by subsection (a), the Commission shall consider, among
other factors—
(1) issuers that have issued material restatements of finan-
cial results;
(2) issuers that experience significant volatility in their
stock price as compared to other issuers;
(3) issuers with the largest market capitalization;

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H. R. 3763—47
(4) emerging companies with disparities in price to earning
ratios;
(5) issuers whose operations significantly affect any mate-
rial sector of the economy; and
(6) any other factors that the Commission may consider
relevant.
(c) MINIMUM REVIEW PERIOD —In no event shall an issuer
required to file reports under section 13(a) or 15(d) of the Securities
Exchange Act of 1934 be reviewed under this section less frequently
than once every 3 years.
SEC. 409. REAL TIME ISSUER DISCLOSURES.
Section 13 of the Securities Exchange Act of 1934 (15 U.S.C
78m), as amended by this Act, is amended by adding at the end
the following:
“(1) REAl.. TIME ISSUER DIscLosuREs.—Each issuer reporting
under section 13(a) or 15(d) shall disclose to the public on a rapid
and current basis such additional information concerning material
changes in the financial condition or operations of the issuer, in
plain English, which may include trend and qualitative information
and graphic presentations, as the Commission determines, by rule,
is necessary or useful for the protection of investors and in the
public interest.”
TITLE V—ANALYST CONFLICTS OF
INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED
SECURITIES ASSOCIATIONS AND NATIONAL SECURITIES
EXCHANGES.
(a) RULES REGARDING SECURITIES ANALYSTS.—The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting after section 15C the following new section:
“SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS.
“(a) ANALYST PROTECTIONs —The Commission, or upon the
authorization and direction of the Commission, a registered securi-
ties association or national securities exchange, shall have adopted,
not later than 1 year after the date of enactment of this section,
rules reasonably designed to address conflicts of interest that can
arise when securities analysts recommend equity securities in
research reports and public appearances, in order to improve the
objectivity of research and provide investors with more useful and
reliable information, including rules designed—
“(1) to foster greater public confidence in securities
research, and to protect the objectivity and independence of
securities analysts, by—
“(A) restricting the prepublication clearance or
approval of research reports by persons employed by the
broker or dealer who are engaged in investment banking
activities, or persons not directly responsible for investment
research, other than legal or compliance staff;
“(B) limiting the supervision and compensatory evalua-
tion of securities analysts to officials employed by the
broker or dealer who are not engaged in investment
banking activities; and

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H. R. 3763.—48
“(C) requiring that a broker or dealer and persons
employed by a broker or dealer who are involved with
investment banking activities may not, directly or
indirectly, retaliate against or threaten to retaliate against
any securities analyst employed by that broker or dealer
or its affiliates as a result of an adverse, negative, or
otherwise unfavorable research report that may adversely
affect the present or prospective investment banking rela-
tionship of the broker or dealer with the issuer that is
the subject of the research report, except that such rules
may not limit the authority of a broker or dealer to dis-
cipline a securities analyst for causes other than such
research report in accordance with the policies and proce-
dures of the firm;
“(2) to define periods during which brokers or dealers who
have participated, or are to participate, in a public offenng
of securities as underwriters or dealers should not publish
or otherwise distribute research reports relating to such securi-
ties or to the issuer of such securities;
“(3) to establish structural and institutional safeguards
within registered brokers or dealers to assure that securities
analysts are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of
those whose involvement in investment banking activities
might potentially bias their judgment or supervision; and
“(4) to address such other issues as the Commission, or
such association or exchange, determines appropriate.
“(b) DIscLOSuRE.—The Commission, or upon the authorization
and direction of the Commission, a registered securities association
or national securities exchange, shall have adopted, not later than
1 year after the date of enactment of this section, rules reasonably
designed to require each securities analyst to disclose in public
appearances, and each registered broker or dealer to disclose in
each research report, as applicable, conflicts of interest that are
known or should have been known by the securities analyst or
the broker or dealer, to exist at the time of the appearance or
the date of distribution of the report, including—
“(1) the extent to which the securities analyst has debt
or equity investments in the issuer that is the subject of the
appearance or research report;
“(2) whether any compensation has been received by the
registered broker or dealer, or any affiliate thereof, including
the securities analyst, from the issuer that is the subject of
the appearance or research report, subject to such exemptions
as the Commission may determine appropriate and necessary
to prevent disclosure by virtue of this paragraph of material
non-pubhc information regarding specific potential future
investment banking transactions of such issuer, as is appro-
priate in the public interest and consistent with the protection
of investors;
“(3) whether an issuer, the securities of which are rec-
ommended in the appearance or research report, currently is,
or during the 1-year period preceding the date of the appearance
or date of distribution of the report has been, a client of the
registered broker or dealer, and if so, stating the types of
services provided to the issuer;

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H. R. 3763—49
“(4) whether the securities analyst received compensation
with respect to a research report, based upon (among any
other factors) the investment banking revenues (either gen-
erally or specifically earned from the issuer being analyzed)
of the registered broker or dealer; and
“(5) such other disclosures of conflicts of interest that are
material to investors, research analysts, or the broker or dealer
as the Commission, or such association or exchange, determines
appropriate.
“(C) DEFIr’riTloNs.—In this section—
“(1) the term ‘securities analyst’ means any associated per-
son of a registered broker or dealer that is principally respon-
sible for, and any associated person who reports directly or
indirectly to a securities analyst in connection with, the
preparation of the substance of a research report, whether
or not any such person has the job title of ‘securities analyst’;
and
“(2) the term ‘research report’ means a written or electronic
communication that includes an analysis of equity securities
of individual companies or industries, and that provides
information reasonably sufficient upon which to base an invest-
ment decision.”.
(b) ENFORCEMENT.—Section 21B(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u—2(a)) is amended by inserting “15D,”
before “15B”.
(c) CoMMIsSION AUTHORITY —The Commission may promulgate
and amend its regulations, or direct a registered securities associa-
tion or national securities exchange to promulgate and amend its
rules, to carry out section 15D of the Securities Exchange Act
of 1934, as added by this section, as is necessary for the protection
of investors and in the public interest.
TITLE VI—COMMISSION RESOURCES
AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15 U S.C.
78kk) is amended to read as followr
“SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
“In addition to any other funds authorized to be appropriated
to the Commission, there are authorized to be appropriated to
carry out the functions, powers, and duties of the Commission,
$776,000,000 for fiscal year 2003, of which—
“(1) $102,700,000 shall be available to fund additional com-
pensation, including salaries and benefits, as authorized in
the Investor and Capital Markets Fee Relief Act (Public Law
107—123; 115 Stat. 2390 et seq.);
“(2) $108,400,000 shall be available for information tech-
nology, security enhancements, and recovery and mitigation
activities in light of the terrorist attacks of September 11,
2001; and
“(3) $98,000,000 shall be available to add not fewer than
an additional 200 qualified professionals to provide enhanced
oversight of auditors and audit services required by the Federal
securities laws, and to improve Commission investigative and

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H. R. 3763—50
disciplinary efforts with respect to such auditors and services,
as well as for additional professional support staff necessary
to strengthen the programs of the Commission involving Full
Disclosure and Prevention and Suppression of Fraud, risk
management, industry technology review, compliance, inspec-
tions, examinations, market regulation, and investment
management.”.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by inserting after section 4B the following:
“SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
“(a) AUTHORITY To CENsURE.—The Commission may censure
any person, or deny, temporarily or permanently, to any person
the privilege of appearing or practicing before the Commission
in any way, if that person is found by the Commission, after
notice and opportunity for hearing in the matter—
“(1) not to possess the requisite qualifications to represent
others;
“(2) to be lacking in character or integrity, or to have
engaged in unethical or improper professional conduct; or
“(3) to have willfully violated, or willfully aided and abetted
the violation of, any provision of the securities laws or the
rules and regulations issued thereunder.
“(b) DEFINITION —With respect to any registered public
accounting firm or associated person, for purposes of this section,
the term ‘improper professional conduct’ means—
“(1) intentional or knowing conduct, including reckless con-
duct, that results in a violation of applicable professional stand-
ards; and
“(2) negligent conduct in the form of—
“(A) a single instance of highly unreasonable conduct
that results in a violation of applicable professional stand-
ards in circumstances in which the registered public
accounting firm or associated person knows, or should
know, that heightened scrutiny is warranted; or
“(B) repeated instances of unreasonable conduct, each
resulting in a violation of applicable professional standards,
that indicate a lack of competence to practice before the
Commission.”.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK
BARS.
(a) SECURITIES EXCHANGE ACT OF 1934 —Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C 78u(d)), as amended
by this Act, is amended by adding at the end the fo]lowing
“(6) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM PARTICI-
PATING IN AN OFFERING OF PENNY STOCK.—
“(A) IN GENERAL —In any proceeding under paragraph (1)
against any person participating in, or, at the time of the
alleged misconduct who was participating in, an offering of
penny stock, the court may prohibit that person from partici-
pating in an offering of penny stock, conditionally or uncondi-
tionally, and permanently or for such period of time as the
court shall determine.
“(B) DEFINrri0N.—For purposes of this paragraph, the term
‘person participating in an offering of penny stock’ includes

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H.R 3763—51
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term
to include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or
in part, conditionally or unconditionally, from inclusion in such
term.”.
(b) SECURITIES ACT OF 1933.—Section 20 of the Securities Act
of 1933 (15 U.S.C. 77t) is amended by adding at the end the
following
“(g) AUTHORITY OF A COURT To PROHIBIT PERSONS FROM
PARTICIPATING IN OFFERING OF PENNY STOCK.—
“(1) IN GENERAL—In any proceeding under subsection (a)
against any person participating in, or, at the time of the
alleged misconduct, who was participating in, an offering of
penny stock, the court may prohibit that person from partici-
pating in an offering of penny stock, conditionally or uncondi-
tionally, and permanently or for such period of time as the
court shall determine.
“(2) DEFINFrION.—For purposes of this subsection, the term
‘person participating in an offering of penny stock’ includes
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock
The Commission may, by rule or regulation, define such term
to include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or
in part, conditionally or unconditionally, from inclusion in such
term.”.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS
AND DEALERS.
(a) BRo cERS AND DEALERs.—Section 15(b)(4) of the Secunties
Exchange Act of 1934 (15 U.S.C. 780) is amended—
(1) by striking subparagraph (F) and inserting the fol-
lowing
“(F) is subject to any order of the Commission barring
or suspending the nght of the person to be associated with
a broker or dealer;”; and
(2) in subparagraph (G), by striking the period at the
end and inserting the following: “; or
“(H) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that—
“(i) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or

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H.R 3763—52
“(ii) constitutes a final order based on violations of
any laws or regulations that prohibit fraudulent, manipula-
tive, or deceptive conduct.”.
(b) INVESTMENT ADVISERS.—Section 203(e) of the Investment
Advisers Act of 1940 (15 U.s c 80b—3(e)) is amended—
(1) by striking paragraph (7) and inserting the following:
“(7) is subject to any order of the Commission barring
or suspending the right of the person to be associated with
an investment adviser,”;
(2) in paragraph (8), by striking the period at the end
and inserting “; or”; and
(3) by adding at the end the following:
“(9) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropnate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S C 1813(q))), or the National
Credit Union Administration, that—
“(A) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
“(B) constitutes a final order based on violations of
any laws or regulations that prohibit fraudulent, manipula-
tive, or deceptive conduct”
(c) CONFORMING AMENDMENTS —
(1) SECURITIES EXCHANGE ACT OF 1934 —The Securities
Exchange Act of 1934 (15 U.S C 78a et seq.) is amended—
(A) in section 3(a)139)(F) (15 U S C 78c(a)(39)(F))—
(i) by striking “or (G)” and inserting “(H), or (G)”;
and
(ii) by inserting “, or is subject to an order or
finding,” before “enumerated”;
(B) in each of section 15(b)(6)(A)(i) (15 U.S.C
78o(b)(6)(A)(i)), paragraphs (2) and (4) of section 15B(c)
(15 U.S.C. 78o—4(c)). and subparagraphs (A) and (C) of
section 15C(c)(1) (15 U S C 78o.—5(c)(1))——
(i) by striking “or (G)” each place that term appears
and inserting “(H), or (C)”, and
(ii) by striking “or omission” each place that term
appears, and inserting “, or is subject to an order
or finding,”; and
(C) in each of paragraphs (3)(A) and (4)(C) of section
17A(c) (15 U S C 78q—1(c))—
(i) by striking “or (G)” each place that term appears
and inserting “(H). or (C)”, and
(ii) by inserting “, or is subject to an order or
finding,” before “enumerated” each place that term
appears
(2) INVESTMENT ADVISERS ACT OF 1940.—Section 203(f) of
the Investment Advisers Act of 1940 (15 U S C 80b—3(f)) is
amended—
(A) by striking “or (8)” and inserting “(8), or (9)”; and
(B) by inserting “or (3)” after “paragraph (2)”.

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H. R. 3 763—53
TITLE WI—STUDIES AND REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF
PUBLIC ACCOUNTING FIRMS.
(a) STUDY REQUIRED.—The Comptroller General of the United
States shall conduct a study—
(1) to identity—
(A) the factors that have led to the consolidation of
public accounting firms since 1989 and the consequent
reduction in the number of firms capable of providing audit
services to large national and multi-national business
organizations that are subject to the securities laws;
(B) the present and future impact of the condition
described in subparagraph (A) on capital formation and
securities markets, both domestic and international; and
(C) solutions to any problems identified under subpara-
graph (B), including ways to increase competition and the
number of firms capable of providing audit services to
large national and multinational business organizations
that are subject to the securities laws;
(2) of the problems, if any, faced by business organizations
that have resulted from limited competition among public
accounting firms, including—
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among public accounting firms
(b) CONSULTATION.—In planning and conducting the study
under this section, the Comptroller General shall consult with—
(1) the Commission;
(2) the regulatory agencies that perform functions similar
to the Commission within the other member countries of the
Group of Seven Industnalized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization that
the Comptroller General considers appropriate.
(c) REPORT REQuIRED.—Not later than 1 year after the date
of enactment of this Act, the Comptroller General shall submit
a report on the results of the study required by this section to
the Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the House
of Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT
RATING AGENCIES.
(a) STUDY REQUIRED.—
(1) IN GENERAL.—The Commission shall conduct a study
of the role and function of credit rating agencies in the operation
of the securities market
(2) AREAS OF CONSIDERATJON.—The study required by this
subsection shall examine—
(A) the role of credit rating agencies in the evaluation
of issuers of securities;

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H. R. 3 763—54
(B) the importance of that role to investors and the
functioning of the securities markets;
(C) any impediments to the accurate appraisal by credit
rating agencies of the financial resources and risks of
issuers of securities;
(D) any barriers to entry into the business of acting
as a credit rating agency, and any measures needed to
remove such barriers;
(E) any measures which may be required to improve
the dissemination of information concerning such resources
and risks when credit rating agencies announce credit
ratings; and
(F) any conflicts of interest in the operation of credit
rating agencies and measures to prevent such conflicts
or ameliorate the consequences of such conflicts
(b) REPORT REQUIRED.—The Commission shall submit a report
on the study required by subsection (a) to the President, the Com-
mittee on Financial Services of the House of Representatives, and
the Committee on Banking, Housing, and Urban Affairs of the
Senate not later than 180 days after the date of enactment of
this Act.
SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.
(a) STUDY —The Commission shall conduct a study to deter-
mine, based upon information for the period from January 1, 1998,
to December 31, 2001—
(1) the number of securities professionals, defined as public
accountants, public accounting firms, investment bankers,
investment advisers, brokers, dealers, attorneys, and other
securities professionals practicing before the Commission—
(A) who have been found to have aided and abetted
a violation of the Federal securities laws, including rules
or regulations promulgated thereunder (collectively
referred to in this section as “Federal securities laws”),
but who have not been sanctioned, disciplined, or otherwise
penalized as a primary violator in any administrative
action or civil proceeding, including in any settlement of
such an action or proceeding (referred to in this section
as “aiders and abettors”); and
(B) who have been found to have been primary violators
of the Federal securities laws;
(2) a description of the Federal securities laws violations
committed by aiders and abettors and by primary violators,
including—
(A) the specific provision of the Federal securities laws
violated;
(B) the specific sanctions and penalties imposed upon
such aiders and abettors and primary violators, including
the amount of any monetary penalties assessed upon and
collected from such persons,
(C) the occurrence of multiple violations by the same
person or persons, either as an aider or abettor or as
a primary violator; and
(D) whether, as to each such violator, disciplinary sanc-
tions have been imposed, including any censure, suspen-
sion, temporary bar, or permanent bar to practice before
the Commission; and

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H. R. 3763—55
(3) the amount of disgorgement, restitution, or any other
fines or payments that the Commission has assessed upon
and collected from, aiders and abettors and from primary viola-
tors.
(b) REPORT —A report based upon the study conducted pursuant
to subsection (a) shall be submitted to the Committee on Banking,
Housing, and Urban Affairs of the Senate, and the Committee
on Financial Services of the House of Representatives not later
than 6 months after the date of enactment of this Act.
SEC. 704. STUDY OF ENFORCEMENT ACTIONS.
(a) STUDY REQUIRED—The Commission shall review and ana-
lyze all enforcement actions by the Commission involving violations
of reporting requirements imposed under the securities laws, and
restatements of financial statements, over the 5-year period pre-
ceding the date of enactment of this Act, to identify areas of
reporting that are most susceptible to fraud, inappropriate manipu-
lation, or inappropriate earnings management, such as revenue
recognition and the accounting treatment of off-balance sheet special
purpose entities
(b) REPORT REQUIRED —The Commission shall report its
findings to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate, not later than 180 days after the
date of enactment of this Act, and shall use such findings to revise
its rules and regulations, as necessary. The report shall include
a discussion of regulatory or legislative steps that are recommended
or that may be necessary to address concerns identified in the
study.
SEC. 705. STUDY OF INVESTMENT BANKS.
(a) GAO STUDY —The Comptroller General of the United States
shall conduct a study on whether investment banks and financial
advisers assisted public companies in manipulating their earnings
and obfuscating their true financial condition. The study should
address the rule of investment banks and financial advisers—
(1) in the collapse of the Enron Corporation, including
with respect to the design and implementation of derivatives
transactions, transactions involving special purpose vehicles,
and other financial arrangements that may have had the effect
of altering the company’s reported financial statements in ways
that obscured the true financial picture of the company;
(2) in the failure of Global Crossing, including with respect
to transactions involving swaps of fiberoptic cable capacity,
in the designing transactions that may have had the effect
of altering the company’s reported financial statements in ways
that obscured the true financial picture of the company; and
(3) generally, in creating and marketing transactions which
may have been designed solely to enable companies to manipu-
late revenue streams, obtain loans, or move liabilities ofT
balance sheets without altering the economic and business risks
faced by the companies or any other mechanism to obscure
a company’s financial picture.
(b) REPORT.—The Comptroller General shall report to Congress
not later than 180 days after the date of enactment of this Act
on the results of the study required by this section The report
shall include a discussion of regulatory or legislative steps that

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H. R. 3763—56
are recommended or that may be necessary to address concerns
identified in the study.
TITLE VIll—CORPORATE AND
CRIMINAL FRAUD ACCOUNTABILITY
SEC. 801. SHORT TITLE.
This title may be cited as the “Corporate and Criminal Fraud
Accountability Act of 2002”.
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.
(a) IN GENER. 1..—Chapter 73 of title 18, United States Code,
is amended by adding at the end the following:
“ 1519. Destruction, alteration, or falsification of records
in Federal investigations and bankruptcy
“Whoever knowingly alters, destroys, mutilates, conceals, covers
up, falsifies, or makes a false entry in any record, document, or
tangible object with the intent to impede, obstruct, or influence
the investigation or proper administration of any matter within
the jurisdiction of any department or agency of the United States
or any case filed under title 11, or in relation to or contemplation
of any such matter or case, shall be fined under this title, impris-
oned not more than 20 years, or both
“ 1520. Destruction of corporate audit records
“(a)(1) Any accountant who conducts an audit of an issuer
of securities to which section 1OA(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78j—1(a)) applies, shall maintain all audit
or review workpapers for a period of 5 years from the end of
the fiscal period in which the audit or review was concluded.
“(2) The Securities and Exchange Commission shall promulgate,
within 180 days, after adequate notice and an opportunity for
comment, such rules and regulations, as are reasonably necessary,
relating to the retention of relevant records such as workpapers,
documents that form the basis of an audit or review, memoranda,
correspondence, communications, other documents, and records
(including electronic records) which are created, sent, or received
in connection with an audit or review and contain conclusions,
opinions, analyses, or financial data relating to such an audit or
review, which is conducted by any accountant who conducts an
audit of an issuer of securities to which section 1OA(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78j—1(a)) applies. The
Commission may, from time to time, amend or supplement the
rules and regulations that it is required to promulgate under this
section, after adequate notice and an opportunity for comment,
in order to ensure that such rules and regulations adequately
comport with the purposes of this section.
“(b) Whoever knowingly and willfully violates subsection (a)(1),
or any rule or regulation promulgated by the Securities and
Exchange Commission under subsection (a)(2), shall be fined under
this title, imprisoned not more than 10 years, or both.
“(c) Nothing in this section shall be deemed to diminish or
relieve any person of any other duty or obligation imposed by
Federal or State law or regulation to maintain, or refrain from
destroying, any document.”.

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H.R 3763—57
(b) CLERICAL AMENDMENT —The table of sections at the begin-
fling of chapter 73 of title 18, United States Code, is amended
by adding at the end the following new items:
‘1519 Destruction, alteration, or falsification of records in Federal investigations
and bankruptcy
“1520 Destruction of corporate audit records”
SEC. 803. DEBTS NONDISCIIARGEABLE IF INCURRED IN WOLATION
OF SECURITIES FRAUD LAWS.
Section 523(a) of title 11, United States Code, is amended—
(1) in paragraph (17), by striking “or” after the semicolon;
(2) in paragraph (18), by striking the period at the end
and inserting “; or”; and
(3) by adding at the end, the following:
“(19) that—
“(A) is for—
“(i) the violation of any of the Federal securities
laws (as that term is defined in section 3(a)(47) of
the Securities Exchange Act of 1934), any of the State
securities laws, or any regulation or order issued under
such Federal or State securities laws; or
“(ii) common law fraud, deceit, or manipulation
in connection with the purchase or sale of any security;
and
“(B) results from—
“(i) any judgment, order, consent order, or decree
entered in any Federal or State judicial or administra-
tive proceeding;
“(ii) any settlement agreement entered into by the
debtor; or
“(iii) any court or administrative order for any
damages, fine, penalty, citation, restitutionary pay-
ment, disgorgement payment, attorney fee, cost, or
other payment owed by the debtor.”.
SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.
(a) IN GENERAL —Section 1658 of title 28, United States Code,
is amended—
(1) by inserting “(a)” before “Except”; and
(2) by adding at the end the following:
“(b) Notwithstanding subsection (a), a private right of action
that involves a claim of fraud, deceit, manipulation, or contrivance
in contravention of a regulatory requirement concerning the securi-
ties laws, as defined in section 3(a)(47) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later than
the earlier of—
“(1) 2 years after the discovery of the facts constituting
the violation; or
“(2) 5 years after such violation.”.
(b) EFFECTWE DATE.—The limitations period provided by sec-
tion 1658(b) of title 28, United States Code, as added by this
section, shall apply to all proceedings addressed by this section
that are commenced on or after the date of enactment of this
Act
(c) No CREATION OF ACTIONs.—Nothing in this section shall
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H R.3763—58
SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR
OBSTRUCTION OF JUSTICE AND EXTENSIVE CRIMINAL
FRAUD.
(a) ENHANCEMENT OF FRAUD AND OBSTRUCTION OF JUSTICE
SENTENCES.—PUrSUarIt to section 994 of title 28, United States
Code, and in accordance with this section, the United States Sen-
tencing Commission shall review and amend, as appropriate, the
Federal Sentencing Guidelines and related policy statements to
ensure that—
(1) the base offense level and existing enhancements con-
tained in United States Sentencing Guideline 2J1.2 relating
to obstruction of justice are sufficient to deter and punish
that activity;
(2) the enhancements and specific offense characteristics
relating to obstruction of justice are adequate in cases where—
(A) the destruction, alteration, or fabrication of evi-
dence involves—
(i) a large amount of evidence, a large number
of participants, or is otherwise extensive;
(ii) the selection of evidence that is particularly
probative or essential to the investigation; or
(iii) more than minimal planning; or
(B) the offense involved abuse of a special skill or
a position of trust;
(3) the guideline offense levels and enhancements for viola-
tions of section 1519 or 1520 of title 18, United States Code,
as added by this title, are sufficient to deter and punish that
activity;
(4) a specific offense characteristic enhancing sentencing
is provided under United States Sentencing Guideline 2B1 1
(as in effect on the date of enactment of this Act) for a fraud
offense that endangers the solvency or financial security of
a substantial number of victims; and
(5) the guidelines that apply to organizations in United
States Sentencing Guidelines, chapter 8, are sufficient to deter
and punish organizational criminal misconduct.
(b) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION
Ac’rIoN.—The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than 180 days after the date of enactment of this Act, in accordance
with the prcedures set forth in section 219(a) of the Sentencin
Reform Act of 1987, as though the authority under that Act ha
not expired.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED
COMPANIES WHO PROVIDE EVIDENCE OF FRAUD.
(a) IN GENERAL —Chapter 73 of title 18, United States Code,
is amended by inserting after section 1514 the following:
“ 1514A. Civil action to protect against retaliation in fraud
cases
“(a) WI-LISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY
TRADED COMPANIES.—No company with a class of securities reg-
istered under section 12 of the Securities Exchange Act of 1934
(15 U.S.C. 781), or that is required to file reports under section
15(d) of the Securities Exchange Act of 1934 (15 U S.C. 78o(d)),

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H. R. 3 763—59
or any officer, employee, contractor, subcontractor, or agent of such
company, may discharge, demote, suspend, threaten, harass, or
in any other manner discriminate against an employee in the terms
and conditions of employment because of any lawful act done by
the employee—
“(1) to provide information, cause information to be pro-
vided, or otherwise assist in an investigation regarding any
conduct which the employee reasonably believes constitutes
a violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against shareholders,
when the information or assistance is provided to or the inves-
tigation is conducted by—
“(A) a Federal regulatory or law enforcement agency;
“(B) any Member of Congress or any committee of
Congress; or
“(C) a person with supervisory authority over the
employee (or such other person working for the employer
who has the authority to investigate, discover, or terminate
misconduct); or
“(2) to file, cause to be filed, testify, participate in, or
otherwise assist in a proceeding filed or about to be filed
(with any knowledge of the employer) relating to an alleged
violation of section 1341, 1343, 1344, or 1348, any rule or
regulation of the Securities and Exchange Commission, or any
provision of Federal law relating to fraud against shareholders
“(b) ENFORCEMENT ACTIoN.—
“(1) IN GENERAL.—A person who alleges discharge or other
discrimination by any person in violation of subsection (a) may
seek relief under subsection (c), by—
“(A) filing a complaint with the Secretary of Labor;
or
“(B) if the Secretary has not issued a final decision
within 180 days of the filing of the complaint and there
is no showing that such delay is due to the bad faith
of the claimant, bringing an action at law or equity for
de novo review in the appropriate district court of the
United States, which shall have jurisdiction over such an
action without regard to the amount in controversy.
“(2) PROCEDURE —
“(A) IN GENERAL—An action under paragraph (1)(A)
shall be governed under the rules and procedures set forth
in section 4212 1(b) of title 49, United States Code
“(B) EXCEPTION —Notification made under section
42121(b)(1) of title 49, United States Code, shall be made
to the person named in the complaint and to the employer.
“(C) B JRDENS OF PROOF.—An action brought under
paragraph (1)(B) shall be governed by the legal burdens
of proof set forth in section 42121(b) of title 49, United
States Code.
“(D) STATUTE OF LIMITATIONS —An action under para-
graph (1) shall be commenced not later than 90 days after
the date on which the violation occurs.
“(c) REMEDIEs.—
“(1) IN GENERAL.—An employee prevailing in any action
under subsection (b)(1) shall be entitled to all relief necessary
to make the employee whole.

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H. R. 3763—60
“(2) COMPENSATORY DAMAGES.—Relief for any action under
paragraph (1) shall include—
“(A) reinstatement with the same seniority status that
the employee would have had, but for the discrimination;
“(B) the amount of back pay, with interest; and
“(C) compensation for any special damages sustained
as a result of the discrimination, including litigation costs,
expert witness fees, and reasonable attorney fees
“(d) RIGlurs RETAINED BY EMPLOYEE —Nothing in this section
shall be deemed to diminish the rights, privileges, or remedies
of any employee under any Federal or State law, or under any
collective bargaining agreement “.
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 73 of title 18, United States Code, is amended
by inserting after the item relating to section 1514 the following
new item:
“1514A Civil action to protect against retaliation in fraud cases”
SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS
OF PUBLICLY TRADED COMPANIES.
(a) IN GENER u..—Chapter 63 of title 18, United States Code,
is amended by adding at the end the followingS
“ 1348. Securities fraud
“Whoever knowingly executes, or attempts to execute, a scheme
or artifice—
“(1) to defraud any person in connection with any security
of an issuer with a class of securities registered under section
12 of the Securities Exchange Act of 1934 (15 U.s C. 781)
or that is required to file reports under section 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 780(d)); or
“(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any money or property in connec-
tion with the purchase or sale of any security of an issuer
with a class of securities registered under section 12 of the
Securities Exchange Act of 1934 (15 U.S.C. 781) or that is
required to file reports under section 15(d) of the Securities
Exchange Act of 1934 (15 U.S C. 78o(d));
shall be fined under this title, or imprisoned not more than 25
years, or both.”.
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 63 of title 18, United States Code, is amended
by adding at the end the following new item:
“1348 Securities fraud
TITLE IX—WHITE-COLLAR CRIME
PENALTY ENHANCEMENTS
SEC. 901. SHORT TITLE.
This title may be cited as the “White-Collar Crime Penalty
Enhancement Act of 2002”

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H. R. 3763—61
SEC. 902. ATYEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL
FRAUD OFFENSES.
(a) IN GENERAL.—Chapter 63 of title 18, United States Code,
is amended by inserting after section 1348 as added by this Act
the following:
“ 1349. Attempt and conspiracy
“Any person who attempts or conspires to commit any offense
under this chapter shall be subject to the same penalties as those
prescribed for the offense, the commission of which was the object
of the attempt or conspiracy
(b) CLERICAL AMENDMENT.—The table of sections at the begin-
ning of chapter 63 of title 18, United States Code, is amended
by adding at the end the following new item.
“1349 Attempt and conspiracy”
SEC. 903. CRIMINAL PENALTIES FOR MAlL AND WIRE FRAUD.
(a) MAIL FRAUD —Section 1341 of title 18, United States Code,
is amended by striking “five” and insertrng “20”
(b) WIRE F1 uD.—Section 1343 of title 18, United States Code,
is amended by striking “five” and inserting “20”
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974.
Section 501 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C 1131) is amended—
(1) by striking “$5,000” and inserting “$100,000”;
(2) by striking “one year” and inserting “10 years”; and
(3) by striking “$100,000” and inserting “$500,000”.
SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO
CERTAIN WHITE-COLLAR OFFENSES.
(a) DIRECTWE TO THE UNITED STATES SENTENCING COMMIS-
SION.—Pursuant to its authority under section 994(p) of title 18,
United States Code, and in accordance with this section, the United
States Sentencing Commission shall review and, as appropriate,
amend the Federal Sentencing Guidelines and related policy state-
ments to implement the provisions of this Act
(b) REQUIREMENTS —In carrying out this section, the Sen-
tencing Commission shall—
(1) ensure that the sentencing guidelines and policy state-
ments reflect the serious nature of the offenses and the pen-
alties set forth in this Act, the growing incidence of serious
fraud offenses which are identified above, and the need to
modify the sentencing guidelines and policy statements to deter,
prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy
statements adequately address whether the guideline offense
levels and enhancements for violations of the sections amended
by this Act are sufficient to deter and punish such offenses,
and specifically, are adequate in view of the statutory increases
in penalties contained in this Act,
(3) assure reasonable consistency with other relevant direc-
tives and sentencing guidelines;
(4) account for any additional aggravating or mitigating
circumstances that might justify exceptions to the generally
applicable sentencing ranges;

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H. R. 3 763—62
(5) make any necessary conforming changes to the sen-
tencing guidelines; and
(6) assure that the guidelines adequately meet the purposes
of sentencing, as set forth in section 3553(a)(2) of title 18,
United States Code.
(c) EMERGENCY AUTHORITY AND DEADLINE FOR COMrvIISSION
AcTION.—The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than 180 days after the date of enactment of this Act, in accordance
with the procedures set forth in section 219(a) of the Sentencing
Reform Act of 1987, as though the authority under that Act had
not expired.
SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) IN GENERAL —Chapter 63 of title 18, United States Code,
is amended by inserting after section 1349, as created by this
Act, the following:
“ 1350. Failure of corporate officers to certify financial
reports
(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS.—Each
periodic report containing financial statements filed by an issuer
with the Securities Exchange Commission pursuant to section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)
or 78o(d)) shall be accompanied by a written statement by the
chief executive officer and chief financial officer (or equivalent
thereof) of the issuer.
“(b) CONFENT.—The statement required under subsection (a)
shall certif r that the periodic report containing the financial state-
ments fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act pf 1934 (15 U.S.C. 78m or
78o(d)) and that information contained in the periodic report fairly
presents, in all material respects, the financial condition and results
of operations of the issuer.
“(c) CREMINAL PEHALTIES.—Whoever—
“(1) certifies any statement as set forth in subsections
(a) and (b) of this section knowing that the periodic report
accompanying the statement does not comport with all the
requirements set forth in this section shall be fined not more
than $1,000,000 or imprisoned not more than 10 years, or
both; or
“(2) willfully certifies any statement as set forth in sub-
sections (a) and (b) of this section knowing that the periodic
report accompanying the statement does not comport with all
the requirements set forth in this section shall be fined not
more than $5,000,000, or imprisoned not more than 20 years,
or both.”.
(b) CLERICAL AMENDMENT —The table of sections at the begin-
ning of chapter 63 of title 18, United States Code, is amended
by adding at the end the following:
‘1350 Fa Iure of corporate officers to certify financial reports”

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H. R. 3 763—63
TITLE X—CORPORATE TAX RETURNS
SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF COR.
PORATE TAX RETURNS BY CHIEF EXECUTIVE OFFICERS.
It is the sense of the Senate that the Federal income tax
return of a corporation should be signed by the chief executive
officer of such corporation.
TITLE XI—CORPORATE FRAUD
ACCOUNTABILITY
SEC. 1101. SHORT TITLE.
This title may be cited as the “Corporate Fraud Accountability
Act of 2002”
SEC. 1102. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING
AN OFFICIAL PROCEEDING.
Section 1512 of title 18, United States Code, is amended—
(1) by redesignating subsections (c) through (i) as sub-
sections (d) through (j), respectively, and
(2) by inserting after subsection (b) the following new sub-
section’
“(c) Whoever corruptly—.
“(I) alters, destroys, mutilates, or conceals a record, docu-
ment, or other object, or attempts to do so, with the intent
to impair the object’s integrity or availability for use in an
official proceeding, or
“(2) otherwise obstructs, influences, or impedes any official
proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than 20
years, or both.”
SEC. 1103. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND
EXCHANGE COMMISSION.
(a) IN GENER .L.—Section 21C(c) of the Securities Exchange
Act of 1934 (15 U.S C. 78u—3(c)J is amended by adding at the
end the following’
“(3) TEMPORARY FREEZE —
“(A) IN GENERAL —
“(i) ISSUANCE OF TEMPORARY ORDER —Whenever,
during the course of a lawful investigation involving
possible violations of the Federal securities laws by
an issuer of publicly traded securities or any of its
directors, officers, partners, controlling persons, agents,
or employees, it shall appear to the Commission that
it is likely that the issuer will make extraordinary
payments (whether compensation or otherwise) to any
of the foregoing persons, the Commission may petition
a Federal district court for a temporary order requiring
the issuer to escrow, subject to court supervision, those
payments in an interest-bearing account for 45 days.
“(ii) STANDARD —A temporary order shall be
entered under clause (i), only after notice and oppor-
tunity for a hearing, unless the court determines that

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H R 3763—64
notice and hearing prior to entry of the order would
be impracticable or contrary to the public interest.
“(iii) EFFECTWE PERIOD —A temporary order
issued under clause (i) shall—
“(I) become effective immediately;
“(II) be served upon the parties subject to it;
and
“(III) unless set aside, limited or suspended
by a court of competent jurisdiction, shall remain
effective and enforceable for 45 days
“(iv) EXTENSIONS AUTHORIZED —The effective
period of an order under this subparagraph may be
extended by the court upon good cause shown for not
longer than 45 additional days, provided that the com-
bined period of the order shall not exceed 90 days.
“(B) PROCESS ON DETERMINATION OF VIOLATIONS.—
“(i) VioL. TioNs CHARGED —If the issuer or other
person described in subparagraph (A) is charged with
any violation of the Federal securities laws before the
expiration of the effective period of a temporary order
under subparagraph (A) (including any applicable
extension period), the order shall remain in effect,
subject to court approval, until the conclusion of any
legal proceedings related thereto, and the affected
issuer or other person, shall have the right to petition
the court for review of the order
“(ii) VIOLATIONS NOT CHARGED—If the issuer or
other person described in subparagraph (A) is not
charged with any violation of the Federal securities
laws before the expiration of the effective period of
a temporary order under subparagraph (A) (including
any applicable extension period), the escrow shall
terminate at the expiration of the 45-day effective
penod (or the expiration of any extension period, as
applicable), and the disputed payments (with accrued
interest) shall be returned to the issuer or other
affected person “.
(b) TEc1u ’.nc i AMENDMENT.—Section 21C(c)(2) of the Securities
Exchange Act of 1934 (15 U.s.c 78u—3(c)(2)) is amended by striking
“This” and inserting “paragraph (1)”.
SEC. 1104. AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.
(a) REQUEST FOR IMMEDIATE CONSIDERATION BY THE UNITED
STATES SENTENCING COMMISSION —Pursuant to its authority under
section 994(p) of title 28, United States Code, and in accordance
with this section, the United States Sentencing Commission is
requested to—
(1) promptly review the sentencing guidelines applicable
to securities and accounting fraud and related offenses;
(2) expeditiously consider the promulgation of new sen-
tencing guidelines or amendments to existing sentencing guide-
lines to provide an enhancement for officers or directors of
publicly traded corporations who commit fraud and related
offenses; and
(3) submit to Congress an explanation of actions taken
by the Sentencing Commission pursuant to paragraph (2) and

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H R3763—65
any additional policy recommendations the Sentencing Commis-
sion may have for combating offenses described in paragraph
(1)
(b) CONSIDERATIONS IN REVIEW—In carrying out this section,
the Sentencing Commission is requested to—
(1) ensure that the sentencing guidelines and policy state-
ments reflect the serious nature of securities, pension, and
accounting fraud and the need for aggressive and appropnate
law enforcement action to prevent such offenses;
(2) assure reasonable consistency with other relevant direc-
tives and with other guidelines;
(3) account for any aggravating or mitigating circumstances
that might justif ’ exceptions, including circumstances for which
the sentencing guidelines currently provide sentencing enhance-
ments;
(4) ensure that guideline offense levels and enhancements
for an obstruction ofjustice offense are adequate in cases where
documents or other physical evidence are actually destroyed
or fabricated;
(5) ensure that the guideline offense levels and enhance-
ments under United States Sentencing Guideline 2B1.1 (as
in effect on the date of enactment of this Act) are sufficient
for a fraud offense when the number of victims adversely
involved is significantly greater than 50;
(6) make any necessary conforming changes to the sen-
tencing guidelines; and
(7) assure that the guidelines adequately meet the purposes
of sentencing as set forth in section 3553 (a)(2) of title 18,
United States Code.
(c) EMERGENCY AuTHORITY AND DEADLINE FOR COIvIMISSION
ACTION —The United States Sentencing Commission is requested
to promulgate the guidelines or amendments provided for under
this section as soon as practicable, and in any event not later
than the 180 days after the date of enactment of this Act, in
accordance with the procedures sent forth in section 2 1(a) of the
Sentencing Reform Act of 1987, as though the authority under
that Act had not expired.
SEC. 1105. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS
FROM SERVING AS OFFICERS OR DIRECTORS.
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 21C of the
Securities Exchange Act of 1934 (15 U S.C. 78u—3) is amended
by adding at the end the following
“(f) Aumom rr OF THE CoMMIssIoN TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DrnEcToas.—In any cease-and-desist pro-
ceeding under subsection (a), the Commission may issue an order
to prohibit, conditionally or unconditionally, and permanently or
for such period of time as it shall determine, any person who
has violated section 10(b) or the rules or regulations thereunder,
from acting as an officer or director of any issuer that has a
class of securities registered pursuant to section 12, or that is
required to file reports pursuant to section 15(d), if the conduct
of that person demonstrates unfitness to serve as an officer or
director of any such issuer.”.
(b) SECURITIES ACT OF 1933 —Section 8A of the Securities
Act of 1933 (15 U S.C. 77h—1) is amended by adding at the end
of the following:

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H. R. 3 763—66
“(f) AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM
SERVING AS OFFICERS OR DIRECTORS.—In any cease-and-desist pro-
ceeding under subsection (a), the Commission may issue an order
to prohibit, conditionally or unconditionally, and permanently or
for such period of time as it shall determine, any person who
has violated section 17(a)(1) or the rules or regulations thereunder,
from acting as an officer or director of any issuer that has a
class of securities registered pursuant to section 12 of the Securities
Exchange Act of 1934, or that is required to file reports pursuant
to section 15(d) of that Act, if the conduct of that person dem-
onstrates unfitness to serve as an officer or director of any such
issuer.”.
SEC. 1106. INCREASED CRIMINAL PENALTIES UNDER SECURITIES
EXCHANGE ACT OF 1934.
Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C
78fRa)) is amended—
(1) by striking “$1,000,000, or imprisoned not more than
10 years” and inserting “$5,000,000, or imprisoned not more
than 20 years”; and
(2) by striking “$2,500,000” and inserting “$25,000,000”
SEC. 1107. RETALIATION AGAINST INFORMANTS.
(a) IN GENERAL —Section 1513 of title 18, United States Code,
is amended by adding at the end the following
“(e) Whoever knowingly, with the intent to retaliate, takes
any action harmful to any person, including interference with the
lawful employment or livelihood of any person, for providing to
a law enforcement officer any truthful information relating to the
commission or possible commission of any Federal offense, shall
be flned under this title or imprisoned not more than 10 years,
or both “.
Speaker of the House of Representatwes
Vz e President of the United States and
President of the Senate.

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United States Government Accountability Office
GAO Report to Congressional Requesters
2004 ENVIRONMENTAL
DISCLOSURE
SEC Should Explore
Ways to Imp rove
Tracking and
Transparency of
Information
A\GAO
Accountability * Integrity * Reliability
GAO-04-808

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July 2004
GAO
_ AccOII y ’I1Isç Ifl .RdmbLiTy
Highlights
Highlights 01 GAO-04-808, a report to
congressional requesters
Why GAO Did This Study
To help investors make informed
decisions, the Securities and
Exchange Commission (SEC)
enforces federal securities laws
requiring companies to disclose all
information that would be
considered important or material”
to a reasonable investor, including
information on environmental risks
and liabilities, in reports filed with
SEC. To monitor companies’
disclosures, SEC reviews their
filings and issues comment letters
requesting revisions or additional
information, if needed. This report
addresses (1) key stakeholders’
views on how well SEC has defined
the requirements for environmental
disclosure, (2) the extent to which
companies are disclosing such
information in their SEC filings, (3)
the adequacy of SEC’s efforts to
monitor and enforce compliance
with disclosure requirements, and
(4) experts’ suggestions for
increasing and improving
environmental disclosure.
What GAO Recommends
GAO is recommending that SEC
take steps to improve the tracking
and transparency of information
related to its reviews of companies’
filings, and to work with the
Environmental Protection Agency
(EPA) to explore ways to take
better advantage of EPA data
relevant to environmental
disclosure. SEC agrees with GAO’s
recommendations and is taking
action by, for example, making
comment letters and company
responses available on its Web site,
beginning with August 2004 filings.
www.gao.govicgi-bin/getrpt?GAOO4-808.
To view the full product, including the scope
and methodology, click on the link above
For more information, contact John B.
Stephenson at (202) 512-3841 or
stephensonj@gao gov.
ENVIRONMENTAL DISCLOSURE
SEC Should Explore Ways to Improve
Tracking and Transparency of
Information
What GAO Found
Key stakeholders disagree about how well SEC has defined the disclosure
requirements for environmental information. Some stakeholders who use
companies’ filings, such as investor organizations and researchers,
maintained that the requirements allow too much flexibility and are too
narrow in scope to capture important environmental information. Other
stakeholders, primarily those who prepare or file reports with SEC, said that
the scope of the current requirements and guidance is adequate and that
companies need flexibility to accommodate their individual circumstances.
Little is known about the extent to which companies are disclosing
environmental information in their tmngs with SEC. Determmmg what
companies should be disclosing is extremely challenging without access to
company records, considering the flexibility in the disclosure requirements.
Despite strong methodological limitations, some studies provide tentative
insights about the amount of environmental information companies are
disclosing and the variation in disclosure among companies. However, the
problem in evaluating the adequacy of disclosure is that one cannot
determine whether a low level of disclosure means that a company does not
have existing or potential enviroiunental liabilities, has determined that such
liabilities are not matenal, or is not adequately complying with disclosure
requirements.
The adequacy of SEC’s efforts to monitor and enforce compliance with
environmental disclosure requirements cannot be determined without better
information on the extent of environmental disclosure. In addition, SEC does
not systematically track the issues raised in its reviews of companies’ filings
and thus, does not have the information it needs to analyze the frequency of
problems involving environmental disclosure, compared with other types of
disclosure problems; identify trends over time or within particular
industries; or identify areas in which additional guidance may be warranted.
Over the years, SEC and EPA have made sporadic efforts to coordinate on
improving environmental disclosure; currently, EPA periodically shares
limited information on specific, environment-related legal proceedings, such
as those involving monetary sanctions.
Using a Web-based survey of 30 experts that use disclosure information,
including investor organizations and financial analysts among others, GAO
obtained suggestions for mcreasmg and improving environmental disclosure
in three broad categories: modifying disclosure requirements and guidance,
increasing oversight and enforcement, and adopting nonregulatory
approaches to improving disclosure. Some of the experts offered comments
about why particular proposals are unnecessary or unworkable. GAO also
sought the views of representatives of companies that file reports with SEC,
who questioned the value and feasibility of some suggestions.
States General Accounting Office

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Contents
Letter 1
Results in Brief 3
Background 6
Stakeholders Disagree on How Well SEC Has Defined
Environmental Disclosure Requirements 9
Little Is Known about the Extent to Which Companies Are
Disclosing Environmental Information in SEC Filings 16
Adequacy of SEC’S Efforts to Monitor and Enforce Compliance with
Environmental Disclosure Requirements Cannot Be
Determined 23
Experts Suggest Changes to Requirements and Guidance, Increased
Oversight, and Nonregulatory Actions to Increase and Improve
Environmental Disclosure 29
Conclusions 36
Recommendations for Executive Action 36
Agency Comments 37
Appendixes
Appendix I: Scope and Methodology 39
Appendix II: Principal Requirements and Guidance Applicable to the
Disclosure of Environmental Information in SEC Filings 44
Appendix III: Swnmary of Disclosure Studies Included in Our Analysis 46
Appendix IV Experts Who Participated in GAO Survey 51
Appendix V: Survey Questions and Results 52
Appendix VI: Comments from the Securities and Exchange Commission 72
Appendix VII: GAO Contacts and Staff Acknowledgments 74
GAO Contacts 74
Staff Acknowledgments 74
Tables Table 1: Disclosures Related to Potential Impacts of Current or
Proposed Requirements to Reduce Greenhouse Gas
Emissions 22
Table 2: SEC’S Reviews of Companies’ Annual 10-K Filings, Fiscal
Years 1999 through 2003 25
Page i GAO-04-808 Environmental Disclosure

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Contents
Abbreviations
AICPA
American Institute of Certified Public Accountants
EPA
Environmental Protection Agency
GAO
Government Accountability Office
SEC
Securities and Exchange Commission
This is a work of the U.S. government and is not subject to copyright protection in the
United States. It may be reproduced and distributed in its entirety without further
permission from GAO. However, because this work may contain copyrighted images or
other material, permission from the copyright holder may be necessary if you wish to
reproduce this material separately.
Page ii GAO-04.808 Environmental Disclosure

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GAO
Accountability • integrity • Reliability
United States Government Accountability Office
Washington, D.C. 20548
July 14, 2004
The Honorable James M. Jeffords
Ranking Minority Member
Committee on Environment and Public Works
United States Senate
The Honorable Jon S. Corzine
United States Senate
The Honorable Joseph I. Lieberman
United States Senate
Recent scandals in the business world have shaken investors’ confidence in
corporate financial reporting and the underlying accounting and auditing
practices, and have highlighted the importance of disclosing key
information to potential investors. Environmental risks and liabilities are
among the conditions that, if undisclosed, could impair the public’s ability
to make sound investment decisions. For example, the discoveiy of
extensive hazardous waste contamination at company-owned facilities
could expose a company to hundreds of millions of dollars in cleanup
costa, while impending environmental regulations could affect a company’s
future financial position if the company were required to shut down plants
or invest in expensive new technology. While not the primary impetus,
concern about environmental liabilities has also contributed to the growth
of “socially responsible” investor groups and mutual funds that invest only
in companies with a strong record in environmental compliance, worker
protection, and other social issues. Congress passed the Sarbanes-Oxley
Act of 2002 to protect investors by improving the accuracy and reliability of
corporate disclosures, which could lead to improved reporting of
environmental liabilities.
The Securities and Exchange Commission’s (SEC) primary mission is to
protect investors and the integrity of securities markets. Among other
things, SEC regulations require companies to disclose information that
would be considered “material” by a reasonable investor. A matter is
material if there is a substantial likelihood that a reasonable person would
consider it important. The omission or misstatement of an item in a
financial report is material if, in light of surrounding circumstances, the
magmtude of the item is such that the judgment of a reasonable person
would probably have been changed or influenced by the inclusion or
correction of the item. Information that might be considered material can
Page 1 GAO.04.808 Environmental Disclosure

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include, for example, significant changes in accounting practices or
potential risks or liabilities, such as the cost of a major environmental
cleanup, that could affect future earnings. SEC’S Division of Corporation
Finance monitors compliance with the disclosure requirements by
periodically reviewing companies’ filings and issuing comment letters to
the companies, if necessary, to request any additional information that
might be required. In addition, SEC’S Division of Enforcement may seek a
monetary penalty or take some other enforcement action when a
company’s failure to comply with disclosure requirements is particularly
egregious. While the Environmental Protection Agency (EPA) does not
have a direct role in monitoring environmental disclosures, the agency
encourages the disclosure of environmental legal proceedings by notifying
companies of potential disclosure obligations and periodically shares
relevant information with SEC.
You asked us to determine (1) key stakeholders’ views on how well SEC
has defined the requirements for environmental disclosure, (2) the extent
to which companies are disclosing environmental information in their
filings with SEC, (3) the adequacy of SEC’s efforts to monitor and enforce
compliance with the disclosure requirements, and (4) what actions experts
suggest for increasing and iniproving environmental disclosure. To obtain
views on environmental disclosure requirements, we reviewed SEC’s
disclosure regulations along with relevant standards and guidance from
SEC, the Financial Accounting Standards Board, and the American
Institute of Certified Public Accountants (AICPA). We also interviewed
representatives of groups with a stakeholder interest in environmental
disclosure, including investor organizations, financial services institutions,
environmental groups and consultants, business associations, credit rating
agencies, and public accounting firms. For information on the extent to
which companies are disclosing environmental information in their filings
with SEC, we reviewed 27 studies conducted from 1995 to 2003 and
assessed their methodologies. After eliminating 12 studies that either had
severe methodological limitations or did not address aspects of
environmental disclosure relevant to our objectives, we summarized the
findings of the remaining 15 studies. At the committee’s request, we
supplemented our analysis of existing studies with a limited examination of
disclosures related to potential future risks, focusing on the impacts of
potential controls on greenhouse gas emissions at 20 U.S. electnc utilities
with relatively high emissions of carbon dioxide.
For information on SEC’S monitoring and enforcement of environmental
disclosure requirements, we reviewed SEC’S policies and procedures,
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obtained agency statistics on relevant activities, and interviewed officials
within SEC and EPA. To obtain suggestions for increasing and improving
environmental disclosure, we conducted a Web-based survey of 30 experts
that use disclosure information, including representatives of the
accounting and auditing profession, environmental consultants and
attorneys, investment and financial services, the insurance industry,
environmental interest groups, public employee pension funds, and credit
rating agencies, among others. Some of the experts were also among the
stakeholders consulted about the disclosure requirements. To ensure
balance, we sought the views of representatives of reporting companies
regarding the experts’ suggestions. We conducted our work between
February 2003 and June 2004 m accordance with generally accepted
government auditing standards. (See app. I for a detailed description of our
scope and methodology.)
Results in Brief Key stakeholders disagree on how well SEC has defined the requirements
for environmental disclosure, with some saying that certain aspects of the
requirements provide too much flexibility and are too narrowly scoped,
while others maintain that the flexibility is warranted and the scope
adequate. The stakeholders who cited concerns generally included groups
with an interest in environmental protection or socially responsible
investing These stakeholders said, for example, that companies may not be
disclosing some potential environmental liabilities or may be minimizing
the amounts reported because SEC’s guidance is not specific enough in
certain areas, such as (1) disclosing liabilities when their occurrence or
amount is uncertain, (2) assessing the materiality of liabilities and potential
risks, and (3) disclosing potentially significant environmental problems or
regulatory mitiatives that could pose future financial risks. In contrast,
stakeholders who viewed the existing requirements for environmental
disclosure as sufficiently well defined generally represented entities
responsible for reporting information to SEC and groups with general
investment interests. Among other things, these stakeholders commented
that the flexibility in the requirements is necessary to accommodate the
variability in compames’ circumstances and that developing more specific
guidance would not be feasible. For some of these stakeholders, the
problems with inadequate disclosure—to the extent such problems
exist—are linked to inadequate oversight and enforcement rather than to
the nature of the requirements. However, this view was not shared by
representatives of businesses responsible for filing SEC reports, who
believe that SEC’S oversight is adequate.
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Little is known about the extent to which companies are disclosing
environmental information in their filings with SEC, despite many efforts to
study environmental disclosure over the past 10 years. The primary
impediments to conducting such studies lie in determining for specific
companies (1) what environmental information is potentially subject to
disclosure and (2) whether the information should be considered
material—thus meeting the reporting threshold—given the companies’
particular circumstances. While disclosure studies can summarize the
information included in companies’ SEC filings, determining what should
have been reported may be impossible without direct access to company
records. The studies included in our review had other serious limitations as
well, including small sample sizes and narrow focus. While the results of
these studies are very limited and not generalizable, some indicate that the
extent of environmental disclosure has increased over time and that, within
a particular industry, it can vary considerably in terms of the amount and
type of information provided. Our own analysis of a limited number of
disclosures related to the future risks posed by potential controls over
greenhouse gas emissions similarly revealed substantial variation in the
information that companies are reporting to investors. However, because
of the flexibility in some aspects of the requirements, it is impossible to
determine whether differences in the level of disclosure reflect differences
in the risks companies face or differences in the extent to which companies
are disclosing these risks.
The adequacy of SEC’S efforts to monitor and enforce compliance with
environmental disclosure requirements cannot be determined without
more definitive information on the extent of environmental disclosure and
the results of SEC’S oversight process. SEC’S primary means of overseeing
disclosure are reviewing companies’ filings and issuing comment letters to
request revisions or additional information. In each of the past 5 years,
SEC’s Division of Corporation Finance reviewed about 8 to 20 percent of
companies’ annual filings. SEC does not, however, track the nature of the
division’s comments on filings to identify the most common problems,
analyze trends, or determine where additional guidance may be warranted.
Agency officials said that based on their experience, the aLlequacy of
companies’ environmental disclosure rarely prompts comments, partly
because of the nature of the businesses involved, although such comments
are more prevalent in industries such as manufacturing and oil and gas. In
keeping with this observation, an SEC review of annual filings from
Fortune 500 companies in 2002 found relatively few problems with
environmental disclosure overal], compared with other types of disclosure.
Despite sporadic efforts to coordinate on improving environmental
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disclosure, SEC and EPA do not have a formal agreement to share relevant
information. At one time, EPA was providing enforcement-related data to
SEC’S Division of Corporation Finance on a quarterly basis, but SEC
questioned the usefulness of the data because they were facility-specific
and SEC could not readily identify the parent company responsible for
filing reports with SEC. Currently, information sharing occurs less
frequently and is focused on specific legal proceedings, such as those
involving monetary sanctions for environmental violations.
Experts’ suggestions on ways to increase and improve environmental
disclosure fell prunanly into three broad categories: (1) modifying the
disclosure reqwrements and improving guidance for reporting entities
(2) stepping up SEC’s momtoring and enforcement of existing
requirements, and (3) adopting nonregulatory approaches to improving
disclosure. In the first category, some experts that we surveyed suggested
additional guidance to clanfy specific requirements and terminology and to
rein in flexibility. For example, some experts suggested that SEC clanfy its
requirements for when environmental liabilities must be disclosed and
require either the use of a specific cost-estimation method or, at a
minimum, disclosure of more information about the method used and
related assumptions, in the second category, some experts suggested that
SEC put more emphasis on corporate compliance with environmental
disclosure requirements by, for example, reviewing more filings in relevant
industries, and improve coordination between SEC and EPA on
environmental matters Some experts also advocated that when the
opportunity exists. SEC initiate a few high-profile enforcement cases to
emphasize the seriousness of not disclosing matenal environmental
information and to establish legal precedents for interpreting current
requirements and guidance. In the third category, suggestions included
pressure from investor groups and financial institutions for better
disclosure of environmental information through shareholder petitions and
voluntary environmental reporting initiatives. Some experts offered
comments on why particular proposals are unnecessary or unworkable.
Representatives of reporting companies also believe that some of the
suggestions would not improve disclosure of environmental information,
but agreed that nonregulatory approaches can be effective in making
company management aware of public interest in environmental
disclosure
We are making recommendations to increase the amount of information
available to SEC and the public on the results of SEC’S filing reviews and to
improve the level of coordination between SEC and EPA. In commenting
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on a draft of this report, SEC agreed with our recommendations and, in
particular, said that the agency is taking steps to increase the tracking and
transparency of key information. EPA generally agreed with the
information presented in the report.
Background SEC seeks to (1) promote full and fair disclosure; (2) prevent and suppress
fraud; (3) supervise and regulate the securities markets; and (4) regulate
and oversee investment companies, investment advisors, and public utility
holding companies. To ensure that all investors have access to basic
relevant information prior to trading, federal securities laws require certain
companies to register with SEC and make public particular information.
Among other things, these companies are required to file reports with SEC
about their financial condition arid business practices when stock is
initially sold and on a continuing and periodic basis afterwards to help
investors make informed decisions. Each year, companies generally must
file, at a minimum, one annual report, called a 10-K, and three quarterly
reports, known as 10-Qs.
SEC promulgates regulations and issues guidance on what information
public companies must disclose in their filings. Beginning in 1982, SEC
integrated all of the required disclosures into one omnibus regulation,
regulation S-K. According to SEC, three sections of regulation S-K are most
likely to elicit environmental disclosures, either because of specific
environment-related requirements or common practice:
• Under S-K item 101, companies must disclose the material effects of
compliance with federal, state, and local environmental provisions on
their capital expenditures, earnings, and competitive position;
• Under S-K item 103, companies must describe certain administrative or
judicial legal proceedings arising from federal, state, or local
environmental provisions; and
• Under S-K item 303, companies must discuss their liquidity, capital
resources, and results of operations. For example, companies must
identify any known trends, demands, commitments, events, or
uncertainties that may result in a material change in the company’s
liquidity. In this part of the filing, known as Management’s Discussion
and Analysis of Financial Condition and Results of Operations, SEC
expects to see information on any environmental matters that could
materially affect company operations or finances.
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In addition to its own disclosure requirements, SEC relies on the standards
and guidance issued by the Financial Accounting Standards Board and the
Public Company Accounting Oversight Board to help ensure that
companies are properly accounting for and reporting on their financial
operations, including any environmental losses resulting from liabilities or
from permanent reductions in the value of company assets.’ For example,
SEC presumes that financial statements in company filings that are not
prepared in accordance with generally accepted accounting principles,
promulgated by the Financial Accounting Standards Board, are misleading
or inaccurate. Moreover, SEC regulations require companies to submit
audited financial statements with their annual filings. The audits are
performed by independent auditors, who are subject to professional
auditing standards, which until recently were promulgated by the AICPA.
Under the Sarbanes-Oxley Act of 2002, the new Public Company
Accounting Oversight Board, appointed and overseen by SEC, is now
responsible for issuing standards related to the preparation of audit reports
for publicly held companies. 2
To monitor compliance with disclosure requirements, SEC’S Division of
Corporation Finance periodically reviews companies’ filings and issues
comment letters to the companies, if necessary to request additional
information, amendments of prior filings, or specific disclosures in future
filings. While Corporation Finance does not have direct authority to compel
companies to respond to its comment letters, companies know that failure
to do so could delay approval of filings that they need in order to raise
capital. In egregious cases, Corporation Finance can refer companies to
SEC’S Division of Enforcement. The Division of Enforcement can seek
sanctions against companies for the misrepresentation or omission of
important information about securities in civil or administrative
proceedings. Among the sanctions available to SEC are obtaining a
permanent injunction against an officer of the company; levying monetary
penalties; requiring the return of illegal profits, known as disgorgement;
and barnng an individual from serving as an officer or director in a public
‘The secunties laws authorize SEC to prescribe the methods to be followed in the
preparation of accounts and the form and content of financial statements to be filed under
those laws. To assist in meeting these responsibilities, SEC has historically relied upon
private sector standard-setting bodies designated by the accounting profession to develop
accounting principles and standards. Since 1973, SEC has officially recognized the Financial
Accounting Standards Board as the authoritative standard-setting organization
‘The AICPA continues to exist as the officially recognized standard-setting body for
independent financial audits of nonpublic companies
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company. EPA encourages companies to disclose environmental legal
proceedings by notifying companies of potential disclosure obligations and
sharing relevant information with SEC.
Congress passed the Sarbanes-Oxiey Act of 2002 to improve the accuracy
and reliability of corporate disclosures. While the act does not contain
provisions that specifically address environmental disclosure, some of
them could lead to improved reporting of environmental liabifities. These
provisions include requirements for SEC to more frequently review
company filings; for companies to make real-time disclosures of material
changes in their financial conditions; and for company officials to annually
assess the effectiveness of internal controls and procedures for financial
reporting and to certify that their SEC fthngs fairly present, in all material
respects, the company’s financial condition and results of operations. In
addition, the act authonzes an increase in SEC’s funding for, among other
things, additional professional support staff necessary to strengthen SEC’s
disclosure and fraud prevention programs. 3
The term ‘socially responsible mvestor” refers to individuals who screen
their investments based on companies’ environmental, labor, or community
practices Beginning in the late 1960s, some investors consciously avoided
the securities of companies they perceived as polluting the environment,
engaging in unfair labor practices, or otherwise exhibiting poor corporate
governance, and sought out investments in companies perceived to have
better records on various social issues. Although initially a marginal
segment of the investing community, the dollar amount of assets in socially
screened accounts has increased significantly in recent years. The Social
Investment Forum, an organization of over 500 social investment
practitioners and institutions, estimated that in 2003, the total assets
invested in such accounts were about $2 trillion in the United States, or
about 11 percent of the $19.2 trillion in assets under professional
management. 4
3 1n 2002, we issued a report on the imbalance between SEC’S workload and resource levels
See U S. General Accounting Office, SEC Opercuwns Increased Workload Creates
Cha1lenges, GAO.02.302 (% ashu,gLon, D C Mar 5, 2002)
‘Social Investment Forum, 2003 Report on Soczaliy Responszble Investing Trends in the
United States (Washington. D C December 2003)
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Stakeholders Disagree While most of the disclosure requirements are designed for broad
LI UT U application—and apply to the disclosure of all types of information,
On i.iOW vv eu L Ld jias including environmental matters—some of the regulations and related
Defmed Environmental guidance provide criteria specifically for determining whether and how to
Disclosure disclose environmental information. (See app. H for a list of the principal
requirements and guidance applicable to environmental disclosure.) Key
Requirements staleholders disagree about whether the flexibility and scope of existing
disclosure requirements for environmental information are appropriate.
Some stakeholders who use companies’ filings, such as investors and
researchers, believe that the existing environmental disclosure
requirements allow too much flexibility and are too narrow in scope to
capture important environmental information. Other stakeholders,
primarily those who prepare or file reports with SEC, hold the opposite
view, and said that the scope of the current requirements and guidance is
adequate and that companies need flexibility to accommodate their
mdividual circumstances.
Disclosure Requirements In determining whether to disclose environmental information, public
Are Typically Defmed m companies generally must apply the same standards and guidance as they
Broad Terms but They Also apply to other information that is potentially subject to disclosure. SEC, the
Financial Accounting Standards Board, and the AICPA have issued broadly
Include Specific Guidance applicable regulations, standards, and guidance related to determining the
for Environmental likelihood and amount of potential liabilities; the materiality of information
Information relevant to the company, its results of operations, or its financial condition;
and the extent to which future risks must be disclosed.
Generally accepted accounting principles require companies to report
liabilities, including environmental liabilities, in their financial statements if
the liabilities’ occurrence is “probable” and their amounts are “reasonably
estimable.” A liability is reasonably estimable if company management can
develop a point estimate or determine that the amount falls within a
particular dollar range. According to generally accepted accounting
principles, companies should always accrue (and disclose) their best
estimate for a liability in their financial statements, given the range of
possible costs. If no one estimate is better than the others, the applicable
accounting standard specifies that companies should accrue the lowest
estimate in the range in their financial statements, although they must still
disclose the potential for additional liability in the footnotes to the
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statements. 5 If the liability does not meet one or both of the cntena for
accruing in the financial statements, it must nonetheless be disclosed in the
footnotes if it is “reasonably possible.” The term “reasonably possible”
represents a range of possible outcomes that have a greater than remote
chance of occurring.
SEC regulations generally require disclosure of information only if it is
“material.” According to SEC officials, in determining whether information
is material, the agency relies on the Supreme Court’s statement that “an
omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.” 6
Guidance issued by the Financial Accounting Standards Board states that
the omission of an item in a financial report is material, if, in light of
surrounding circumstances, the magnitude of the item is such that it is
probable that the judgment of a reasonable person relying on the report
would have changed or been influenced by the inclusion or correction of
the item. In general, SEC and other standard-setting bodies recognize that
only those who have all the facts can properly make materiality judgments.
The Financial Accounting Standards Board believes that no general
standards of materiality could be formulated to take into account all the
considerations that enter into an experienced human judgment.
Concerning the disclosure of future risks, including risks related to
environmental matters, SEC regulation S-K item 303 requires company
management to discuss the company’s liquidity, capital resources, and
results of operations. For example, a company must identify any known
trends, demands, commitments, events, or uncertainties that may result in
a material change in the company’s liquidity. In addition, under item 303
companies are “encouraged” to include in their filings forward-looking
information, which SEC guidance defines as anticipating a future trend or
event, or anticipating a less predictable impact of a known event, trend, or
6 1f the best estimate in a range is accrued, then the potential for additional liability need not
be disclosed However, under guidance front the AICPA, companies must disclose the nsks
and uncertainties of their estimates when it is at least reasonably possible that the estimates
will change in a way that is material to the financial statements within the next year See
AICPA, Statement of Positwn 94-6 Disclosure of Certain Szgn,ficant Risks and
Uncertainties, (New York, N Y 1994)
6 See Basic, Inc , v Levinson, 485 U S 224, 231 (1988) citing TSC Industnes v Noithway, mc,
426 U.S 438,449 (1976)
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uncertainty. 7 In a 1989 interpretive release, SEC explained when companies
are obligated to disclose future iisks. The guidance says that “a disclosure
duty exists where a trend, demand, commitment, event or uncertainty is
both presently known to management and reasonably likely to have
material effects on the registrant’s financial condition or results of
operation.” 8
Some reporting standards and guidance relate specifically to the disclosure
of environmental information or contain specific environmental
benchmarks. For example, the AICPA has issued comprehensive
supplemental guidance on the disclosure of environmental liabilities. 9 For
determining whether environmental liabilities should be disclosed, this
guidance uses the terms “probable,” “reasonably possible,” or “remote,” as
benchmarks for determining the likelihood that a liability will occur and
includes some representative situations in which disclosure is warranted.
By way of illustration, the guidance suggests that companies use
notification by EPA that they are a potentially responsible party at a
hazardous waste site as an indication that a liability is probable and subject
to disclosure if matenal. The supplemental accounting guidance also
contains a chapter on measuring the amount of environmental liabilities,
given the uncertainties inherent in environmental sites. It identifies the cost
elements that should be included when estimating the dollar amount of a
liability—including litigation, risk assessment and planning, cleanup, and
momtonng—and it requires companies to use whatever information is
available.
Disclosure of environmental information is also specifically addressed in
SEC regulation S-K item 103. Although SEC’s regulations and guidance
7 SEC reguIa ons provide a “safe harbor” under which the agency will generally not consider
forward-looking statements to be fraudulent.
8 SEC’s gwdance further states that if management detemunes that the known trend,
demand, commitment, event, or uncertainty is not reasonably likely to occur, no disclosure
is reqwred. However, if management cannot make such a determination, it must proceed on
the assumption that the trends or events will come to fruition, disclosure is then required
unless management determines that a matenal effect is not reasonably likely See Secunties
and Exchange Commission, SEC Interpret at ion Management’s Discussion and Analysis
of Financial Condition and Results of Operations, Certain Investment Company
Disclosures (Release Nos. ,93-6855, 34-26831, IC-i 6961 , FR-361 54 Fed. Reg 22427, 22430
(i989)
See AICPA, Statement of Position 96-i. EnmronmentolRe,nediation Liabilities, (New
York,NY. 1996)
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generally do not establish numeric thresholds for determining materiality,
item 103 contains two exceptions related to environment-related legal
matters: Companies must disclose as material administrative or judicial
proceedings that involve (1) federal, state, or local environmental laws, if
the potential amount of the losses exceeds 10 percent of the company’s
current assets and (2) potential monetary sanctions of $100,000 or more, if
a governmental authority is a party to the proceedings. In each case, these
amounts are calculated exclusive of interest arid costs. Companies must
report potential monetary sanctions of $100,000 or more whether or not the
amount would otherwise be considered material, unless the company
reasonably believes that the proceeding will result in no monetary sanction
or in sanctions of less than $100,000.
Some Users of Disclosure Some users of company filings—including environmental interest groups,
Information Said Existing investment analysts with an interest in socially responsible investing,
Environmental Disclosure researchers, and others—said that existing requ rements allow too much
D • - A m flexibility and are too narrowly scoped to provide adequate disclosure of
n.eqWremeni e 100 environmental information. These stakeholders maintained that the
Flexible and Too Narrowly existing regulations give companies too much leeway in determining what
Scoped environmental information to disclose and limit the extent of disclosure by
defining environmental information narrowly. As a result, they believe,
companies’ disclosure of environmental information is inadequate,
hindering investors’ ability to assess companies’ overall financial condition
and the risks they face.
These stakeholders said that the relevant regulations and guidance are too
flexible in several areas. Regarding the point at which companies should
disclose a liability, stakeholders said that the current standards and
guidance are unclear; for example, opinions vary on whether a disclosure
obligation exists at the time the environmental contamination occurs or the
point at which a regulatory agency (or some other third party) has taken
action against a company to force a cleanup. In addition, some
stakeholders said that companies can use the apparent flexibility in judging
the likelihood of a liabifity to postpone or avoid disclosure.
Stakeholders also said that applicable regulations and guidance make it too
easy for companies to conclude that they have nothing to disclose or
cannot calculate an estimate, or to default to a known minunuin amount
rather than develop a best estimate. Estimating the amount of
enviromnental liabilities involves several uncertainties, among them the
extent of contamination arid required cleanup, the stringency of applicable
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cleanup standards, the state of the art of available cleanup technology, and
the extent to which cleanup costs might be shared with other responsible
parties or offset by insurance recoveries. However, stakeholders believe
that companies have developed methods to account for such uncertainties
that yield better estimates than the known minimum, and they believe that
companies should be required to share this infonnation with investors.
On assessing materiality, stakeholders expressed concern that the existing
regulations and guidance largely rely on the discretion of company
management and that the requirements generally do not establish minimum
thresholds for disclosure. Some stakeholders also said that the materiality
standard does not sufficiently emphasize the need to disclose intangible,
nonquantifiable factors, such as the impact of environmental
contamination on a company’s reputation.
Regarding disclosure of future risks, stakeholders said that SEC
regulations and guidance do not clearly distinguish between “known
information” that could cause reported financial information to not be
indicative of future results and “forward-looking information,” which may
be less certain but could have a greater potential impact. As a result,
companies have more flexibility in determining which nsks can be
characterized as forward-looking and thus avoid disclosing the
information.
In addition to concerns about the degree of flexibility allowed in the
regulations and guidance, users of company filings also said that the
disclosure requirements are too narrowly scoped in some areas to ensure
that companies are making available all of the important environmental
information needed by investors. Stakeholders expressed the following
concerns, among others:
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• SEC’S definition of monetary sanctions does not include certain costs
related to the sanctions. Specifically, in determining when the $100,000
disclosure threshold has been met, SEC regulations and guidance
exclude costs associated with (1) environmental remediation and (2)
supplemental environmental projects conducted in lieu of paying
sanctions.’°
• SEC’S regulations do not require companies to aggregate the estimated
costs of similar potential liabilities, such as multiple hazardous waste
sites, when assessing materiality.
• Companies are not required to disclose information about their
environmental assets or environmental performance.” A growing body
of socially responsible investors believes that such information could be
material to many investors or indicative of effective corporate
management.
• SEC regulations do not require companies to disclose quantitative
information on the total number of environmental remediation sites,
related claims, or the associated liabilities. As a result, investors cannot
determine whether companies have enough reserves to cover current
and future liabilities
Reporting Companies and
Other Stakeholders Said
That the Flexibility within
Existing Disclosure
Requirements Is Necessary
and the Scope Adequate
Reporting comparues and other stakeholders did not share concerns about
the flexibility and scope of the disclosure requirements; they said that the
flexibility is warranted and the scope adequate. In general, stakeholders
representing industry, independent auditors, financial analysts with general
investment interests, and others told us that the existing requirements are
sufficient to provide for the disclosure of matenal environmental
information and that requiring additional information would not improve
investors’ ability to make sound investment decisions.
‘°A supplemental environmental project is part of an enforcement settlement related to the
violation of an environmental law or regulation As part of the settlement, a violator
voluntarily agrees to undertake an environmentally beneficial project m exchange for a
reduction in the penalty, the project does not include activities a violator must take to return
to compliance with the law
“Environmental assets could include, for example, emission “credit? under an emission
trading program in which companies that keep their pollutant emissions below their
allowed level may sell their surplus allotments, known as emission reduction credits, to
other companies
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In commenting on the inherent flexibility of existing disclosure
requirements, these stakeholders emphasized that reporting companies
need to have a framework that can accommodate a vanety of
circumstances and that developing more specific guidance would not be
feasible. In particular, these stakeholders opposed requiring more
disclosure of future risks, such as the estimated costs associated with
potential environmental regulations, because of the degree of uncertainty
about the impact on companies’ financial condition and operations. In
addition, they pointed out that while the requirements allow some
flexibility in interpretation, there are clear benchmarks for those who
report or prepare filings.
Both reporting companies and financial analysts said that the scope of the
existing disclosure requirements is adequate to ensure that material
environmental information is reported, for several reasons:
• Companies typically disclose nonfinancial information, including
information on corporate environmental performance, in other public
documents, such as press releases and separate environmental reports.
Including such information in SEC filings is generally not appropriate.
• According to financial analysts with general investment interests,
environmental mformation is less important than other types of
information, such as executive compensation or the percentage of stock
owned by the Board of Directors, in assessing a company condition
and its desirability as a potential investment.
• Asking companies to disclose more information in their filings, without
any assurance that such information is material to the company’s overall
financial condition, would not add value and might burden readers of
the filings with irrelevant data.
• Environmental regulations and market forces—not SEC disclosure
requirements—drive companies to comply with environmental laws and
assess their environmental performance.
• Requiring companies to aggregate similar types of environmental
liabilities would not necessarily be useful to investors because rolling up
the potential costs of individual sites—along with the uncertainties
associated with each of them—might distort the actual nsks a company
faces.
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Some stakeholders who believe the requirements are sufficient linked
problems with inadequate disclosure—to the extent such problems
exist—to inadequate oversight and enforcement. For example, while they
did not see a need to change the current standards and guidance, the
stakeholders said that SEC could improve companies’ environmental
disclosure with more thorough reviews of environmental information in
companies’ filings. Company representatives and auditors we contacted do
not share this concern, but rather they believe that SEC efforts are
adequate, given the relative importance of environmental information to
most companies’ financial condition.
Little Is Known about
the Extent to Which
Companies Are
Disclosing
Environmental
Information in SEC
Filings
Determining what companies should be disclosing in SEC filings is
extremely challenging without having access to company records and
considering the flexibility in the disclosure requirements. Existing studies
of environmental disclosure all have strong-to-severe methodological
limitations. Some of the studies provide tentative insights about the
amount of environmental information companies are disclosing but not the
adequacy. Our limited review of disclosures related to potential controls
over greenhouse gas emissions shows a wide variation in company filings
and also illustrates some of the challenges facing researchers.
Several Factors Make It
Difficult to Determine
Whether Companies Are
Fully Disclosing Material
Environmental Information
Assessing companies’ disclosure of environmental information is difficult,
primarily because researchers have no way of knowing what
environmental information is (1) potentially subject to disclosure and (2)
material in the context of a company’s specific circumstances, and
therefore required to be reported. Because company records are generally
not publicly available, it is virtually impossible for an external party to
know what mformation companies should be disclosing. In the case of
existing environmental contamination, for example, evaluating the
adequacy of companies’ disclosure may require information on the number
of sites, the nature of the contamination, projected cleanup costs, and the
extent to which the companies’ liability may be shared by others or
mitigated by insurance, among other things. Evaluating companies’
disclosures regarding potential future risks, such as the impact of potential
changes in environmental regulations, poses similar problems.
Another obstacle to assessing compames’ disclosure is the flexibility
inherent in certain reporting requirements and related guidance. A number
of key requirements use terms that are general enough to accommodate a
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range of situations and allow company management to exercise judgment
regarding the amount and type of information they disclose. For example,
in determining whether an existing or potential environmental liability
should be reported in financial statements, company officials must
determine if the occurrence of such liabilities is “reasonably possible” and
the amounts are “reasonably estimable.” SEC, the Financial Accounting
Standards Board, and the AICPA have all issued standards and guidance to
assist companies and their independent auditors in making these
determinations, but inevitably, some subjective judgments remain.
Similarly, in assessing the materiality of environmental information, SEC’S
guidance says that companies should consider information that a
“reasonable person” would need to make an investment decision.
Generally, SEC’S regulations and guidance do not establish any minimum
thresholds for materiality. Finally, in the case of disclosing future risks,
companies have some flexibility in deciding what qualifies as “known
matenal trends, events, and uncertainties” that would cause the companies’
reported financial mformation to not be indicative of future operating
results or financial condition.
One of the consequences of disclosure requirements that are subject to
mterpretation—and of not having direct access to company records—is the
difficulty of determining with any certainty whether a low level of
disclosure indicates that the company does not have existing or potential
environmental liabilities, has determined that such liabilities are not
material, or is not adequately complying with disclosure requirements. The
varying formats used for disclosure pose another problem for researchers.
Much of the environmental information that is subject to disclosure can be
reported in a number of different sections of the 10-K filing, including the
financial statements, related footnotes, and various narrative sections of
the report. In addition, the information may be stated in general or specific
terms and companies often use different terminology to describe similar
issues.
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While Limited and Not
Generalizable, Existing
Studies Indicate That the
Extent of Disclosure Has
Increased Over Time and
Can Vary Substantially
within Industries
We identified 27 studies and papers that (1) were published, presented at
conferences, or provided by the authors from 1995 to 2003 and (2)
contained original research on companies’ environmental disclosures.’ 2 We
eliminated 12 studies that either had severe methodological limitations or
did not address aspects of environmental disclosure relevant to our
objectives. (App. HI contains abbreviated descriptions of the studies we
identified, excluding those with severe limitations and those that were
outside our focus.)’ 3 While the remaining 15 studies all contain strong
limitations, they provide tentative insights about the amount and type of
information being disclosed. For example, as several of these studies
acknowledged, the small sample sizes and focus on particular industries
prevent the study results from being generalizable beyond the specific
companies reviewed. In addition, while the 15 studies shed some light on
the amount and type of information disclosed by selected companies—and
how it varied among them or changed over time—in some instances, the
researchers drew conclusions beyond what was supported by their
analysis.
Eleven of the studies found variations in the amount of information specific
companies were disclosing in their filings with SEC. Some of these studies
focused on the disclosure of existing environmental liabilities while others
examined disclosures related to future potential nsks, ranging from
impending regulations to larger issues such as global climate change. For
example, a 1998 study on disclosure of Superfund remediation liabilities by
“Among the studies included in our initial selection were two EPA-sponsored studies on the
disclosure of environmental legal proceedings Although the studies have never been
published, the results of one were included in a paper presented at a conference and have
been widely cited in the literature According to EPA officials, the agency stopped short of
publishing the studies because of concerns about the methodology used and the validity of
the results obtained For example, when EPA officials attempted to verify the results of one
study, they found many instances in which the companies had actually disclosed some of the
information that EPAs contractor had determined to be unreported EPA officials identified
several reasons for the discrepancies, including instances m which the companies had
disclosed legal proceedings pnor to the time frame reviewed by the contractor,
inappropriate criteria for determining whether particular disclosures were ‘ correct,” and
the use of search terms that were not sufficient to identify company disclosures According
to EPA officials, both studies used similar methodologies We also identified methodological
limitations and eliminated the EPA-sponsored studies from our analysis
13 our 1993 report, Environmental Lzabztuy Property and Casualty Insurer Disclosure of
Environmental Liabilities, GAO/RCED-93-108 (Washington, DC.. June 2, 1993), did not fall
witlun the time frame we established for this review. If the report had been included,
however, certain limitations, such as a small sample size and narrow scope, would have
affected the extent to which conclusions could be drawn from the study
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140 companies found that the amount of information they disclosed about
the number and location of the sites, the materiality of the liabilities, and
the estimated amounts varied substantially.’ 4 Some of the companies did
not disclose any information and others did not provide enough
information to allow a meaningful assessment of the companies’ risks,
according to the authors. Six of the 11 studies found that variations among
companies within the same industry can be substantial. For example, a
2003 study that looked at how 38 coal-fired electric utilities reported on the
impact of the Clean Air Act Amendments of 1990 found wide variation in
the types of disclosures by these companies. Among other things, the study
found that in their filings for 1990, 22 of the utilities disclosed their
estimated compliance costs while 16 did not provide an estimate.’ 5
Five studies, including three from the previous group, indicated that the
amount and type of information specific companies were disclosing
increased over time. In two instances, researchers linked the increased
disclosure to the issuance of guidance that assisted companies in
determining what information should be reported. For example, a study of
nearly 200 companies that had been identified as potentially responsible
parties at multiple hazardous waste sites indicated that the number of
companies reporting environmental liabilities increased following the
issuance of SEC’S Staff Accounting Bulletin 92, which provided examples
of the types of information SEC expected to see regarding such sites.’ 6 In
the other case, a 1995 study of environmental disclosures by 234 companies
found that the amount of information reported in 10-Ks and the companies’
‘ 4 Marun Freedman and A.J. Stagliano, “Political Pressure and Environmental Disclosure
The Case of EPA and the Superfund,” Research on Accounting Ethics (Vol. 4, 1998)
‘ 5 Marun Freedman, B. Jaggi, and A.J Staghano, “Pollution Disclosures by Electnc Utthues’
An Evaluation at the Start of the First Phase of the 1990 Clean Air Act,” Advances in
Environmental Accounting & Management (2004)
‘ 6 Specil ’icaily, the study focused on Staff Accounting BulletIn No 92, Topic 5 Y Accounting
Disclosures Relating to Loss Contingencies. See Elizabeth Stanny, “Effect of Regulation on
Changes in Disclosures of and Reserved Amounts for Environmental Liabilities,” The
Journal of Financial Statement Analysis (summer, 1998)
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annual reports to shareholders increased following the issuance of
guidance from SEC and the Financial Accounting Standards Board.’ 7
Nine of the 15 studies attempted to address the extent or adequacy of
companies’ environmental disclosure in terms of meeting SEC’S reporting
requirements.’ 8 In most of these cases, the studies concluded that
environmental disclosures were madequate. However, because the criteria
used to assess the disclosures may not have been appropriate, it is
impossible to validate the studies’ conclusions about how well or poorly
companies are meeting SEC reporting requirements. All of these studies
used criteria that either included items not required by SEC or reflected the
researchers’ interpretations of SEC reporting requirements and related
guidance. In several instances, the researchers acknowledged that their
interpretation of the requirements would not necessarily be consistent with
others’ views.
A Limited Review of
Disclosures Related to
Potential Controls Over
Greenhouse Gas Emissions
Shows Wide Variation in
Company Filings
To supplement our analysis of existing studies, we reviewed disclosures by
20 U.S. electnc utility companies that were among the largest emitters of
carbon dioxide, a major component of greenhouse gas emissions.’ 9 While
various investor organizations, pension fund managers, and environmental
interest groups have called on companies to make more information
available on this subject, disclosures about the impact of potential
greenhouse gas controls are not necessarily required at this time, according
to officials at SEC’S Division of Corporation Finance, because controls do
not appear imminent at the federal level through ratification of the Kyoto
‘ 7 For example, the study cited the issuance of SEC’S 1989 gu,dance, SEC Interpretation
Management’s Dzscus.c.on and Analysis of Financial Condition and Results of
Operations, Certain Investment Company Disclosures See George 0. Gamble, Kathy Hsu,
Devaun Kite, and Robin R Radtke, ‘Environmental Disciosures in Annuai Reports and lOKs.
An Exam,nauon, Accounting Horizons, Vol 9, No 3, (September 1995).
‘ 8 mree of these studies are among those that examined changes in the amount of disclosure
over time
‘ 9 Greenhouse gases include carbon dioxide (mainly from burning coal, oil, and natural gas),
methane and nitrous o,,ide (largely due to agncuiture and changes in land use), and
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride (manufactured by industry)
These gases trap heal in the atmosphere and are believed to contribute to climate change,
including global warnung
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Protocol or leg islation. 2 ° At the same time, the officials did not rule out
such disclosures, commenting that there may be circumstances in which a
company can identify a material impact and must disclose it in the filing.
Some companies have opted to include information regarding potential
controls over greenhouse gas emissions in their SEC filings, partly in
response to public interest. To the extent that companies make disclosures
regarding controls over greenhouse gas emissions or other potential future
risks, investors may find the information useful in deciding whether to buy
or sell individual secunties. However, because disclosure of such
information is not necessarily required, investors cannot draw conclusions
about the lack of such information in a company’s SEC filing or compare
companies within an industry.
For each utility company, we reviewed the annual and quarterly SEC filings
for 2003 to determine whether and how the companies discussed the
impact of potential controls over greenhouse gas emissions and found that
the amount and type of information disclosed varied widely. Of the 20
electric utility companies included in our review, we found that 1 made no
disclosures regarding greenhouse gas controls in its filings. The filings for
18 of the remaining 19 companies described one or more potential controls,
including the Kyoto Protocol and other international requirements;
proposals for federal legislation requiring reductions in greenhouse gas
emissions; and current and proposed state requirements. In addition, while
all 19 companies referred to the potential impact of controls, the level of
detail varied among the companies. Moreover, while none of the 19
companies attempted to estimate the dollar value of the impact, citing
uncertainty over the specific nature of the requirements that might take
effect, they generally indicated that the impact could be material. 2 ’ Table 1
summarizes the types of information the electric utility companies
disclosed about the impact of potential controls over greenhouse gas
emissions.
9n December 1997, the United States participated in drafting the Kyoto Protocol, an
international agreement to specifically Imut greenhouse gas emissions. Although the U.S
government signed the Protocol in 1998, the Clinton administration did not submit it to the
Senate for advice and consent, which are necessary for ratification In March 2001,
President Bush announced that he opposed the Protocol.
21 1n some instances, the company filings use terms like “significant,” “substantial,” or “far-
reaching” to characterize the potential impacts, without refemng specifically to matenahty
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Table 1: Disclosures Related to Potential Impacts of Current or Proposed Requirements to Reduce Greenhouse Gas Emissions
Number of utility companies
reporting potential Impact
Description of potential impact
Impacts related to Kyoto Protocol
8
u.s. operations only. Compliance costs could require significant capital, operating, or other
expenditures and/or have materially adverse impacts on generating facilities or future financial
position, results of operations, or liquidity, if associated costs cannot be recovered from
customers.
3
us. and international operatsons Compliance costs could be material and/or there could be
far-reaching and significant impacts on operations.
2
International operations only. Significant compliance costs may affect operations.
1
u.s. operations only. Specific impacts on operations could not be identified because of
uncertainties.
6
None.
impacts related to current administration policy on voluntary reductions
5
The company stated it was unable to determine the potential impact
4
Compliance costs could be significant or material, and/or possible impacts on operations.
11
None.
Impacts related to other current or proposed federal, state, or International
requirements
5
Federal requirements only. Compliance costs could have a significant or material impact
(either positive or negative) on the company’s generating facilities and/or future financial
position, results of operations, liquidity, or cash flows, if the costs are not recoverable from
customers.
5
Federal and state reqwrement Compliance costs could have a significantly or materially
adverse affect on the company’s operations, consolidated financial position, results of
operations, cash flow, or profitability, if associated costs cannot be recovered from customers.
3
Federal, state, and international requirements: There are substantial or matenal implications
for the company’s costs; plants; global business operations; or future consolidated results of
operations, cash flows, or financial position.
1
General statement only. The company may incur liabilities because of its emission of gases
that may contribute to global warming
1
Federal requirements only. The company stated it was unable to determine the potential
future impacts on its financial condition and operations
1
Federal, state, and international requirements. The company stated it was unable to
determine the potential future impacts on its financial condition and operations.
4
None.
Sowce GAO anaiyss
In addition to differences in the level of detail companies provided, we
found considerable variation in where the disclosures were located within
the filings, posing a challenge for researchers trying to find information on
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particular topics. Of the 19 companies that provided information on the
impact of potential controls over greenhouse gas emissions,
• 7 disclosed such information only in the S-K item 101, “Description of
Business” section of the company’s 10-K or 10-Q reports;
• 2 disclosed information only in S-K items 301 and 302, “Selected
Financial Data” and “Supplementary Financial Information” sections of
the company’s 10-K or 10-Q reports;
• 2 disclosed information only in S-K item 303, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” section
of the company’s 10-K or 10-Q reports; and
• 8 disclosed information in multiple sections of the 10-K, 1O-Q, or the
company’s annual report to shareholders.
Ten of the 20 utility companies disclosed planned efforts to voluntarily
reduce their greenhouse gas emissions—or to avoid increasing them—over
the next several years. For example, one company reported that it had
joined the Chicago Climate Exchange, a pilot greenhouse gas emission
reduction and trading program, and had committed to reducing or
offsetting 18 million tons of carbon dioxide emissions by 2006. Two other
companies reported joining EPA’S Climate Leaders program, in one case
committing to an 18 percent reduction of greenhouse gas emissions from a
2001 baseline by 2008. Only one of the companies estimated its projected
spending on voluntary reduction efforts: the company reported that it
planned to spend $21 million between 2004 and 2010 on projects to reduce
or offset its greenhouse gas emissions.
Adequacy of SE C’s Without better information on the extent of environmental disclosure and
results of SEC’S reviews of companies’ filings, the adequacy of SEC’s efforts
Efforts to Monitor and to monitor and enforce compliance with environmental disclosure
Enforce Compliance requirements cannot be determined. SEC does not maintain a database on
with Environmental the substance of its comments and company responses, and thus SEC
cannot use the information to identify trends or set priorities. Over the
Disclosure years, SEC and EPA have made sporadic efforts to coordinate on improving
Requirements Cannot environmental disclosure. Currently, EPA periodically shares limited
B D t d information on specific, environment-related legal proceedings, such as
e e ermine those involving monetary sanctions.
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SEC Does Not
Systematically Track or
Analyze the Results of Its
Oversight Efforts
SEC’S pnrnary means to monitor and enforce requirements for the
disclosure of material information—including environmental matters—are
the review of companies’ filings and the issuance of comment letters to
obtain additional information, as appropriate. According to officials from
the Division of Corporation Finance, SEC relies on reporting companies
and their independent auditors to completely and accurately disclose
material information to investors; SEC’S role is to help companies ensure
that they are making the required disclosures and properly interpreting the
requirements. Even if SEC’S role were broader, SEC officials told us that
the agency does not have the resources to review all company filings or
conduct on-site examinations to proactively ensure that companies are
disclosing all material information.
Reviewers in the Division of Corporation Finance do a preliminary review
of companies’ annual 10-K filings to determine which reports warrant
further scrutiny and at what 1evel. Of those reports, SEC usually conducts
either a full review, which covers all aspects of the filing, or a financial
review, which focuses primanly on the financial statements and related
material, such as the section including management’s discussion and
analysis. SEC may also choose to conduct a limited review of specific
issues that have been identified as needing attention. For example, a
limited review might focus on a company’s accounting policy for
recognizing revenue in its financial records and reports. As table 2 shows,
SEC reviewed about 8 to 20 percent of the annual filings each year from
1999 through 2003.
For our review, we focused on SEC’S monitoring of companies’ annual 10-K reports. SEC
also reviews quarterly filings, known as 10-Qs, and various “transactional” filings related to
newly issued securities, efforts to raise additional capital, and mergers and acquisitions
According to SEC officials, the reviewers examine most filings related to initial public
offermgs and selectively review other transactional filings as well as a sampling of the
annual and quarterly filings
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Table 2: SEC’s Reviews of Companies’ Annual 10-K Filings, Fiscal Years 1999
through 2003
1999 2000k 2001 2002 2003
Annual filings 13,460 14,280 14,060 13,550 12,830
Annual filings reviewed by SEC 2,345 1,160 2,305 2,695 2,170
Percentage of filings reviewed 17.4 8.1 16.4 19.9 16.9
Source GAO analysis ol SEC dais
‘SEC’s reviews declined in fiscal year 2000 because the high volume of filings related to initial public
otfenngs limited the agency’s ability to review other filings
To ensure consistency across reviewers, SEC uses guidance that provides
an organizational structure for each review and the documentation that
supports it. The guidance identifies, as a reminder for the reviewers,
various aspects of the filing that should be covered in the review,
depending on the particular company and the industry it represents; among
other things, the guidance cites the adequacy of disclosures related to
environmental liabilities. If a reviewer questions the accuracy or
completeness of the filing and believes that further disclosures may be
warranted, SEC issues a comment letter requesting additional
information.D SEC officials said that companies may sometimes be
reluctant to respond to the comment letters, claiming that providing the
requested information is too difficult or expensive or will hurt their
competitive position In the case of time-critical transactional filings,
companies have an incentive to respond to SEC’S comment letters because
the companies cannot raise additional capital by issuing securities until
SEC has cleared the filings. Although the Division of Corporation Finance
does not have a similar “stick” to compel companies to respond in the case
of the 10-K or 10-Q filings, the companies generally comply, according to
SEC officials.
When a company’s failure to respond is particularly egregious, SEC may
refer the case to its Division of Enforcement. According to information
from the Division of Enforcement and other sources, we identified four
enforcement actions related to inadequate environmental disclosure since
1977, none of which were referred by the Division of Corporation Finance.
Enforcement officials were not aware of any additional cases and said that
Other actions resulting from a filing review can include requesting an amendment of a past
repoit or advising the company to make a disclosure in a future report.
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while they track enforcement cases by broad program area, such as
broker-dealer fraud, insider trading, and issuer financial disclosure, they do
not track the number of cases in which environmental disclosure is the
primary issue. According to an official in the Division of Enforcement, most
enforcement actions are prompted by company whistleblowers or news
reports of company wrongdoing rather than referrals from the Division of
Corporation Finance.
SEC officials noted that reviewing company filings is an iterative process; a
single filing often generates multiple comment letters and responses before
SEC is satisfied that all matters have been resolved. In some instances, SEC
raises one or more questions about the disclosures in a company’s filing
and, based on the company’s response, is either satisfied with the
explanation or decides that the matter does not warrant additional
follow-up.
SEC’S Division of Corporation Finance does not systematically track the
issues raised in comment letters. According to SEC officials, they do not
have a database on the comment letters that would enable them to
determine the most frequently identified problem areas, analyze trends
over time or within particular industries, or assess the need for additional
guidance m certain areas SEC officials told us that for the most part, they
rely on the reviewers’ knowledge and experience to get a sense of the most
common problem areas. While SEC did not have any statistics on the
frequency with which its comment letters questioned companies’
environmental disclosures, Division of Corporation Finance officials told
us that, based on their experience, environmental disclosure is rarely
among the issues cited if one considers all of the filings SEC reviews, partly
because of the nature of the businesses involved. Within particular
industries, however, SEC officials said that reviewers regularly and
frequently comment on environmental disclosure.
In the absence of a formal tracking system, an SEC study of annual 10-K
filings from the Fortune 500 companies for the year 2002 provided some
information on the most common disclosure issues. To conduct the study,
SEC screened the companies’ filings and then selected a substantial
number for further review; ultimately, SEC sent comment letters to more
than 350 companies. According to officials from the Division of
Corporation Finance, the type and frequency of comments identified in the
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Fortune 500 study were consistent with their observations generally.
SEC’S summary report noted that environmental disclosure prompted
comments more frequently in particular industries, such as oil and gas and
mining companies and certain manufacturing companies. The reviewers
questioned companies’ disclosure of critical accounting policies related to
environmental liabilities including, among other things, the adequacy of
information on estimates of potential losses and litigation costs.
Although SEC does not have a database of its comment letters and the
company responses, officials from the Division of Corporation Finance told
us that much of the information can be obtained from other sources. The
officials explained that at least one private company has been submitting
thousands of requests for the comment letters and responses under the
Freedom of Information Act and is making the information available to the
public for a fee. According to the officials, responding to these requests has
absorbed a considerable amount of SEC staff time and other resources.
SEC has taken steps to facilitate its ability to analyze the results of its
monitoring process. For example, SEC is establishing a new Office of
Disclosure Standards. Among other things, the office will be responsible
for ensuring the quality and consistency of reviews across reviewers and
different industry groups. As part of that effort, in March 2004, SEC began
to require reviewers to prepare a closing memorandum containing a listing
of all documents examined by SEC reviewers, a summary of the major
issues raised during their review, and how they were resolved. While these
memoranda are being prepared in electronic form, the information is
currently not coded or organized to facilitate analysis across multiple
filings. SEC is still determining how it might organize and use these data.
‘Among the most common problems identified in the Fortune 500 study were the need for
better analysis of—and less boilerplate information on—companies’ financial condition and
results of operations, expanded discussion of companies’ critical accounting policies,
including, for example, the most difficult and judgmental estimates and the areas most
sensitive to matenal change from external factors; clarification of how companies recognize
revenue; and more comprehensive disclosures related to restructunng charges and pension
plans
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SEC and EPA Have Made
Limited Efforts to Improve
Environmental Disclosure
through Coordination
Over the past 20 years, SEC and EPA have made sporadic efforts to
improve environmental disclosure through coordination, but the two
agencies have not formally agreed to share relevant information and the
extent of information sharing is currently limited. According to EPA,
information sharing began informally in the mid-1980s, and in February
1990, SEC and EPA reached an agreement under which EPA would provide
enforcement-related data to SEC’S Division of Corporation Finance on a
quarterly basis. As a result of the agreement, EPA began providing
information on recently concluded cases filed under federal environmental
laws as well as other information related to hazardous waste sites and
facilities. EPA officials indicated that their staff also assisted SEC by (1)
commenting on the accuracy of environmental disclosures by some
companies and (2) training Division of Corporation Finance reviewers to
understand the environmental statutes administered by EPA and interpret
the enforcement data from EPA.
Although the 1990 agreement was conceived as the basis for a formal
memorandum of understanding between the two agencies, agency
representatives never signed such a memorandum. While there are
conflicting reports on when the regular transfer of information halted,
officials from SEC and EPA agree that some problems arose because the
volume and complexity of the data that EPA was providing were not useful
to SEC reviewers. For example, SEC questioned the usefulness of some
data because they were facility-specific, and SEC could not readily identify
the parent company responsible for reporting to SEC.
Currently, information sharing occurs less frequently and is focused on
specific legal proceedings, such as those involving monetary sanctions for
environmental violations. SEC officials said that their reviewers use EPA
data only to raise “red flags” pointing them to situations in which
companies may not be disclosing potentially material information. Once a
reviewer identifies a potential disclosure problem, the next step is
following up with the individual company to request information. EPA
officials indicated that they would be willing to work with SEC to explore
options for improving the usefulness of the data. SEC officials said that
they were willing to work with EPA, but downplayed the need for
additional coordination, saying that the information in EPA’S Enforcement
and Compliance History Online database is sufficient for the purpose of
identifying potential disclosure problems.
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Experts Suggest The experts that we surveyed generally concur with the concerns identified
by stakeholders and offered a variety of suggestions for improving
Changes to disclosure or, in some instances, comments about why particular proposals
Requirements and are unnecessary or unworkable. For the most part, the experts believe
Guidance Increased that the identified concerns contribute to the inadequate disclosure of
environmental information, and a few experts identified lawsuits in which
Oversight, and shareholders alleged that their ability to make investment decisions was
Nonregulatory Actions impaired as a result of the concerns regarding inadequate environmental
t,’i T disclosure (See information on shareholder suits below.) The suggestions
. 1 LcreC(O Cu we obtained fell into three broad categories: modifying disclosure
Improve requirements and guidance, increasing oversight and enforcement, and
Environmental adopting nonregulatory approaches to improving disclosure. To gain the
perspective of companies that.would be affected by the suggestions, we
Disclosure contacted representatives of reporting companies, who asserted that some
of the suggestions would not improve disclosure of environmental
information and to some extent, might hinder the ability of investors to
make sound investment decisions.
Shareholder Suits Allege Inadequate Environmental Disclosure
Experts identified a few shareholder lawsuits alleging that corporate secuntues statements
have contained material misrepresentations or omissions concerning the companies’
potential environmental liabilities, thus leading shareholders to purchase the companies’
stock at artificially inflated prices The courts did not rule on whether the alleged failure to
disclose actually caused whatever financial harm the shareholders may have suffered.To
prevail in such cases, shareholders must demonstrate that (1) the company intentionally
misled them by misstating or withholding material information about environmental risks
or liabilities and (2) the misstatements or omissions caused the shareholders to suffer a
financial loss. In some cases similar to those identified in our survey the corporate
officers reached settlements with the shareholders
Some Experts Suggested About half (13 of 30) of the experts who participated in our survey offered
Modifying Existing suggestions on hovi SEC and other standard-setting bodies could improve
Disclosure Requirements the current requirements and guidance for disclosing environmental
information These suggestions are summarized below along with
and Related Guidance contrasting views from a few of the experts we surveyed and
representatives of reporting companies, including the American Chemistry
nAppendix IV contains a list of the experts that participated in our survey and appendix V
includes our questionnaire and a summary of the responses to the closed-ended questions.
Page 29 GAO-04-SO8 Environmental Disclosure

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Council, the Business Roundtable, the Edison Electric Institute, and the
U.S. Business Council for Sustainable Development.
On limiting the flexibility of existing requirements: Some experts
suggested that SEC or the Financial Accounting Standards Board, as
appropriate, clarify terms such as “probable,” “reasonably possible,” and
“remote” relative to the occurrence of environmental liabilities, or require
or recommend the use of expected value analysis in estimating the
amounts of liabilities, as advocated by ASTM International. 26 In addition,
several experts commented on the need for more guidance on materiality,
calling for clarification or more specific criteria. One participant suggested
that SEC establish a presumption of materiality for environmental
liabilities, thus shifting the burden of proving that such habilities are not
material to companies. In contrast, another expert commented that more
specific guidance on estimating the amounts of liabilities would lead to
rules not well suited for all companies and would mislead users of
company filings by making estimates appear to be more precise than they
really are. Company representatives made similar comments, saying that
uncertainties about the nature and extent of environmental contamination,
potential remediation costs, and the extent of the company’s liability all
affect the feasibility of deriving precise estimates. Company
representatives also objected to requiring the use of the expected value
method of cost estimation advocated by ASTM International, saying that it
would lead to misleading disclosures because, for example, the method
does not allow companies to factor in contributions from other potentially
responsible parties in estimating their own potential liabilities. Finally,
company representatives maintained that existing guidance on materiality
is sufficiently clear and necessarily flexible to accommodate companies’
individual circumstances.
On reporting existing environmental liabilities: A few experts suggested
that SEC or the Financial Accounting Standards Board, as appropriate,
clarify the accounting and disclosure procedures for unasseited but
enforceable claims related to the cleanup of environmental contamination
at current and former company facilities. This clarification would, among
other things, specify the point at which such liabilities occur (and a
ASTM International is a standard-setting organization onginally known as the American
Society for Thsting and Materials Expected value analysis is a method of estimating the
mean value of an unknown quantity, which represents a probability-weighted average over
the range of all possible values
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disclosure obligation may exist)—when the release happens or when a
third party initiates action against the company. Representatives of
reporting companies did not agree with this suggestion. They said that
environmental laws require companies to study and remediate
contaminated sites, and disclosing possible sites—based merely on their
existence—does not advance investors’ understanding of a company’s
economic value. Company representatives pointed to guidance from the
Fmancial Accounting Standards Board, which notes that the existence of
an environmental liability becomes determinable and the related costs
estimable over a continuum of events and activities that help define the
liability. Once a third party intervenes and companies learn more about the
extent of the problem, they can make and disclose better estimates.
On disclosing future risks: Another suggestion from the experts was that
SEC issue guidance clarifying when certain potential environmental issues
should be disclosed, citing, in particular, the potential impacts of global
climate change and controls over greenhouse gas emissions. More
specifically, one expert commented that in the case of climate change, SEC
should issue guidance advising companies to report their internal
assessments of the impact of complying with pending environmental
regulations over a specified time period, including the range of possible
actions being considered by a company, how the actions might affect the
financial condition and operations of the company, and whether the effects
would be material to shareholders. Company representatives and a few of
the experts commented that it is inappropriate to single out particular
issues, such as climate change, for disclosure or to use SEC’S disclosure
requirements to advance the interests of particular groups. According to
one expert, the current rules and guidance for disclosing future
environmental nsks are clear and companies know they cannot avoid
disclosure of such nsks by categorizing them as “forward-looking”
information. Company representatives also questioned the value of
disclosing “speculative” information to investors. Moreover, the
representatives pointed out that such requirements could have significant
ramifications for disclosure in general, depending on where one draws the
line in deciding when the impact of potential legislation should be
disclosed.
On requiring companies to report environmental performance
information: Five of the experts we surveyed said that SEC should require
companies to provide information on their environmental performance
(e.g., pollutant releases and remediation expenditures) or issue guidance
stating that such information might be considered material by investors. In
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one case, an expert suggested that SEC use the Global Reporting Initiative
as a model for the types of environmental performance measures that
should be disclosed. 27 Some experts disagreed with proposals for reporting
requirements involving companies’ environmental performance, saying
that such information is publicly available outside of SEC filings. One
expert also questioned the justification for singling out environmental
performance as opposed to other potentially important social issues. While
some company representatives acknowledged that environmental
performance data and intangible assets such as environmental
management systems might be considered important by some investors,
they said that such information is already available to the public through
company Web sites; special reports on environment, health, and safety
issues; and federal and state regulatory agencies.
On changing require nents for reporting monetary sanctions and
aggregating 1zab 1ities: Some experts believe that SEC should (1) change
the defmition of monetary sanctions to mclude supplemental
environmental projects that companies fund in exchange for reduced
sanctions so that investors have a more complete picture of companies’
potential costs and (2) issue guidance recommending that companies
aggregate the estimated costs of similar liabilities before assessing
matenality and the need for disclosure. Representatives of reporting
companies questioned the proposed inclusion of supplemental
environmental projects as monetary sanctions because companies are
generally not permitted to use dollar-for-dollar offsets when they agree to a
supplemental project. Some of the experts we surveyed commented that
the threshold for monetary sanctions should be updated or abolished
altogether. Company representatives also thought that the fixed thresholds
for disclosures related to legal proceedings were outdated. They
commented, for example, that the $100,000 threshold for monetary
sanctions should be raised to $1 million to reflect increases in penalty
amounts since the regulation was promulgated over 20 years ago.
Regarding calls for aggregation of similar liabilities, one of the experts and
some company representatives said that such a requirement would mislead
investors by portraying a company that is one of many potentially
27 The Global Reporting Initiative develops and dissenunates globally applicable
sustainability reporting guidelines for voluntary use by organizations for reporting on the
economic, environmental, and social dimensions of their activities, products, and services.
Examples of environmental indicators include energy, material, and water use, greenhouse
gas and other emissions. effluents and waste generation, use of hazardous matenals, and
recyclmg, pollution, waste reduction, and other environmental programs
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responsible parties for several enviromnental remediation sites as
equivalent to a company that is likely to be responsible for one or two
larger cleanup sites, when the companies’ actual liabilities could differ
significantly. Other company representatives commented that although
aggregation of liabilities related by some common cause or probability
seems reasonable, aggregation of any and all environmental liabilities with
differing circumstances would be arbitrary and not very useful to investors
in analyzing a company’s risks.
On other regulatory approaches to improving disclosure: Experts’
suggestions included a call for SEC to issue new guidance that focuses
specifically on environmental disclosure as a way of underscoring its
importance. Another suggestion was that the Public Company Accounting
Oversight Board take action to improve procedures for evaluating the
effectiveness of companies’ internal control policies and procedures as
they relate to environmental matters, in connection with the annual
management assessment of internal controls required by the
Sarbanes-Oxley Act of 2002. Among other things, according to one expert,
the board should issue guidance calling for independent auditors to veri1 ’
environmental remediation liabilities during financial statement audits,
with the assistance of specialists as necessary. Regarding the suggestion for
guidance focusing on environmental disclosure issues, representatives of
reporting companies said that SEC should first determine if there is a
compliance problem and, if one exists, the agency could issue special
guidance to highlight the importance of environmental disclosure
requirements. Company representatives did not see a need for specific
guidance on assessing internal controls over environmental matters. They
commented that the Public Company Accounting Oversight Board has
already issued a number of proposed rules for the auditing of companies’
internal controls, which will encompass controls for environmental
information.
Some Experts Called for A similar number (14 of 30) of the experts who participated in our survey
Better Monitoring d had suggestions for enhancing SEC oversight of environmental disclosure
Targeted Enforcement through increased monitonng, enforcement, or coordination with EPA.
Specifically, some experts said that SEC should review more filings in
Actions to Increase industries for which environmental disclosure is more likely to be a
Environmental Disclosure concern and issue more comment letters for problematic filings to force
companies to reexamine their internal controls for the reporting of
environmental information. Some experts also suggested that SEC put
more emphasis on enforcing environmental disclosure requirements to (1)
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establish legal precedents for adequate disclosure, (2) achieve greater
consistency in company reporting of enviromnental liabilities, and (3)
ensure that companies take seriously the reporting of environmental
information. While the experts did not specify how SEC should increase its
enforcement, many of those that offered suggestions believe that
increasing the emphasis on enforcement—for example, by initiating a few
high-proffle cases—would better deter nondisclosure of important
environmental information. Two of the experts we surveyed did not see a
need for increasing SEC’S monitoring and enforcement They commented
that SEC is probably doing a reasonable job, given competing priorities and
the lack of evidence that disclosure of material environmental information
is inadequate. Representatives of reporting companies pointed out that the
frequency of SEC’S reviews of annual 10-K filings and the amount of
resources available to conduct such reviews has increased significantly as
a result of the Sarbanes-Oxley Act of 2002.
Another suggestion from the experts was for better coordination between
SEC and EPA and state environmental agencies to obtain information
useful for evaluating companies’ environmental disclosures. For example,
one expert suggested that SEC work with EPA to develop a protocol for
using EPA data on environmental remediation liabilities as an indicator of
whether companies are adequately reporting environmental information in
their filings. It was also suggested that SEC develop a mechanism for
comparing real-time information on environmental liabilities and their
related monetary sanctions with companies’ filings. Some representatives
of reporting companies believed that coordination between EPA and SEC is
already occurring to the extent that SEC has access to publicly available
databases such as the Enforcement and Compliance History Online and
Toxics Release Inventory For the most part, company representatives did
not think increased coordination would yield much improvement in
disclosure because many environmental regulatory agencies do not have
expertise in financial disclosure.
The Enforcement and Compliance History Online is a Web-based tool that integrates
information from data systems across EPA programs and provides public access to
moiutonng, comphance, and enforcement information for approximately 800,000
EPA-regulated facihties The Toxics Release Inventory is another publicly accessible
database that contains information on estimated releases of hundreds of chemicals, which
companies report annually to EPA and the states
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Some Experts Said Certain
Nonregulatory Approaches
Could Increase and Improve
Environmental Disclosure
One-third of the experts that participated in our survey (10 of 30) had
suggestions for improving environmental disclosure by nonregulatory
means. For example, they cited several voluntary disclosure initiatives,
such as the Global Reporting Initiative and the Carbon Disclosure Project,
in which companies might participate to demonstrate their commitment
toward good governance on environmental issues.ts Another potential
vehicle for improving environmental disclosure, according to some
experts, is secondary markets, such as insurance and financial services. If
these markets started incorporating environmental information into their
company assessments, then companies would be more likely to disclose
such information to improve their relative standing. One expert suggested
creating a public database of companies’ disclosure of environmental
performance measures, similar to the Toxics Release Inventory database
maintained by EPA. Such a database would allow investors to compare
companies’ environmental performance across industries, thus creating an
incentive for companies to compete on that basis. Finally, some experts
cited shareholder resolutions as a vehicle for encouraging companies to
disclose environmental information or issue reports on corporate
environmental performance by petitioning for a proxy vote on such matters
by the entire body of shareholders. 3 °
Representatives of reporting companies agreed that nonregulatory
approaches can be effective in making company management aware of
public interest in environmental disclosure. For example, some
representatives said that companies and trade associations have adopted
voluntary disclosure guidelines for environmental information, although
they also commented that projects such as the Global Reporting Initiative
do not inform investors with broad interests. According to the American
Chemistry Council, all of its members are required to publicly report on
The Carbon Disclosure Project is an organization of institutional investors representing
assets in excess of $10 trillion Its mission is to inform investors about the significant risks
and opportunities” presented by climate change and company management about
shareholder concerns regarding the impact of such issues on company value. The project
has written to the 500 largest companies in the world by market capitalization, asking for
disclosure of investment-relevant infonnation concerning their greenhouse gas emissions
30 According to statistics compiled by the Investor Responsibility Research Center,
shareholders filed 66 petitions on environmental issues in 2003 and had filed 57 as of
mid-April 2004 Among other things, the petitions have called for companies to repoit on
their greenhouse gas emissions, how climate change will affect their operations, or their
performance against environmental and other indicators using the reporting guidehnes
established for the Global Reporting Initiative
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their environmental management systems. While company representatives
acknowledged the growing number of socially responsible investors,
particularly among institutional investors, they said that investment
analysts have not demanded more information about environmental risks
and liabilities. The representatives also commented that secondary
markets would indeed prompt environmental disclosure if such
information were in demand. Finally, while company representatives
agreed that shareholder resolutions are one avenue for getting companies
to disclose certain information, particularly information that would not be
appropriate in SEC filings, the representatives believe that shareholders
and other interest groups should also pursue informal discussions with
company management.
Conclusions Without more compelling evidence that the disclosure of environmental
information is inadequate, the need for changes to existing disclosure
requirements and guidance or increased monitoring and enforcement by
SEC is unclear. SEC is already taking steps to collect information on the
results of its reviews of company filings. As part of this process, we believe
that SEC should ensure that it has the information it needs to allocate its
oversight resources and deterrmne where additional guidance might be
warranted. In addition, because SEC’s comment letters and the company
responses are already available to the public on a piecemeal basis as a
result of requests under the Freedom of Information Act, we believe that
SEC should consider making the information more readily accessible by
creating its own electronic database available through the agency’s Web
site. Doing so would have several benefits; it would (1) free up SEC
resources, (2) ensure that companies and investors are informed about the
nature and results of SEC’s oversight regarding the disclosure of
environmental and other information important to investors, and (3) enable
researchers to do more robust analyses of companies’ disclosures within
and across industries. Finally, despite previous problems with the
usefulness of EPA’S data, because environmental disclosure is one issue
that is specifically addressed in SEC’S regulations—and is important to a
growing number of investors—it makes sense for SEC to ensure that its
staff is taking advantage of relevant information available from EPA.
Recommendations for To improve the tracking and transparency of information on environmental
Executive Action disclosure problems, we recommend that the Chairman, SEC, take the
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following two actions, recognizing that they will also affect the amount of
information available to SEC and the public on other disclosure issues:
As SEC develops its new procedures for closing memoranda following
its reviews of company filings, take steps to ensure that key information
from the memoranda is electronically tracked and organized in a way
that would facilitate its analysis across multiple filings. Among other
things, SEC should consider organizing the information so that agency
officials can systematically determine the most frequently identified
problem areas, analyze trends over thne or within particular industries,
and assess the need for additional guidance in certain areas.
• Explore the creation of a searchable database of SEC comment letters
and company responses that would be accessible to the public.
We also recommend that the Chairman, SEC, work with the Administrator,
EPA, to explore opportunities to take better advantage of EPA data that
may be relevant to environmental disclosure and examine ways to improve
its usefulness.
Agency Comments We provided a draft of this report to SEC and EPA for review and comment.
We received comments from officials within SEC’s Division of Corporation
Finance and EPA’s Office of Enforcement and Compliance Assurance. (See
app. VI for the full text of SEC’S comments.) SEC agreed with the report’s
recommendations and is taking some actions to implement them.
Regarding the tracking of key information from its reviews of company
filings, SEC said that it is creating a searchable electronic database that will
facilitate analysis across multiple filings. In addition, SEC agreed to make
its comment letters and the company responses available to the public and,
in late June, announced that the information will be accessible through its
Web site, beginning with August 2004 filings. SEC also agreed to consider
our recommendation for taking better advantage of relevant EPA data in its
future efforts to work with EPA. EPA generally agreed with the information
presented in the report but did not provide a letter. SEC and EPA provided
technical comments, which we have incorporated as appropriate.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter. At that
time, we will send copies to appropriate congressional committees; the
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Chairman of SEC; the Administrator, EPA; and the Director of the Office of
Management and Budget. We will also make copies available at no charge
on the GAO Web site at http.llwww.gao.gov.
Please call me at (202) 512-3841 if you or your staff have any questions.
Major contributors to this report are listed in appendix V I I.
John B. Stephenson
Director, Natural Resources
and Environment
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Appendix I
Scope and Methodology
To determine key stakeholders’ views on how well SEC has defmed the
requirements for environmental disclosure, we first identified what
environmental information companies are required to disclose.
Specifically, we reviewed SEC’S disclosure regulations, generally accepted
accounting principles promulgated by the Financial Accounting Standards
Board, auditing standards issued by the AICPA, and applicable guidance
issued by all three entities. To confirm that we had identified all relevant
disclosure requirements and to clarify our understanding of them, we
interviewed officials within SEC’S Division of Corporation Finance and
Office of Chief Accountant. We met with a variety of groups that had a
stakeholder interest in the disclosure requirements because they (1) had a
particular interest in environmental disclosure; (2) used disclosure
information as investors, fmancial analysts, or researchers; or (3) were
involved in the disclosure process as reporters or preparers of SEC filings.
Our stakeholder contacts included representatives of investor
organizations, including those that identify themselves as socially
responsible and those with general investment interests; financial services
institutions; environmental groups, attorneys, and consultants; business
associations; credit rating agencies; and public accounting firms.
To determme the extent to which companies are disclosing environmental
information in their filings with SEC, we identified existing studies on
environmental disclosure and analyzed their results and methodology.
First, we conducted a literature search on the Internet, using the keywords
“SEC,” “disclosure,” and “environmental,” to identify references, including
studies, journal articles, and other material, that focused on the disclosure
of environmental information by publicly held companies. We identified
additional references by reviewing the bibliographies of the material from
the initial Internet search and through contacts with study authors. Overall,
we identified 152 references in material published from 1990 to 2003.
To zero in on the most useful material, we established two criteria (1) the
reference had to be relatively recent, with a date of 1995 or later, and (2) it
had to contain original research. After eliminating 50 references that were
published prior to 1995 and 75 references that reviewed or summarized
research performed by others, we were left with 27 studies that met our
critena. (The studies were published, presented at a conference, or
provided by the authors during 1995 to 2003.) We reviewed each of the
remaining 27 studies in detail and (1) assessed each study’s research
methodology, including its data quality, research design, and analytic
techniques and (2) summarized its major findings and conclusions. When a
study focused on compliance with disclosure requirements, we determined
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Appendix I
Scope and Methodology
whether the criteria used to assess the adequacy of companies’ disclosures
were consistent with existing regulations, standards, and guidance. We also
assessed the extent to which each study’s data and methods support its
findings and conclusions.
Overali, we eliminated 8 of the 27 studies from our analyses because they
had severe methodological limitations or provided little or no information
on key aspects of the study methodology. We eliminated another four
studies because they did not address environmental disclosure in terms of
SEC’S reporting requirements or examine the amount of environmental
information being disclosed. The latter four studies focused entirely on
other issues such as the impact of environmental disclosure on investor
behavior and the relationship between environmental disclosure and
market value. The remaining 15 studies had strong limitations, which
should be considered in interpreting the results, but the limitations were
not so severe as to preclude the studies’ use. Appendix III briefly
summarizes the objectives, scope, and limitations of the 15 studies
included in our analyses.
To supplement our review of existing disclosure studies, we also conducted
a limited examination of disclosures related to potential future risks,
focusing on the impacts of potential controls on greenhouse gas emissions
at 20 U.S electric utilities with relatively high emissions of carbon dioxide
We obtained emissions data from EPA’S EGRID2002 database, using
emissions in 2000 (the most recent data available), and identified 20
utilities with high emissions that are also publicly traded companies
subject to SEC disclosure reqwrements.’ These companies were the AES
Corporation; Allegheny Energy, Inc.; Anieren Corporation; American
Electric Power Company, Inc.; CenterPoint Energy, Inc.; Cinergy
Corporation; Dominion Resources, Inc.; DTE Energy Company; Duke
Energy Corporation; Edison International; Entergy Corporation;
FirstEnergy Corporation; FPL Group, Inc.; Mirant Corporation; PPL
Corporation, Inc.; Progress Energy; Reliant Energy, Inc.; The Southern
‘The Tennessee Valley Authonty and two non-U S companies were among the top 20
emitters in EPiVs database, but we excluded them from our analysis because they are not
required to file 10-K reports In addition, according to an EPA official, EPA makes a number
of assumptions in allocating carbon dioxide emissions from facilities with mulupie owners
and the relative ranking of the top emitters could be affected as a result Also, the
measurement of carbon dioxide emissions for smaller sources involves estimates, which
could affect the amounts by a small percentage However, the official agreed that we had
included companies that were among the highest emitters of carbon dioxide in our analysis.
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Appendix 1
Scope and Methodology
Company; TXU Corporation; and Xcel Energy, Inc. 2 For each company, we
reviewed the most recent available annual and quarterly filings, namely, the
fiscal year 2003 forms 10-K and l0-Q filings (including any such filings that
were amended). We looked for disclosures related to the impact of
potential controls over greenhouse gas emissions, including any discussion
of estimated risks to the utilities’ operations or financial condition and the
estimated cost impact. To ensure that we identified all relevant disclosures,
we searched the documents for a number of key terms, including aglobaj
warming,” “climate change,” “Kyoto Protocol,” “greenhouse gases,” and
specific elements of greenhouse gases such as “carbon dioxide.” We
focused on the sections of the filings most likely to yield disclosures related
to the impact of potential controls over greenhouse gas emissions,
mcluding Forward-Looking Information (when it was included as a
separate section), item 1, Description of Business; item 3, Legal
Proceedings; item 7, Management’s Discussion and Analysis of Results of
Operations and Financial Condition; and item 8, Financial Statements and
Supplemental Data When a company included its annual report to
shareholders in its filing by reference, we also reviewed that report in the
same manner as the filing. After extracting the relevant excerpts from the
filings, we created a table and categonzed the disclosures by company and
type of disclosure.
To assess the adequacy of SEC’s efforts to monitor and enforce compliance
with the disclosure requirements, we obtained information from the
Division of Corporation Finance, which is responsible for reviewing
companies’ filings to check their compliance with disclosure requirements,
and the Division of Enforcement, which has authority to initiate civil or
criminal actions to enforce the reqwrements. Specifically, we obtained
information on SEC’S procedures for reviewing company filings, issuing
comment letters, and documenting the results; reviewed relevant
documents, including SEC’S analysis of annual filings by Fortune 500
companies; obtained available statistics on SEC’s monitoring and
enforcement process; and interviewed SEC reviewers responsible for
reviewing annual filings of companies in industries with a greater
likelihood of being affected by environmental disclosure requirements. We
also obtained information on enforcement actions by SEC’S Division of
Enforcement, including cases involving environmental disclosure, and met
with officials within.SEC and EPA’S Office of Enforcement and Compliance
2 Effective April 2004, Reliant Resources changed its name to Reliant Ener ’, Inc.
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Appendix I
Scope and Methodology
Assurance to obtain information on the nature of interagency coordination
on environmental disclosure.
To obtain suggestions on actions for increasing and improving
environmental disclosure, we conducted a Web-based survey of 30 experts
on environmental disclosure issues. We selected the participants from a
larger group of 52 widely recognized experts on environmental disclosure,
which we compiled by consulting organizations and individuals with a
stakeholder interest in environmental disclosure, relevant literature,
authors of reports on disclosure issues, and other sources. We also
obtained assistance from the National Academies of Science in identi1 ’ing
experts on environmental disclosure.
In compiling our initial list of experts, we sought to achieve balance in
terms of various areas of expertise, including environmental laws and
regulations, accounting and auditing standards and guidance, SEC
disclosure requirements, the disclosure interests of socially responsible
investors, the disclosure interests of investors with general investment
interests; and the relationship between business strategy and corporate
governance. We also sought to achieve participation by experts from fields
that use the filings in some way, including auditing and accounting,
consulting, financial services, insurance, nonprofit advocacy groups, the
legal profession, public employee pension funds, credit rating agencies,
nonprofit research groups, and academia. Appendix N lists the 30 experts
who participated in our survey. 3
Our questionnaire focused on concerns about SEC’S environmental
disclosure requirements, asking the experts for their views on the concerns
and for suggestions on how best to resolve them. To identify concerns, we
analyzed the results of 27 recent studies about environmental disclosure; 4
reviewed other relevant literature; and, as discussed earlier, interviewed
representatives of groups with a stakeholder interest in environmental
disclosure. In total, we identified 15 concerns, which we categorized into
five general areas: (1) addressing uncertainty regarding the likelihood and
amount of existing and potential liabilities related to environmental
contamination, (2) determining whether environmental information is
3 We initially asked 31 individuals to participate One person declined
4 As noted earlier, our review of existing studies on environmental disclosure included 27
studies. However, at the time we were developmg our questionnaire, we had identified only
25 of the studies
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Appendix I
Scope and Methodology
material, (3) disclosing future risks, (4) ensuring disclosure of important
environmental information, and (5) monitoring and enforcing
envirorunental disclosure. For each concern, we asked the experts about
the extent to which they shared the concern and thought that it contributed
to inadequate disclosure of environmental information. We also asked a
series of questions on the impact of inadequate disclosure and ways to
address problems related to madequate disclosure.
We pretested the questionnaire with five experts in Boston, Massachusetts,
and Washington, D.C., revised it based on the feedback we received, and
posted the final version on GAO’S survey Web site. We notified the
participants of the availability of the questionnaire with an e-mail message,
which contained a unique user name and password for each. The
participants were able to log on and fill out the questionnaire but did not
have access to the responses of others. We obtained responses from all 30
experts for a response rate of 100 percent.
We analyzed the content of the responses given to the open-ended
questions to identify suggestions for increasing and improving
environmental disclosure. For each question, two coders independently
read the responses and identified broad categories for the responses. We
discussed these categories and reached agreement on which ones to use.
Each coder then worked independently to classify responses into the
categories The coders then compared their classifications and resolved
any differences through discussion so that there was 100 percent
agreement.
Finally, we discussed the experts’ suggestions with representatives of
businesses responsible for filing reports with SEC, including industries
such as electric utilities and chemical manufacturing in which
environmental disclosure is more likely to be relevant. We met with the
Amencan Chemistry Council, the Business Roundtable, the Edison Electric
Institute, and the U.S. Business Council for Sustainable Development to get
their views; in addition to the staff from these associations, representatives
from approximately 10 companies participated in the discussions.
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Appendix II
Principal Requirements and Guidance
Applicable to the Disclosure of Environmental
Information in SEC Filings
Issue date Document’
1972 Securities and Exchange Commission, Regulation S-X: Form and Content of and Requirements for Financial
Statements, Secunties Act of 1933, Securities Exchange Act of 1934, Public Utihty Holding Company Act of 1935,
Investment Company Act of 1940, Investment Advisers Act of 1940 and Energy Policy and Conservation Act of 1975,
37 Fed. Reg. 14592, codified atl7 C.F.R. Part 210 b
1975 Financial Accounting Standards Board, Statement of FinancialAccounting Standards No. 5: Accounting for
Contingencies. Norwalk, CT: 1975.
1976 Financial Accounting Standards Board, Interpretation No. 14 Reasonable Estimation of the Amount of a Loss An
Interpretation of FASB Statement No. 5. Norwalk, CT: 1976.
1982 Securities and Exchange Commission, Regulation S-K: Standard Instructions for Filing Forms under Securities Act
of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975, 47 Fed Reg 11401
codified at 17 C.F.R. Part 229.c
1989 Securities and Exchange Commission, SEC Interpretation’ Management’s Discussion andAnalysis of Financial
Condition and Results of Operations; Certain Investment Company Disclosures (Release Nos. 33-6835; 34-26831;
IC-16961; FR-36J, 54 Fed. Reg. 22427
1990 Financial Accounting Standards Board, Emerging Issues Task Force 90-8: Capitalization of Costs to Treat
Environmental Contamination. Norwalk, CT: 1990.
1992 Financial Accounting Standards Board, Interpretation No 39. Offsetting of Amounts Related to Certain Contracts:
An Interpretation of Accounting Principles Board (APB) Opinion No 10 and Financial Accounting Standards Board
Statement No. 105. Norwalk, CT 1992
1993 Financial Accounting Standards Board, Emerging Issues Task Force 93-5: Accounting for Environmental Liabilities.
Norwalk, CT: 1993.
1993 Securities and Exchange Commission, Staff Accounting Bulletin No 92, Topic 5 Y: Accounting Disclosures Relating
to Loss Contingencies, 58 Fed. Reg. 32843. Staff Accounting Bulletin No. 103 (listed below) amended SAB 92
1994 American Institute of Certified Public Accountants, Statement of Position 94-6W Disclosure of Certain Significant
Risks and Uncertainties. New York, NY 1994
1996 American Institute of Certified Public Accountants, Statement of Position 96-1. Environmental Remediation
Liabilities. New York, NY. 1996.
1999 Secunties and Exchange Commission, Staff Accounting Bulletin No 99 Matenabty, 64 Fed. Reg. 45150
2001 Financial Accounting Standards Board, Statement of Financial Accounting Standards No 143: Accounting for Asset
Retirement Obligations. Norwalk, CT: 2001.
2001 Financial Accounting Standards Board, Statement of Financial Accounting Standards No 144 Accounting for the
Impairment or Disposal of Long-LivedAssets. Norwalk, CT 2001
2001 Securities and Exchange Commission, Action: Cautionary Advice Regarding Disclosure About Critical Accounting
Policies (Release Nos. 33-8040; 34-45 149; FR-60J, 66 Fed. Reg. 65013.
2002 Secunties and Exchange Commission, Commission Statement about Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Release Nos. 33—8056; 34—45321; FR —611, 67 Fed. Reg. 3746
2003 Secunties and Exchange Commission, Commission Guidance Regarding Management’s Discussion and Analysis of
Financial Condition and Results of Operations [ Release Nos. 33—8350, 34—48960, FR—72J, 68 Fed. Reg. 75056.
2003 Securities and Exchange Commission, Staff Accounting Bulletin No 103: Update of Codification of Staff Accounting
Bulletins, 68 Fed. Reg. 26840.
Sou,ce GAO
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Appendix H
Principal Requirements and Guidance
Applicable to the Disclosure of
Environmental Information in SEC Filings
Some of these documents have been amended since they were first issued
bSEC adopted Regulation S-X in 1940 and issued a comprehensive revision in 1972. Provisions of
Regulation S-X relevant to environmental disclosure include 17 C FR §210 3-01(a), which requires
annual submission of consolidated audited balance sheets, §210 3-02(a), which requires annual
submission of consolidated statements of income and cash flow, and §210 4-01(a)(1), which provides
that financial statements filed with SEC that are not prepared in accordance with generally accepted
accounting pnnciples will be presumed to be misleading or inaccurate.
cm 1982, SEC consolidated all existing uniform disclosure requirements under the federal securities
laws, including those related to environmental information, into an integrated disclosure system under
Regulation S-K As part of this effort, SEC included interpretive releases issued prior to 1982, such as
those related to the disclosure of environmental compliance costs (Conclusions and Final Action on
Rulemaking Proposals Relating to Environmental Disclosure [ Release Nos. 33-5704; 34-12414)) and
environment-related legal proceedings (Proposed Amendments to Item 5 of Regulation S-K Regarding
the Disclosure of Certain Environmental Proceedings [ Release Nos. 33-6315; 34-17762)). The
provisions of Regulation S-K most directly relevant to environmental disclosure include 17 C.F R
§229 101 (Descnption of Business), §229.103 (Legal Proceedings), and §229.303 (Management’s
Discussion of Financial Condition and Results of Operations)
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Appendix Ill
Summary of Disclosure Studies Included in
Our Analysis
Study
Objective and scope (time frame)
Major limltatlonsb
Austin, Duncan and
Objective: To assess the potential impact of vanous
Small sample size within a single industry.
Amanda Sauer, Changing
scenanos for (1) controls over greenhouse gas
Oil: Emerging
emissions and (2) pressures to restrict access to oil
Estimates in study depend heavily on the accuracy
Environmental Risks and
and gas reserves on shareholder value,
of various assumptions.
Shareholder Value in the
Oil and Gas lndustiy
Scope 16 oil and gas companies (forward-looking).
The authors attempted to incorporate input from
World Resources Institute,
various experts into the assignment of probabilities
2002.
to final scenarios; however, the response rates from
these experts was quite low. The authors then
assigned probabilities on the basis of the limited
responses and using their best judgment.
Authors applied judgmental factors in attempting to
distinguish different refinery product mixes.
Barth, Mary E.; Maureen
Objective: To identify factors that influence companies
No information on how the matching to produce
F. McNichols; and Peter G.
decisions to disclose information about environmental
potentially responsible party sites was done or the
Wilson, “Factors
liabilities,
accuracy of the matching process related to the use
Influencing Firms’
of industry data files.
Disclosure about
Scope’ 257 companies that have a high concentration
Environmental Liabilities,’
of Superfund exposure from four industries (1989
Study results not generalizable.
Review of Accounting
through 1993).
Studies, Vol. 2 (1997): pp.
35-64.
Deis, Donald R.; Santanu
Objective: To assess the impact of environment-
Small sample size, no discussion of extent to which
Mitra; and Mahmud
related disclosures in companies’ 10-K reports on the
selected companies are representative of the single
Hossain, ‘10-K Report
market pricing of chemical firms,
industry.
and Market Pncing of
Environmental Segment
Scope: 30 public chemical companies (1994 through
Study results not gerieralizable.
Information for Chemical
1997).
Firms,” Accounting
Enquiries, Vol. 11, No. 1,
fall 200llwinter 2002, pp.
1-42.
Freedman, Martin; Bikki
Objective: To examine the extent of disclosures related
Analyses may have been affected by differences in
Jaggi; and A.J. Stagliano,
to emissions controls required under the Clean Air Act
collection of emissions data in 1990 and 1995.
“Pollution Disclosures by
Amendments 011990.
Electnc Utilities: An
Small size of subgroups used in modeling affected
Evaluation at the Start of
Scope. 38 public companies that owned 88 coal-fired
ability to draw meaningful conclusions and design of
the First Phase of 1990
electric utilities (1989, 1990, and 1995).
subgroups relied on authors’ judgments.
Clean Air Act,” Sixth
Annual Conference of the
Conclusions go beyond what is supported by the
Greening of Industry
analysis
Network, (1997).
Page 46 GAO-04-808 Environmental Disclosure

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(Con tinued From Previous Page)
Appendix III
Summary of Disclosure Studies Included In
Our Analysis
Study
Objective and scope (time frame)
Major limltatlonsb
Freedman, Martin and
Objective: To examine the extent to which companies
Criteria for assessing adequacy of disclosure not
A.J. Stagliano, “Disclosure
identified as potentially responsible parties disclosed
consistent with the requirements.
of Environmental Cleanup
information related to potential remediation liabilities in
Costs. The Impact of the
their 1987 Form 1 0-Ks.
No information on how companies were identified
Superfund Act:’ Advances
for inclusion in the study or the extent to which the
in Public Interest
Scope: 193 companies that were potentially liable for
companies are representative of others.
Accounting, Vol.6, (1995)’
Superfund remediation costs (1987)
pp 163-176.
No description of the content analysis or steps
taken to ensure inter-rater reliability.
Freedman, Martin and
Objective. To determine whether the issuance of
Criteria for assessing adequacy of disclosure not
A.J. Stagluano, “Superfund
additional guidance (American Institute of Certified
consistent with the requirements.
Disclosures in Annual
Public Accountants Statement of Position No 96-1) led
Accounting Reports The
to improved disclosure of Superfund liabilities in
Limited time period covered by analysis.
Impact of AICPA
companies’ annual filings with SEC
Statement of Position 96-
Use of a “disclosure index” that is not defined.
1,” provided by authors.
Scope: 137 companies identified as potentially
responsible parties at 3 or more Superfund sites (1994
and 1997).
No information on data analysis techniques and
study does not include tables.
No information on methods used to measure
dependent variables, the statistical tests conducted,
the results of such tests, or methods used to
interpret the results
Insufficient information to assess reasonableness of
study conclusions.
Freedman, Martin and
Objective: To determine whether companies’
No justification for the particular weighting scheme
A.J. Stagluano, “Political
disclosures about potential Superfund liabilities
used in study, although finding of statistical
Pressure and
changed as a result of EPA efforts to prompt increased
significance is heavily dependent on it.
Environmental Disclosure,
enforcement of disclosure requirements by SEC
The Case of EPA and the
Study results not generaluzable.
Superfund’ Research on
Scope: 140 companies that were potentially liable for
Accounting Ethics, Vol. 4
Superfund costs (1987, 1989, and 1990)
(1998): pp. 211-224.
Freedman, Martin and
Objective: To determine whether differences exist in
Small sample size.
A.J Staghano,
the disclosure of environmental liabilities by
“Environmental Disclosure
companies identified as potentially responsible parties
Initial sample of 45 was cut to 26 when some of the
by Companies Involved in
at Superfurid sites, depending on the companies’
selected firms could not be paired with companson
Initial Public Offerings,”
involvement in initial public offerings,
firms; no discussion regarding the possible effects
Accounting, Auditing and
of reduced sample
Accountability Journal,
Scope’ 26 companies making initial public stock
Vol. 15, No. 1 (2002): pp.
offerings that were identified as potentially responsible
Possible bias introduced because matching, in
94-105.
parties under the Superfund program (1984 through
1993).
terms of both standard industnal codes and assets,
is very imprecise
No information on steps taken to ensure inter-rater
reliability of content coding.
Page 47 GAO-04.8OS Environmental Disclosure

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(Continued From Previous Page)
Appendix Ill
Summary of Disclosure Studies Included in
Our Analysis
Study
Objective and scope (time framey
Major llmltatlonsb
Gamble, George 0.; Kathy
Hsu; Devaun Kite; and
Robin A. Radtke,
uEnvironmenta l
Disclosures in Annual
Reports and 1 OKs: An
Examination:’ Accounting
Horizons, Vol. 9, No. 3,
(September 1995): pp. 34-
54
Objective: To determine the relative quality of
disclosures over time and whether such information is
sufficient to satisfy stakeholders’ needs.
Scope: 234 companies from 12 industries combined
into six industry groups selected from Standard &
Poor’s Compustat Services (1986 through 1991).
Criteria for assessing adequacy of disclosure not
consistent with the requirements.
No information on how the companies were
selected.
Requirement that at least six companies remain
within an industry group could have influenced the
analyses.
No information on steps taken to ensure inter-rater
reliability of content coding.
Sludy results not generalizable.
Kreuze, Jerry G.; Gale E.
Newell; and Stephen J.
Newell, “What Companies
Are Reporting
(Environmental
Disclosures):’
Management Accounting,
Vol. 78, No. 1, (1996).
Object:v To examine the extent to which companies
disclosed environmental information in their annual
reports to shareholders.
ScopeS 645 Forbes 500 corporations (1991).
Conclusions go beyond what is supported by the
analysis.
Criteria for assessing adequacy of disclosure not
consistent with the requirements.
No information on how the sample was chosen or
the universe from which companies were selected
Limited time period covered by analysis.
Study results not generalizable
Conclusions go beyond what is supported by the
analysis.
Repetto, Robert and
Duncan Austin, Coming
Clean: Corporate
Disclosure of Financially
Significant Environmental
Risks, World Resources
institute, 2000.
Objective: To assess the adequacy of companies’
disclosure of material environmental exposures in
accordance with SEC rules.
Scope: 13 public pulp and paper companies (1998 and
1999)
Critena for assessing adequacy of disclosure not
consistent with the requirements.
Small sample size.
No information on how the companies were
selected, the selection of experts who identified
environmental pressures’ on firms, how authors
identified these pressures, etc.
Estimates in study depend heavily on the accuracy
of various assumptions.
Conclusions go beyond what is supported by the
analysis.
Page 48 GAO-04-8e8 Environmental Disclosure

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(Continued From Prewous Page)
Appendix Ill
Summary of Disclosure Studies Included in
Our Analysis
Study
Objective and scope (time frame)’
Major limitationsb
Repetto, Robert and
Objective. To assess the potential financial impact of
Cnteria for assessing adequacy of disclosure not
Duncan Austin, Pure
projected environmental developments such as
consistent with the requirements.
Prof,l: The Financial
pending air and water quality regulations. The study
Implications of
also examined the extent of companies’ disclosures
Small sample size.
Environmental
related to future environmental expenditures and
Performance, World
contingencies
No information on how the companies were
Resources Institute
selected, the selection of experts who “identified
(2000).
Scope: 13 pulp and paper companies that will be
significantly impacted by near future environmental
developments (forward-looking).
environmental pressures” on firms, how authors
identified these pressures, etc
Estimates in study depend heavily on the accuracy
of vanous assumptions.
Schmidt, Richard J.,
Objective: To examine the disclosure of environmental
Cnteria for assessing adequacy of disclosure not
“Disclosing Past Sins:
remediation liabilities in companies’ financial reports
consistent with the requirements.
Financial Reporting of
before and after a period in which the emphasis on
Environmental
improving such reporting increased.
Small sample size.
Remediation,” The
National Public
Scope. 17 corporations representing 20 Superfund
No information on criteria used to select sample
Accountant, Vol. 42, Issue
sites from EPA’s 1995 National Priorities List (1991
5 (July 1997). pp 41-45.
and 1994)
No information on why study focused on 1991 and
1994
Used dichotomous measures that ignore gradations
in quality and extent.
Study results are not generalizable.
Stagliano, A.J. and W.
Objective: To examine the quantity and quality of
Criteria for assessing adequacy of disclosure not
Darrell Walden,
environmental disclosures in the financial and
consistent with the requirements
“Assessing the Quality of
nonfinancial sections of corporate annual reports
Environmental Disclosure
Small sample size.
Themes:’ Second Asian
Scope: 53 companies in four industries (1989)
Pacific Interdisciplinary
No specific information on sample selection (e.g.,
Research in Accounting
no elaboration on “leaders in their respective
Conference, Osaka City
industries’).
University, Osaka, Japan,
August 1998.
Possible sample selection bias cannot be
determined.
Study results not generalizable.
Stanny, Elizabeth, “Effect
Objective: To examine the impact of SEC’s Staff
Criteria for assessing adequacy of disclosure not
of Regulation on Changes
Accounting Bulletin No. 92 on the disclosure of
consistent with the requirements.
in Disclosure of and
environmental remediation liabilities and associated
Reserved Amounts for
reserves
Low number of cases used in some aspects of the
Environmental Liabilities,”
modeling raise questions of external validity and
The Journal of Financial
Scope: 199 nonfinancial firms from the 1994 Standard
potentially false negative results in tests of
Statement Analysis
& Poor’s 500 index (1991, 1992, and 1993)
signiFicance.
(summer 1998) pp. 34-
49
No discussion of efforts to address possible issues
of autocorrelation in the multiple regression models
due to pooling of multiple years.
Page 49 GAO-04-808 Environmental Disclosure

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Appendix HI
Summary of Disclosure Studies Included In
Our Analysis
Sou,ce GAO
aThe overall objectives of some studies did not focus explicitly on disclosure of environmental
information under SEC rules However, we induded such studies in our analysis if they contained an
assessment of the amount or adequacy of disclosure in addition to their primary focus.
“This table combines studies with strong and very strong limitations The column on major limitations”
includes some but not all of the major limitations we identified
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Appendix LV
Experts Who Participated in GAO Survey
Gavin Anderson GovernanceMetrix International, Inc.
Duncan Austin World Resources Institute
Constance E. Bagley Harvard Business School
Michelle Chan-Fishel Friends of the Earth
Jack Ciesielski R.G. Associates, Inc.
Holly Clack PricewaterhouseCoopers LLP
Doug Cogan Investor Responsibifity Research Center
Mark A. Cohen Vanderbilt University
Andrew N. Davis LeBeouf, Lamb, Greene, and MacRae, LLP
Martin Freedman Towson University
Julie Gorte Calvert Funds
Suellen Keiner National Academy of Public Administration
Donald Kirshbaum Office of Connecticut State Treasurer
Gayle S. Koch The Braille Group
Jerry G. Kreuze Western Michigan University
Peter Lehner Office of Attorney General, State of New York
Tim Little The Rose Foundation
Steven D. Lydenberg Domini Social Investments LLC
Thomas M. McMahon Sidley Austin Brown & Wood LLP
Dennis M. Patten illinois State University
Ken Radigan AIG Environmental
Robert Repetto Stratus Consulting, Inc.
Amy Ripepi Financial Reporting Advisors LLC
Greg Rogers Gwda, Slavich & Flores, P.C.
Solomon Samson Standard & Poor’s
Christopher Scudellan Ernst & Young
Elizabeth Stanny Sonoma State University
William L. Thomas Pillsbury Winthrop LLP
Martin Whittaker Innovest Strategic Value Advisors, Inc.
Cynthia Williams University of il l inois College of Law
Page 51 GAO-04.808 Environmental Disclosure

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Appendix V
Survey Questions and Results
The Web-based questionnaire included six sections The first five sections began with an issue
statement and background matenal for the questions followed by a senes of closed-ended
(radio button) questions and then, one or more open-ended (text box) questions The last
section also used a combination of closed-ended and open-ended questions, included general
questions about the impact of inadequate disclosure, and asked for suggestions on ways to
resolve concerns about disclosure
Section I. Addressing Uncertainty Regarding the Likelihood and Amount of Existing
and Potential Liabilities Related to Environmental Contamination
Issue Statement Companies may not be providing enough information about environmental
liabilities in their financial statements because of uncertainties about (1) whether they have a
liability that must be disclosed and (2) if so, how to estimate the amount of the liability
Without more specific standards and guidance, some companies conclude that they have
nothing to disclose, cannot calculate an estimate, or default to a mimmun , amount rather than
develop a best estimate
Background Under generally accepted accounting principles, companies must report
environmental and other types of habilities in their financial statements if such liabilities are
“reasonably likely” to occur and the amounts are “reasonably estimable “ (In addition to
liabilities, losses may take the form of permanent reductions in asset value) SEC, the Financial
Accounting Standards Board, and the Amencan Institute of Certified Public Accountants have
all issued standards and guidance to assist companies (and their independent auditors) in
making determinations about when and what amount to disclose
The standards and guidance on when to disclose a liability consider a range of probabilities
that the liability will occur—from “likely” to “remote”—and provide some benchmarks by
which companies can judge the likelihood of a liability resulting from environmental
contamination (for example, notification by the Environmental Protection Agency that they
have been identified as a responsible party at a hazardous waste site)
The standards and gwdance on what amount to disclose specify the cost elements that should
be included in an estimate and reqwre companies to use the best information currently
available In addition, the guidance helps companies deternune an appropnate amount to
disclose if they estimate that the liability will fall within a particular dollar range
Page 52 GAO-04-8OS Environmental Disclosure

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Appendix V
Survey Questions and Results
Concern #1 The guidance on assessing the likelihood of an environmental liability
and determining when it must be disclosed is not sufficiently clear. For example,
opinions vary on whether a disclosure obligation exists at the time the environmental
contamination occurs or the point at which a regulatory agency (or some other third
party) has taken action against a company to force a cleanup
01 Do you share this concern 9
Response categories
Number of respondents
Percent of respondents
Definitely no
4
13 33
Probably no
2
667
Uncertain
0
00
Probably yes
8
26 67
Definitely yes
16
53 33
No basis to judge
0
0 0
No answer
0
00
02 Does the lack of clear guidance for assessing the likelihood of an environmental
liability contnbute to inadequate disclosure of environmental information 9
Response categones
Number of respondents
Percent of respondents
Definitely no
3
10 00
Probably no
1
3 33
Uncertain
0
00
Probably yes
10
33 33
Definitely yes
15
50 00
No basis to judge
1
3 33
No answer
0
00
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GAO-04-80S Environmental Disclosure

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Appendix V
Survey Questions and Results
Concern #2 The standards and guidance applicable to estimating the amount of environmental
liabilities are not specific enough to help companies deal with the uncertainties inherent in
deriving the estimates Such uncertainties include the extent to which cleanup costs might be
shared with other responsible parties or offset by insurance recoveries, the extent of
contamination and required cleanup, the state of the art of available cleanup technology, and the
stringency of environmental cleanup standards
03. Do you share this concern
Response categories
Number of respondents
Percent of respondents
Definitely no
3
10.00
Probably no
3
1000
Uncertain
2
667
Probably yes
6
2000
Definitely yes
16
53.33
No basis to judge
0
0 0
No answer
0
00
04. Does the lack of specific standards and guidance for estimating the amount of
environmental liabilities contnbute to inadequate disclosure of environmental information?
Response categories
Number of respondents
Percent of respondents
Definitely no
1
3 33
Probably no
6
20.00
Uncertain
1
3 33
Probably yes
9
30.00
Definitely yes
13
43 33
No basis to judge
0
00
No answer
0
00
05 Please provide any additional comments you have, or further elaboration on your
responses for Seclion I, “Addressing Uncertainty Regarding the Likelihood and Amount of
Existing and Potential Liabilities Related to Environmental Contamination,” in the space below.
Response categones Number of respondents
Did not write any comments 3
Percent of respondents
1000
Wrote comments
27
90 00
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Appendix V
Survey Questions and Results
Section II: Determining Whether Environmental Information is Material
Issue Statement Companies may not be providing environmental information in their SEC
filings that would be considered matenal by “reasonable investors”
Backeround Applicable regulations and guidance generally define matenality in terms of
information that is important to investors’ investment decisions or necessary for the fair
presentation of the financial statements in accordance with generally accepted accounting
principles For example, SEC’s regulations define matenal information as “matters about
which an average prudent investor ought reasonably to be informed “ As another example,
guidance issued by the Financial Accounting Standards Board states that the omission or
misstatement of an item in a financial report is material if, in the light of surrounding
circumstances, the magnitude of the item is such that it is probable that the judgment of a
reasonable person relying on the report would have been changed or influenced by the
inclusion or correction of the item
SEC’s regulations and guidance generally do not establish numenc thresholds for determining
materiality However, SEC Regulation S-IC, item 103 “Legal Proceedings” contains two
exceptions (1) losses resulting from any administrative or judicial proceeding involving
federal, state, or local environmental laws, if the amount of the losses exceeds 10 percent of
the company’s current assets and (2) monetary sanctions greater than $100,000, if a
governmental authoncy is a party to the proceeding
Concern #3 The regulations and guidance issued by SEC and other standard-
setting bodies are not specific enough to ensure adequate disclosure of material
information, environmental or otherwise For example, the regulations and guidance
lack any metrics that could serve as minimum thresholds for materiality and do not
sufficiently emphasize intangible, nonquantifiable Factors in materiality
determinations (for example, the impact of environmental contamination on a
company’s reputation)
06 Do you share this concern’ 7
Response categories
Number of respondents
Percent of respondents
Definitely no
2
6 67
Probably no
4
13 33
Uncertain
0
0 0
Probably yes
6
20.00
Definitely yes
18
60.00
No basis to judge
0
0 0
No answer
0
0 0
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Appendix V
Survey Questions and Results
07 Does the lack of specific regulations and guidance for determining materiality
contnbute to inadequate disclosure of environmental information?
Response categories
Number of respondents
Percent of respondents
Definitely no
2
667
Probably no
4
1333
Uncertain
0
0 0
Probably yes
6
2000
Definitely yes
18
60 00
No basis to judge
0
0 0
No answer
0
0 0
Concern #4. SECs regulations do not require companies to aggregate the estimated
costs of potential environmental liabilities (for example, multiple hazardous waste
sites) when assessing materiality
08. Do you share this concern?
Response categories
Number of respondents
Percent of respondents
Definitely no
2
6 67
Probably no
3
1000
Uncertain
2
6 67
Probably yes
4
1333
Definitely yes
19
6333
No basis to judge
0
0 0
No answer
0
00
09 Does the lack of a requirement to aggregate the estimated costs of potential
environmental liabilities contribute to inadequate disclosure of environmental
information Percent of respondents?
Response categories
Number of respondents
Percent of respondents
Definitely no
1
333
Probably no
3
10 00
Uncertain
1
333
Probably yes
8
2667
Definitely yes
17
56 67
No basis to judge
0
00
No answer
0
0.0
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Appendix V
Survey Questions and Results
Concern #5 The $100,000 threshold for monetary sanctions may be outdated For
example, the threshold has not been adjusted since it was established in 1981.
010 Do you share this concern 9
Response categories
Number of respondents
Percent of respondents
Definitely no
6
20.00
Probably no
8
2667
Uncertain
3
10 00
Probably yes
7
23 33
Definitely yes
5
16.67
No basis to judge
1
3 33
No answer
0
0.0
011 Does the outdated monetary threshold contribute to inadequate disclosure of
environmental information 9
Response categories
Number of respondents
Percent of respondents
Definitely no
9
30.00
Probably no
13
4333
Uncertain
4
13.33
Probably yes
2
6.67
Definitely yes
1
333
No basis to judge
1
333
No answer
0
0 0
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Appendix V
Survey Questions and Results
Concern #6 The $1 00.000 threshold for monetary sanctions may be too restrictive
For example, certain costs related to the sanctions, such as the costs associated with
(1) environmental remediation and (2) supplemental environmental projects conducted
in lieu of paying sanctions, are not counted in determining whether the threshold has
been met.
012 Do you share this
Response categories
Number of respondents
Percent of respondents
Definitely no
3
1000
Probably no
6
20 00
Uncertain
1
3 33
Probably yes
8
2667
Definitely yes
12
40 00
No basis to judge
0
0.0
No answer
0
00
Response categories
Number of respondents
Percent of respondents
Definitely no
4
13.33
Probably no
4
1333
Uncertain
4
1333
Probably yes
8
2667
Definitely yes
10
33.33
No basis to judge
0
00
No answer
0
0.0
014 Please provide any additional comments you have, or further elaboration on
your responses for Section Ii. Determining Whether Environmental Information is
Material,” in the space below
Response categories
Number of respondents
Percent of respondents
Did not write any comments
5
16.67
Wrote comments
25
83.33
013 Does the too restrictive definition of monetary sanction contribute to inadequate
disclosure of environmental information 7
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Appendix V
Survey Questions and Results
Section 111 Disclosing Future Environmental Risks
Issue Statement Companies may not be providing enough information on potentially
significant environmental problems or regulatory initiatives that could pose a future financial
risk
Backaround SEC’s regulations and guidance categorize companies’ disclosure of information
regarding their future condition, including environmental risks, in two different ways SEC
Regulation S-K, item 303, “Management Discussion and Analysis” requires companies to
discuss in their filings with SEC any known matenal trends, events, and uncertainties that
would cause the companies’ liquidity, capital resources, and results of operations, as reported,
to not be indicative of future operating results or financial condition On the other hand, SEC’s
instructions for this requirement encourage, but do not reqwre, companies to discuss forward-
looking information in their filings According to SEC, reporting forward-looking information
involves anticioatine a future trend or event, or anticinatina a less oredictable imoact of a
known event trend or uncertainty .
Concern #7 SECs regulations and guidance do not clearly distinguish between
known information that might impact future operating results” and “forward-looking
information”
015 Do you share this concern ’
Response categories
Number of respondents
Percent of respondents
Definitely no
1
3 33
Probably no
6
20 00
Uncerlain
5
1667
Probably yes
10
33 33
Definitely yes
8
26 67
No basis to judge
0
00
No answer
0
00
016 Does the lack of a clear distinction between “known information that might impact
future operating results” and “forward-looking information” contnbute to inadequate
disclosure of environmental information’
Response categories
Number of respondents
Percent of respondents
Definitely no
1
333
Probably no
6
2000
Uncertain
6
2000
Probably yes
13
4333
Definitely yes
4
13.33
No basis to judge
0
0 0
No answer
0
00
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Appendix V
Survey Questions and Results
Response categories
Number of respondents
Percent of respondents
Definitely no
2
667
Probably no
2
667
Uncertain
3
10.00
Probably yes
12
4000
Definitely yes
11
36 67
No basis to judge
0
00
No answer
0
00
Response categories
Number of respondents
Percent of respondents
Definitely no
2
6.67
Probably no
2
6 67
Uncertain
3
10.00
Probably yes
13
43.33
Definitely yes
10
33.33
No basis to judge
0
00
No answer
0
00
019. Please provide any additional comments you have, or further elaboration on your
responses for Section III, “Disclosing Future Environmental Risks,” in the space below
Response categories
Number of respondents
Percent of respondents
Did not write any
comments
7
23 33
Wrote comments
23
76 67
Concern #8 SECs regulations and guidance do not specify how far into the future
companies should look in identifying and discussing “known” or “forward-looking”
information (including information on environmental risks) and the potential impacts of
such information
017. Do you share this concern?
018. Does the lack of specific regulations and guidance on the timeframes for “known”
and “forward-looking” information lead to inadequate disclosure of environmental
information’
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Appendix V
Survey Questions and Results
Section IV: Ensuring Disclosure of Important Environmental Information
Issue Statement Existing standards and guidance from SEC, the Financial Accounting
Standards Board, and the Aniencan Institute of Certified Public Accountants do not require
companies to disclose certain types of information that some investors believe is important for
malung investment decisions
Backeround According to SEC, the existing disclosure requirements focus on providing a
reasonable investor with sufficient information to assess the financial condition of a company
Regarding environmental information, the standards and guidance issued by SEC and other
authorities require companies to disclose in their filings (1) material environmental liabilities
and other losses, (2) the impact of certain material trends, events, and uncertainties—including
those related to environmental risks—on the companies’ capital expenditures and results of
operations, and (3) certain legal proceedings involving environmental matters
Organizations that promote socially conscious investments argue that SEC should expand its
requirements for corporate disclosure of environmental information because these
organizations believe such information could be material to many investors and serves as a
proxy for effective corporate governance In response to litigation dunng the 1970s, SEC
concluded that it is authorized and required by the National Environmental Policy Act to
consider the promotion of environmental protection as a factor in exercising its rulemalung
authonty At that time, however, SEC argued that relevant statutes and legislative history
suggested that its disclosure authority be used to require the dissemination of economically
sigmficant information SEC also noted the lack of reliable evidence regarding the extent of
investor interest in expanded environmental disclosure
Concern #9 Companies are not required to disclose information about their
environmental assets (for example, emission trading credits) and environmental
performance A growing body of socially conscious investors want such information
because they believe many investors may find this information material or because it
indicates the effectiveness of corporate management
020. Do you share this concern ’
Response categories
Number of respondents
Percent of respondents
Definitely no
3
1000
Probably no
4
13.33
Uncertain
4
1333
Probably yes
3
10.00
Detinitely yes
16
5333
No basis to judge
0
0 0
No answer
0
0 0
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Appendix V
Survey Questions and Results
021 How important is it for investors to have information on companies environmental
assets and environmental performance when making investment decisions 7
Response categories
Number of respondents
Percent of respondents
Not important
0
0 0
Slightly important
3
10.00
Moderately important
8
26 67
Greatly important
5
16 67
Extremely important
10
33 33
No basis to judge
3
10 00
No answer
1
333
Concern #10. Companies are not required to disclose quantitative information on the
total number ot their environmental remediation sites, related claims, or the associated
costs
022 Do you share this concern 7
Response categories
Number of respondents
Percent of respondents
Definitely no
3
1000
Probably no
2
6 67
Uncertain
1
333
Probably yes
6
2000
Definitely yes
18
6000
No basis to judge
0
00
No answer
0
00
023 How important is it for investors to have quantitative information about the total
number of environmental remediation sites, related claims, or the associated costs
when making investment decusions
Response categories
Number of respondents
Percent of respondents
Not important
0
00
Slightly important
2
667
Moderately important
9
30 00
Greatly important
7
2333
Extremely important
10
33 33
No basis to judge
2
6 67
No answer
0
0 0
Page 62
GAO-04-808 Environmental Disclosure

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Appendix V
Survey Questions and Results
024 Please provide any additional comments you have, or further elaboration on your
responses for Section IV, ‘ Ensuring Disclosure of Important Environmental
Information, ’ in the space below
Response categories Number of respondents Percent of respondents
Did not write any 7 23.33
comments
Wrote comments 23 7667
Page 63 GAO-04-SO$ Environmentat Disclosure

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Appendix V
Survey Questions and Results
Section V: Monitoring and Enforcing Environmental Disclosure
Issue Statement Companies’ management, their internal accountants and independent
auditors, and reviewers at SEC may not be adequately fulfilling their responsibilities for
ensuring that companies properly disclose matenal information, including environmental
information
Background In terms of environmental disclosure, companies’ managers are responsible for
establishing effective internal controls to gather and report information about environmental
liabilities and other losses Companies’ internal accountants are responsible for recording and
reporting transactions, including those related to environmental liabilities, using generally
accepted accounting pnnciples promulgated by the Financial Accounting Standards Board.
Independent auditors attest to whether a company has properly accounted for environmental
liabilities, actual or contingent, and other losses related to environmental contamination, in
accordance with auditing standards and gwdance from the American Institute of Certified
Public Accountants and SEC’s regulations arid guidance To ensure that investors are
protected, SEC staff review company filings to determine if they comply with SEC’s disclosure
requirements and take action if necessary. In fulfilling its monitoring and enforcement role,
SEC has a vanety of options available, ranging from making inquines to issuing comment
letters to taking legal action.
Concern #11 Companies internal controls are not adequate to ensure that
environmental liabilities and other losses are brought to management’s attention and
reported in companies’ financial statements as appropriate
Q25 Do you share this concern’ 7
Response categories
Number of respondents
Percent of respondents
Definitely no
1
3 33
Probably no
6
20 00
Uncertain
2
6 67
Probably yes
7
23.33
Definitely yes
9
30 00
No basis to judge
4
13 33
No answer
1
3 33
Page 64 GAO-04-808 Environmental Disclosure

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Appendix V
Survey Questions and Results
026 Do weak internal controls within companies contribute to inadequate disclosure
of environmental information’
Response categories
Number of respondents
Percent of respondents
Definitely no
1
3 33
Probably no
4
1333
Uncertain
2
6 67
Probably yes
7
23.33
Definitely yes
12
40 00
No basis to judge
3
1000
No answer
1
3 33
Concern #12. Companies internal accountants may not be making an adequate effort
to identify and appropriately report all environmental liabilities and other losses in the
companies financial statements
027 Do you share this concern?
Response categories
Number of respondents
Percent of respondents
Definitely no
0
0.0
Probably no
4
1333
Uncertain
2
6.67
Probably yes
10
33.33
Definitely yes
9
30 00
Nobasistojudge
4
1333
No answer
1
3.33
028 Does insufficient effort on the part of internal accountants contribute to
inadequate disclosure of environmental information?
Response categories
Number of respondents
Percent of respondents
Definitely no
0
0 0
Probably no
4
13.33
Uncertain
1
333
Probably yes
10
33.33
Definitely yes
9
3000
No basis to judge
4
13 33
No answer
2
6 67
Page 65 GAO-04-SOS Environmental Disclosure

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Appendix V
Survey Questions and Results
Concern 4t13 Independent auditors may not be exercising “due professional care” in
their efforts to verify the accuracy and completeness of information on environmental
liabilities and other losses that companies report in their financial statements
029 Do you share this concern 7
Response categories
Number of respondents
Percent of respondents
Definitely no
1
3.33
Probably no
3
1000
Uncertain
5
1667
Probably yes
8
26 67
Definitely yes
9
3000
No basis to judge
4
13.33
No answer
0
0.0
030 Does the lack of “due professional care” by independent auditors contribute to
inadequate disclosure of environmental information’
Response categories
Number of respondents
Percent of respondents
Definitely no
0
0 0
Probably no
4
1333
Uncertain
3
10.00
Probably yes
12
40.00
Definitely yes
7
23.33
No basis to judge
3
10 00
No answer
1
333
Page 66
GAO-04-808 Environmentsl Disclosure

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Appendix V
Survey Questions and Results
Concern #14 SEC’s monitoring and enforcement activities related to
environmental disclosure are limited For example, SEC infrequently conducts full
reviews of companies’ periodic filings and, in particular, rarely focuses on
environmental disclosure Enforcement actions related to environmental disclosure
are also rare
031 Do you share this concern’ 7
Response categories
Number of respondents
Percent of respondents
Definitely no
0
0 0
Probably no
2
6.67
Uncertain
1
3 33
Probably yes
3
10.00
Definitely yes
23
76 67
No basis to Judge
1
3 33
Noanswer
0
00
Q32 Do SEC’s limited monitoring and enforcement activities contribute to
inadequate disclosure of environmental information”
Response categories
Number of respondents
Percent of respondents
Definitely no
0
0 0
Probably no
1
3 33
Uncertain
2
6 67
Probably yes
6
20 00
Definitely yes
20
6667
No basis to judge
1
3 33
Noanswer j
0
00
Page 67 GAO-04-808 Environmental Disclosure

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Appendix V
Survey Questions and Results
Concern #15 SEC is not effectively using EPAs enforcement data or otherwise
coordinating with EPA
033. Do you share this concern
Response categories
Number of respondents
Percent of respondents
Definitely no
0
00
Probably no
0
00
Uncertain
1
3.33
Probably yes
11
3667
Definitely yes
12
4000
No basis to judge
6
20.00
No answer
0
0.0
Response categories
Number of respondents
Percent of respondents
Definitely no
0
00
Probably no
0
00
Uncertain
1
3 33
Probably yes
12
4000
Definitely yes
11
36 67
No basis to judge
6
20.00
No answer
0
0.0
035 Please provide any additional comments you have, or further elaboration on
your responses for Section V. Monitoring and Enforcing Environmental Disclosure,” in
the space below
Response categories
Number of respondents
Percent of respondents
Did not write any
comments
5
1667
Wrote comments
25
8333
034 Does the ineffective coordination with EPA contribute to inadequale disclosure
of environmental information’
Page 68 GAO-04.808 Environmental Disclosure

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Appendix V
Survey Questions and Results
Section VI: Additional Concerns, Impact, and Recommendations
This questionnaire has identified a number of concerns that may contnbute to inadequate
disclosure of environmental liabilities or other losses This section asks you to descnbe any
additional concerns you may have In addition, it asks about the impact of inadequate
environmental disclosure on investors and how you would address inadequate disclosure
036. Please describe any other significant concerns that contribute to inadequate
disclosure of environmental liabilities or losses
Response categories Number of respondents Percent of respondents
Did not write any
comments
Wrote comments
21
9
3000
70.00
037 To what extent, if at all, does inadequate disclosure of environmental
information hinder investors ability to assess the overall financial condition of a
company 9
Response categories
Number of respondents
Percent of respondents
Does not hinder
0
00
Slightly hinders
2
6 67
Moderately hinders
17
5667
Greatly hinders
8
26 67
No basis to judge
0
00
No answer
3
10.00
038 To what extent, if at all, does inadequate disclosure of environmental
information hinder investors’ ability to assess the overall future risks that a company
faces 9
Response categories
Number of respondents
Percent of respondents
Does not hinder
0
0.0
Slightly hinders
1
333
Moderately hinders
13
43.33
Greatly hinders
13
43.33
No basis to judge
0
0 0
No answer
3
10.00
Page 69
GAO.04-808 Environmental Disclosure

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Appendix V
Survey Questions and Results
039 To what extent, if at all, does inadequate disclosure of environmental information
hinder investors’ abdity to assess other aspects of a companys overall performance (for
example, corporate governance) that determine whether the company is a good
investment 7
Response categories
Number of respondents
Percent of respondents
Does not hinder
0
0.0
Slightly hinders
4
13 33
Moderately hinders
14
46 67
Greatly hinders
10
33.33
No basis to judge
0
00
No answer
2
667
Response categories
Number of respondents
Percent of respondents
Does not hinder
0
0 0
Slightly hinders
1
3.33
Moderately hinders
14
4667
Greatly hinders
12
40.00
No basis to judge
0
0 0
No answer
3
10.00
041 If you are aware of any specific examples in which the ability of investors to make
investment decisions was impaired as a result of the issues and concerns identified in
this questionnaire, please describe them here It would be helpful to us if, in your
response, you could link each example to a specific issue or concern
Response categories
Number of respondents Percent of respondents
Did not write any
comments
12 4000
Wrote comments
18 60 00
040 To what extent, if at all, does inadequate disclosure of environmental information
hinder investors’ ability to compare the overall performance of companies within an
industry’?
Page 70 GAO-04-808 Environmental Disclosure

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Appendix V
Survey Questions and Results
042 How could problems related to inadequate disclosure be addressed? In your
answer, consider what entities would be the most effective or appropriate vehicle for
addressing the problems, including
1) SEC,
2) other governmental entities, such as other federal agencies and the Congress; and
3) nongovernmental entities, such as the Financial Accounting Standards Board or
shareholder or public interest groups
It would be helpful to us if, in your response, you could link each example to a specific
issue or concern
Response categories
Number of respondents
Percent of respondents
Did not write any
comments
6
20 00
Wrote comments
24
80.00
043 Please provide any additional comments you have, or further elaboration on
your responses for Section VI, “Additional Concerns, Impact, and Recommendations,”
in the space below
Response categones
Number of respondents
Percent of respondents
Did not write any
comments
17
56 67
Wrote comments
13
43 33
Page 71 GAO-04.808 Environmental Disclosure

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Appendix VI
Comments from the Securities and Exchange
Commission
UNITED STAVES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
July 2,2004
C...Oa. ”ONYflA.tI
John B Stephenson
Environmental Issue Director, Natural Resources and EnVIronment Team
General Accounting Office
441 GStreet,NW
Washington, DC 20548
Dear Mr Stephenson
Thank you for the opportunity to TCVICW and comment on the General Accounting
Office’s draft report regarding Environmental Disclosure. The GAO recommends three
actions for executive action, and I appreciate your seeking our input on these
recommendations as you finahze your report
First, the GAO has recommended that the SEC take steps to ensure that
infonnation from staff examinations of corporate filings is elecuonically sorted and
tracked to facilitate its analysis across filings. As you indicate, the Division of
Corporation Finance has recently implemented a procedure to do just that. Through the
process of collecting a sumniay of our work product in what we call a closing memo, we
have already begun to implement your recommendation. You are correct in noting that
we are currently documenting our final work product on paper; however, our work on
creating a searchable electronic database of this information us nearly complete We
wholeheartedly agree with your recommendation that we track the results of our reviews,
and, as you noted in your report, our efforts in this area have been underway for some
time
The GAO also recommends that the SEC create a publicly available searchable
database of its comment letters and company responses to those letters For some time
now, this topic has also been under consideration, and, on June 24th, the SEC announced
its plans to make public staff filing related correspondence Again, we wholeheartedly
agree with your reconunendation and our efforts to implement it are underway
Finally, we note your recommendation that the SEC continue to work with the
EPA to explore opportunities to take better advantage of EPA data in evaluating public
company disclosure in flluigs made with us. As the report indicates, there have been
efforts in the past to work together, and we will fully take this recommendation into
account in our future efforts
Page 72 GAO-04.808 Environmental Disclosure

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Appendix VI
Conunenta from the Securities and Exchange
Commission
John B. Stephenson
Environmental Issue Director, Natural Resources and Environment Team
General Accounting Office
Page 2
As a final point, we reviewed the information in your report regarding the views
of stakeholders, and the SEC values the input of all interested parties We have not
commented on this section of the report, as we believe their views speak for themselves.
Thank you for the courtesy the GAO extended to the SEC dunng the courac of
preparing Its report, and thank you again for the opportunity to provide comments to the
GAO as it prepares its final draft of the report
Sincerely,
7 2I
Alan L BelIer
Director
Page 73 GAO-04-808 Environmental Disclosure

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Appendix VII
GAO Contacts and Staff Acknowledgments
GAO Contacts Ellen Crocker, (617) 788-0580
Les Mahagan, (617) 788-0517
Staff In addition to the individuals named above, Kate Bittinger, Mark Braza,
Stephen Cleary, Evan Gilman, Kevin Jackson, Rich Johnson, Tom Melito,
Acknowledgments Lynn Musser, Cynthia Norris, and Judy Pagano made key contributions to
this report.
(360299) Page 74 GAO-04-808 Environmental Disclosure

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Regulations

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FINANCIAL ASSURANCE REGULATIONS
FOR RCRA SUBTITLE C
CLOSURE AND POST-CLOSURE
Permitted Facilities
§264.140 Applicability
§264.141 Definitions of terms as used in this subpart
§264.142 Cost estimate for closure
§264.143 Financial assurance for closure
§264.144 Cost estimate for post-closure care
§264.145 Financial assurance for post-closure care
§264.146 Use of mechanism for financial assurance of both closure and post-closure care
§264.147 Liability requirements

-------
Environmental Protection Agency
§264.141
to the Regional Administrator upon re-
quest until he releases the owner or op-
erator from the financial assurance re-
quirements for post-closure care under
§264 145(i)
Subpart H—Financial
Requirements
SOURCE 47 FR 15047, Apr 7, 1982, unless
otherwise noted
§ 264J40 Applicability.
(a) The requirements of §t264 142,
264.143, and 264 147 through 264 151
apply to owners and operators of all
hazardous waste facilities, except as
provided otherwise In this section or in
§264 1
(b) The requirements of §t264 144 and
264 145 apply only to owners and opera-
tors of
(1) Disposal facilities,
(2) Piles, and surface impoundments
from which the owner or operator in-
tends to remove the wastes at closure,
to the extent that these sections are
made applicable to such facilities in
§t264.228 and 264.258:
(3) Tank systems that are required
under §264 197 to meet the require-
ments for landfills, and
(4) Containment buildings that are
required under §264 1102 to meet the re-
quirements for landfills
(C) States and the Federal govern-
ment are exempt from the require-
ments of this subpart
(d) The Regional Administrator may
replace all or part of the requirements
of this subpart applying to a regulated
unit with alternative requirements for
financial assurance set out in the per-
mit or in an enforceable document (as
defined in 40 CFR 270 1(c)(7)), where the
Regional Administrator
(1) Prescribes alternative require-
ments for the regulated unit under
§ 264 90(f) andfor § 264 110(d), and
(2) Determines that it is not nec-
essary to apply the requirements of
this subpart because the alternative fi-
nancial assurance requirements will
protect human health and the environ-
ment
(47 FR 15047, Apr 7, 1982, as amended at 47
FR 32357, July 26, 1982. 5i FR 25472. July 14,
1986. 57 FR 37265. Aug 18, 1992, 63 FR 56733.
Oct 22. 1998]
§ 264.141 Definitions of terms as used
in this subpart.
(a) Closure plan means the plan for
closure prepared in accordance with
the requirements of § 264 112
(b) Current closure cost estimate means
the most recent of the estimates pre-
pared in accordance with §264 142 (a),
(b), and (C)
(c) Current post-closure cost estimate
means the most recent of the estimates
prepared in accordance with § 264 144
(a), (b), and (c)
Cd) Parent coTpoTatzon means a cor-
poration which directly owns at least
50 percent of the voting stock of the
corporation which is the facility owner
or operator, the latter corporation is
deemed a ‘subsidiary” of the parent
corporation
(e) Post-closure plan means the plan
for post-closure care prepared in ac-
cordance with the requirements of
§ 264.117 through 264 120
(f) The following terms are used in
the specifications for the financial
tests for closure, post-closure care, and
liability coverage. The definitions are
intended to assist in the understanding
of these regulations and are not In-
tended to limit the meanings of terms
in a way that conflicts with generally
accepted accounting practices
Assets means all existing and all
probable future economic benefits ob-
tained or controlled by a particular en-
tity.
Current assets means cash or other as-
sets or resources commonly identified
as those which are reasonably expected
to be realized in cash or sold or con-
sumed during the normal operating
cycle of the business
Current liabilities means obligations
whose liquidation is reasonably ex-
pected to require the use of existing re-
sources properly classifiable as current
assets or the creation of other current
liabilities
Current plugging and abandonment cost
estimate means the most recent of the
estimates prepared in accordance with
§144 62(a), (b), and (c) of this title
Independently audited refers to an
audit performed by an independent cer-
tified public accountant in accordance
with generally accepted auditing
standards
239

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§264.142
40 CFR Ch. I (7—1-02 Edition)
Liabilities means probable future sac-
rifices of economic benefits arising
from present obligations to transfer as-
sets or provide services to other enti-
ties in the future as a result of past
tr.ansactions or events.
Net working capital means current as-
sets minus current liabilities
Net worth means total assets minus
total liabilities and is equivalent to
owner’s equity.
Tangible net worth means the tangible
assets that remain after deducting li-
abilities, such assets would not include
intangibles such as goodwill and rights
to patents or royalties
(g) In the liability insurance require-
ments the terms bodily injury and prop-
erty damage shall have the meanings
given these terms by applicable State
law However, these terms do not in-
clude those liabilities which, con-
sistent with standard industry prac-
tices, are excluded from coverage in li-
ability policies for bodily injury and
property damage. The Agency intends
the meanings of other terms used in
the liability insurance requirements to
be consistent with their common
meanings within the insurance indus-
try The definitions given below of sev-
eral of the terms are intended to assist
in the understanding of these regula-
tions and are not intended to limit
their meanings in a way that conflicts
with general insurance industry usage
Accidental occurrence means an acci-
dent, including continuous or repeated
exposure to conditions, which results
in bodily in)ury or property damage
neither expected nor Intended from the
standpoint of the insured
Legal defense costs means any ex-
penses that an insurer incurs in defend-
ing against claims of third parties
brought under the terms and condi-
tions of an insurance policy
Nonsudden accidental occurrence
means an occurrence which takes place
over time and involves continuous or
repeated exposure
Sudden accidental occurrence means an
occurrence which is not continuous or
repeated in nature
(h) Substantial business relat lon3h!p
means the extent of a business rela-
tionship necessary under applicable
State law to make a guarantee con-
tract issued incident to that relation-
ship valid and enforceable. A “sub-
stantia] business relationship” must
arise from a pattern of recent or ongo-
ing business transactions, in addition
to the guarantee itself, such that a cur-
rently existing business relationship
between the guarantor and the owner
or operator is demonstrated to the sat-
isfaction of the applicable EPA Re-
gional Administrator
[ 47 FR i6554, Apr 16, 1982. as amended at 51
FR 16447, May 2, 1986, 53 FR 33950, Sept i,
1988]
§ 264.142 Cost estimate for closure.
(a) The owner or operator must have
a detailed written estimate, in current
dollars, of the cost of closing the facil-
ity in accordance with the require-
ments in 264 111 through 264 115 and
applicable closure requirements in
264 178, 264 197, 264 228, 264 258, 264.280,
264 310, 264 351, 264 601 through 264 603,
and 264 1102
(1) The estimate must equal the cost
of final closure at the point in the fa-
cility’s active life when the extent and
manner of its operation would make
closure the most expensive, as indi-
cated by its closure plan (see
§264 112(b)), and
(2) The closure cost estimate must be
based on the costs to the owner or op-
erator of hiring a third party to close
the facility A third party is a party
who is neither a parent nor a sub-
sidiary of the owner or operator (See
definition of parent corporation in
§264 141(d) ) The owner or operator may
use costs for on-site disposal if he can
demonstrate that on-site disposal ca-
pacity will exist at all times over the
life of the facility
(3) The closure cost estimate may not
incorporate any salvage value that
may be realized with the sale of haz-
ardous wastes, or non-hazardous wastes
if applicable under §264 113(d), facility
structures or equipment, land, or other
assets associated with the facility at
the time of partial or final closure
(4) The owner or operator may not in-
corporate a zero cost for hazardous
wastes, or non-hazardous wastes if ap-
plicable under §264 113(d), that might
have economic value
(b) During the active life of the facil-
ity, the owner or operator must adjust
the closure cost estimate for inflation
240

-------
Environmental Protection Agency
§ 264.143
within 60 days prior to the anniversary
date of the establishment of the finan-
cial instrument(s) used to comply with
§264 143 For owners and operators
using the financial test or corporate
guarantee, the closure cost estimate
must be updated for inflation within 30
days after the close of the firm’s fiscal
year and before submission of updated
information to the Regional Adminis-
trator as specified in §264 143(0(3). The
adjustment may be made by recalcu-
lating the maximum costs of closure in
current dollars, or by using an infla-
tion factor derived from the most re-
cent Implicit Price Deflator for Gross
National Product published by the U S
Department of Commerce in its Survey
of Current Business, as specified in para-
graphs (b)(1) and (2) of this section The
inflation factor is the result of dividing
the latest published annual Deflator by
the Deflator for the prevIous year
(1) The first adjustment is made by
multiplying the closure cost estimate
by the inflation factor The result is
the adjusted closure cost estimate
(2) Subsequent adjustments are made
by mutlip]ying the latest adjusted clo-
sure cost estimate by the latest infla-
tion factor
(c) During the active life of the facil-
ity, the owner or operator must revise
the closure cost estimate no later than
30 days after the Regional Adminis-
trator has approved the request to
modify the closure plan, If the change
in the closure plan increases the cost of
closure. The revised closure cost esti-
mate must be adjusted for inflation as
specified in §264 142(b)
(d) The owner or operator must keep
the following at the facility during the
operating life of the facility The latest
closure cost estimate prepared in ac-
cordance with §264 142 (a) and (C) and,
when this estimate has been adjusted
In accordance with §264 142(b). the lat-
est adjusted closure cost estimate
(47 FR 15047, Apr 7, 1982, as amended at 50
FR 4514. Jan 31. 1985. 51 FR 16447. May 2.
i986, 52 FR 46964, Dec 10, 1987, 54 FR 33395,
Aug 14. 1989. 57 FR 37265, Aug i8, 19921
§ 264.143 Financial assurance for clo-
sure.
An owner or operator of each facility
must establish financial assurance for
closure of the facility He must choose
from the options as specified in para-
graphs (a) through (f) of this section
(a) Closure trust fund (1) An owner or
operator may satisfy the requirements
of this section by establishing a closure
trust fund which conforms to the re-
quirements of this paragraph and sub-
mitting an originally signed duplicate
of the trust agreement to the Regional
Administrator An owner or operator of
a new facility must submit the origi-
nally signed duplicate of the trust
agreement to the Regional Adminis-
trator at least 60 days before the date
on which hazardous waste is first re-
ceived for treatment, storage, or dis-
posal The trustee must be an entity
which has the authority to act as a
trustee and whose trust operations are
regulated and examined by a Federal or
State agency
(2) The wording of the trust agree-
ment must be identical to the wording
specified in §264 151(a)(1), and the trust
agreement must be accompanied by a
formal certification of acknowledg-
ment (for example, see §264.151(a)(2))
Schedule A of the trust agreement
must be updated within 60 days after a
change in the amount of the current
closure cost estimate covered by the
agreement
(3) Payments into the trust fund
must be made annually by the owner or
operator over the term of the initial
RCRA permit or over the remaining op-
erating life of the facility as estimated
in the closure plan, whichever period is
shorter, this period is hereafter re-
ferred to as the “pay-in period “ The
payments into the closure trust fund
must be made as follows
(i) For a new facility, the first pay-
ment must be made before the initial
receipt of hazardous waste for treat-
ment, storage, or disposal A receipt
from the trustee for this payment must
be submitted by the owner or operator
to the Regional Administrator before
this initial receipt of hazardous waste
The first payment must be at least
equal to the current closure cost esti-
mate, except as provided in §264 143(g),
divided by the number of years in the
pay-in period Subsequent payments
must be made no later than 30 days
after each anniversary date of the first
241

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§264.143
40 CFR Ch. I (7—1-02 Edition)
payment The amount of each subse-
quent payment must be determined by
this formula
CE - CV
Next payment = _______
where CE is the current closure cost es-
timate, CV is the current value of the
trust fund, and Y is the number of
years remaining in the pay-in period
(ii) If an owner or operator estab-
lishes a trust fund as specified in
§265 143(a) of this chapter, and the
value of that trust fund is less than the
current closure cost estimate when a
permit is awarded for the facility, the
amount of the current closure cost es-
timate still to be paid into the trust
fund must be paid in over the pay-in
period as defined in paragraph (a)(3) of
this section Payments must continue
to be made no later than 30 days after
each anniversary date of the first pay-
ment made pursuant to part 265 of tius
chapter The amount of each payment
must be determined by this formula.
CE-CV
Next payment = _______
where CE is the current closure cost es-
timate, CV is the current value of the
trust fund, and Y is the number of
years remaining in the pay-in period
(4) The owner or operator may accel-
erate payments into the trust fund or
he may deposit the full amount of the
current closure cost estimate at the
time the fund is established However,
he must maintain the value of the fund
at no less than the value that the fund
would have if annual payments were
made as specified in paragraph (a)(3) of
this section
(5) If the owner or operator estab-
lishes a closure trust fund after having
used one or more alternate mecha-
nisms specified in this section or In
§ 265 143 of this chapter. his first pay-
ment must be in at least the amount
that the fund would contain if the trust
fund were established initially and an-
nual payments made according to spec-
ifications of this paragraph and
§265 143(a) of this chapter, as applica-
ble
(6) After the pay-in period is com-
pleted, whenever the current closure
cost estimate changes, the owner or op-
erator must compare the new estimate
with the trustee’s most recent annual
valuation of the trust fund. If the value
of the fund is less than the amount of
the new estimate, the owner or oper-
ator, within 60 days after the change in
the cost estimate, must either deposit
an amount into the fund so that its
value after this deposit at least equals
the amount of the current closure cost
estimate, or obtain other financial as-
surance as specified in this section to
cover the difference
(1) If the value of the trust fund is
greater than the total amount of the
current closure cost estimate, the
owner or operator may submit a writ-
ten request to the Regional Adminis-
trator for release of the amount in ex-
cess of the current closure cost esti-
mate
(8) If an owner or operator sub-
stitutes other financial assurance as
specified in this section for all or part
of the trust fund, he may submit a
written request to the Regional Admin-
istrator for release of the amount in
excess of the current closure cost esti-
mate covered by the trust fund
(9) Within 60 days after receiving a
request from the owner or operator for
release of funds as specified in para-
graph (a) (7) or (8) of this section, the
Regional Administrator will instruct
the trustee to release to the owner or
operator such funds as the Regional
Administrator specifies In writing.
(10) After beginning partial or final
closure, an owner or operator or an-
other person authorized to conduct
partial or final closure may request re-
imbursements for partial or final clo-
sure expenditures by submitting
itemized bills to the Regional Adminis-
trator The owner or operator may re-
quest reimbursements for partial clo-
sure only if sufficient funds are re-
maining in the trust fund to cover the
maximum costs of closing the facility
over its remaining operating life With-
in 60 days after receiving bills for par-
tial or final closure activities, the Re-
gional Administrator will instruct the
trustee to make reimbursements In
those amounts as the Regional Admin-
istrator specifies in writing, if the Re-
gional Administrator determines that
242

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Environmental Protection Agency
§264.143
the partial or final closure expendi-
tures are in accordance with the ap-
proved closure plan, or otherwise justi-
fied If the Regional Administrator has
reason to believe that the maximum
cost of closure over the remaining life
of the facility will be significantly
greater than the value of the trust
fund, he may withhold reimbursements
of such amounts as he deems prudent
until he determines, in accordance
with §264 143(i) that the owner or oper-
ator is no longer required to maintain
financial assurance for final closure of
the facility. If the Regional Adminis-
trator does not instruct the trustee to
make such reimbursements, he will
provide the owner or operator with a
detailed written statement of reasons
(11) The Regional Administrator will
agree to termination of the trust when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264.143(i)
(b) Surety bond guaranteeing payment
into a closure trust fund (I) An owner or
operator may satisfy the requirements
of this section by obtaining a surety
bond which conforms to the require-
ments of this paragraph and submit-
ting the bond to the Regional Adminis-
trator An owner or operator of a new
facility must submit the bond to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for treat-
ment, storage, or disposal The bond
must be effective before this initial re-
ceipt of hazardous waste The surety
company issuing the bond must, at a
minimum, be among those listed as ac-
ceptable sureties on Federal bonds in
Circular 570 of the U S Department of
the Treasury
(2) The wording of the surety bond
must be identical to the wording speci-
fied in §264 151(b)
(2) The owner or operator who uses a
surety bond to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the bond, all payments made
thereunder will be deposited by the
surety directly into the standby trust
fund in accordance with instructions
from the Regional Administrator This
standby trust fund must meet the re-
quirements specified in §264 143(a), ex-
cept that
(0 An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
surety bond, and
(ii) Until the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in § 264 143(a),
(B) Updating of Schedule A of the
trust agreement (see §264.151(a)) to
show current closure cost estimates,
(C) Annual valuations as required by
the trust agreement; and
(D) Notices of nonpayment as re-
quired by the trust agreement
(4) The bond must guarantee that the
owner or operator will
(i) Fund the standby trust fund in an
amount equal to the penal sum of the
bond before the beginning of final clo-
sure of the facility; or
(ii) Fund the standby trust fund in an
amount equal to the penal sum within
15 days after an administrative order
to begin final closure issued by the Re-
gional Administrator becomes final, or
within 15 days after an order to begin
final closure is issued by a U S district
court or other court of competent ju-
risdiction; or
(iii) Provide alternate financial as-
surance as specified in this section, and
obtain the Regional Administrator’s
written approval of the assurance pro-
vided, within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the bond from the sur-
ety
(5) Under the terms of the bond, the
surety will become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond
(6) The penal sum of the bond must
be in an amount at least equal to the
current closure cost estimate, except
as provided in § 264143(g)
(7) Whenever the current closure cost
estimate increases to an amount great-
er then the penal sum, the owner or op-
erator. within 60 days after the in-
crea se, must either cause the penal
243

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§ 264.143
40 CFR Ch. I (7—1—02 Edition)
sum to be increased to an amount at
least equal to the current closure cost
estimate and submit evidence of such
increase to the Regional Adminis-
trator, or obtain other financial assur-
ance as specified in this section to
cover the increase. Whenever the cur-
rent closure cost estimate decreases,
the penal sum may be reduced to the
amount of the current closure cost es-
timate following written approval by
the Regional Administrator
(8) Under the terms of the bond, the
surety may cancel the bond by sending
notice of cancellation by certified mail
to the owner or operator and to the
Regional Administrator Cancellation
may not occur, however, during the 120
days beginning on the date of receipt of
the notice of cancellation by both the
owner or operator and the Regional Ad-
ministrator, as evidence by the return
receipts.
(9) The owner or operator may cancel
the bond if the Regional Administrator
has given prior written consent based
on his receipt of evidence of alternate
financial assurance as specified in this
section
(c) Surety bond guaranteeing perform-
ance of closure (1) An owner or operator
may satisfy the requirements of this
section by obtaining a surety bond
which conforms to the requirements of
this paragraph and submitting the
bond to the Regional Administrator.
An owner or operator of a new facility
must submit the bond to the Regional
Administrator at least 60 days before
the date on which hazardous waste is
first received for treatment, storage, or
disposal The bond must be effective
before this initial receipt of hazardous
waste The surety company issuing the
bond must, at a minimum, be among
those listed as acceptable sureties on
Federal bonds in Circular 570 of the
U S. Department of the Treasury
(2) The wording of the surety bond
must be identical to the wording speci-
fied in § 264.151(c)
(3) The owner or operator who uses a
surety bond to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the bond, all payments made
thereunder will be deposited by the
surety directly into the standby trust
fund in accordance with instructions
from the Regional Administrator This
standby trust must meet the require-
ments specified in §264 143(a), except
that
(I) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
surety bond, and
(ii) Unless the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in § 264 143(a),
(B) Updating of Schedule A of the
trust agreement (see §264.151(a)) to
show Current closure cost estimates;
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement
(4) The bond must guarantee that the
owner or operator will
(i) Perform final closure in accord-
ance with the closure plan and other
requirements of the permit for the fa-
cility whenever required to do so; or
(ii) Provide alternate financial assur-
ance as specified in this section, and
obtain the Regional Administrator’s
written approval of the assurance pro-
vided, within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the bond from the sur-
ety
(5) Under the terms of the bond, the
surety will become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond Following a final administrative
determination pursuant to sectIon 3008
of RCRA that the owner or operator
has failed to perform final closure in
accordance with the approved closure
plan and other permit requirements
when required to do so, under the
terms of the bond the surety will per-
form final closure as guaranteed by the
bond or will deposit the amount of the
penal sum into the standby trust fund
(6) The penal sum of the bond must
be in an amount at least equal to the
current closure cost estimate
(7) Whenever the current closure cost
estimate increases to an amount great-
er than the penal sum, the owner or op-
erator, within 60 days after the in-
crease, must either cause the penal
244

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Environmental Protection Agency
§ 264.143
sum to be increased to an amount at
least equal to the current closure cost
estimate and submit evidence of such
increase to the Regional Adminis-
trator, or obtain other financial assur-
ance as specified in this section. When-
ever the current closure cost estimate
decreases, the penal sum may be re-
duced to the amount of the current clo-
sure cost estimate following written
approval by the Regional Adminis-
trator
(8) Under the terms of the bond, the
surety may cancel the bond by sending
notice of cancellation by certified mail
to the owner or operator and to the Re-
gional Administrator. Cancellation
may not occur, however, during the 120
days beginning on the date of receipt of
the notice of cancellation by both the
owner or operator and the Regional Ad-
ministrator, as evidenced by the return
receipts
(9) The owner or operator may cancel
the bond if the Regional Administrator
has given prior written consent The
Regional Administrator will provide
such written consent when
(i) An owner or operator substitutes
alternate financial assurance as speci-
lied in this section; or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264.143(i)
(10) The surety will not be liable for
deficiencies in the performance of clo-
sure by the owner or operator after the
Regional Administrator releases the
owner or operator from the require-
ments of this section in accordance
with §264 143(i)
(d) Closure letter of credit (1) An
owner or operator may satisfy the re-
quirements of this section by obtaining
an irrevocable standby letter of credit
which conforms to the requirements of
this paragraph and submitting the let-
ter to the Regional Administrator An
owner or operator of a new facility
must submit the letter of credit to the
Regional Administrator at least 60
days before the date on which has-
ardous waste is first received for treat-
ment, storage, or disposal The letter
of credit must be effective before this
initial receipt of hazardous waste The
issuing institution must be an entity
which has the authority to issue letters
of credit and whose letter-of-credit op-
erations are regulated and examined by
a Federal or State agency
(2) The wording of the letter of credit
must be identical to the wording speci-
fied in § 264.151(d)
(3) An owner or operator who uses a
letter of credit to satisfy the require-
ments of this section must also estab-
lish a standby trust fund. Under the
terms of the letter of credit, all
amounts paid pursuant to a draft by
the Regional Administrator will be de-
posited by the issuing institution di-
rectly into the standby trust fund in
accordance with instructions from the
Regional Administrator This standby
trust fund must meet the requirements
of the trust fund specified in
§264 143(a), except that
( I) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
letter of credit, and
(ii) Unless the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in § 264 143(a),
(B) Updating of Schedule A of the
trust agreement (see §264 151(a)) to
show current closure cost estimates.
(C) Annual valuations as required by
the trust agreement; and
CD) Notices of nonpayment as re-
quired by the trust agreement
(4) The letter of credit must be ac-
companied by a letter from the owner
or operator referring to the letter of
credit by number, issuing institution,
and date, and providing the following
information the EPA Identification
Number, name, and address of the facil-
ity, and the amount of funds assured
for closure of the facility by the letter
of credit
(5) The letter of credit must be irrev-
ocable and issued for a period of at
least 1 year The letter of credit must
provide that the expiration date will be
automatically extended for a period of
at least 1 year unless, at least 120 days
before the current expiration date, the
issuing institution notifies both the
owner or operator and the Regional Ad-
ministrator by certified mail of a deci-
sion not to extend the expiration date
Under the terms of the letter of credit,
245

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§ 264.143
40 CFR Ch. 1(7—1—02 Edition)
the 120 days will begin on the date
when both the owner or operator and
the Regional Administrator have re-
ceived the notice, as evidenced by the
return receipts
(6) The letter of credit must be issued
in an amount at least equal to the cur-
rent closure cost estimate, except as
provided in § 254,143(g)
(7) Whenever the current closure cost
estimate increases to an amount great-
er than the amount of the credit, the
owner or operator, within 60 days after
the increase, must either cause the
amount of the credit to be increased so
that it at least equals the current clo-
sure cost estimate and submit evidence
of such increase to the Regional Ad-
ministrator, or obtain other financial
assurance as specified in this section to
cover the increase Whenever the cur-
rent closure cost estimate decreases,
the amount of the credit may be re-
duced to the amount of the current clo-
sure cost estimate following written
approval by the Regional Adminis-
trator
(8) Following a final administrative
determination pursuant to section 3008
of RCRA that the owner or operator
has failed to perform final closure in
accordance with the closure plan and
other permit requirements when re-
quired to do so, the Regional Adminis-
trator may draw on the letter of credit
(9) If the owner or operator does not
establish alternate financial assurance
as specified in this section and obtain
written approval of such alternate as-
surance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice from
issuing institution that it has decided
not to extend the letter of credit be-
yond the current expiration date, the
Regional Administrator will draw on
the letter of credit. The Regional Ad-
ministrator may delay the drawing if
the issuing institution grants an exten-
sion of the term of the credit During
the last 30 days of any such extension
the Regional Administrator will draw
on the letter of credit if the owner or
operator has failed to provide alternate
financial assurance as specified in this
section and obtain written approval of
such assurance from the Regional Ad-
ministrator.
(10) The Regional Administrator will
return the letter of credit to the
issuing institution for termination
when
(1) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264 143(1)
( 1 1asux4-1aisz uance (1) An owner or
operator may satisfy the requirements
of this section by obtaining closure in-
surance which conforms to the require-
ments of this paragraph and submit-
ting a certificate of such insurance to
the Regional Administrator An owner
or operator of a new facility must sub-
mit the certificate of insurance to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for treat-
ment, storage, or disposal The insur-
ance must be effective before this ini-
tial receipt of hazardous waste At a
minimum, the insurer must be licensed
to transact the business of insurance,
or eligible to provide insurance as an
excess or surplus lines insurer, in one
or more States
(2) The wording of the certificate of
insurance must be identical to the
wording specified in §264 151(e)
(3) The closure insurance policy must
be issued for a face amount at least
equal to the current closure cost esti-
mate, except as provided in § 264 143(g)
The term “face amount” means the
total amount the insurer is obligated
to pay under the policy Actual pay-
ments by the insurer will not change
the face amount, although the insur-
er’s future liability will be lowered by
the amount of the payments
(4) The closure insurance policy must
guarantee that funds will be available
to close the facility whenever final clo-
sure occurs. The policy must also guar-
antee that once final closure begins,
the insurer will be responsible for pay-
ing out funds, up to an amount equal to
the face amount of the policy, upon the
direction of the Regional Adminis-
trator, to such party or parties as the
Regional Administrator specifies
(5) After beginning partial or final
closure, an owner or operator or any
246

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Environmental Protection Agency
§264.143
other person authorized to conduct clo-
sure may request reimbursements for
closure expenditures by submitting
itemized bills to the Regional Adminis-
trator The owner or operator may re-
quest reimbursements for partial clo-
sure only if the remaining value of the
policy is sufficient to cover the max-
imum costs of closing the facility over
its remaining operating life Within 60
days after receiving bills for closure
activities, the Regional Administrator
will instruct the insurer to make reim-
bursements in such amounts as the Re-
gional Administrator specifies in writ-
ing, if the Regional Administrator de-
termines that the partial or final clo-
sure expenditures are in accordance
with the approved closure plan or oth-
erwise justified. If the Regional Admin-
istrator has reason to believe that the
maximum cost of closure over the re-
maining life of the facility will be
signficantly greater than the face
amount of the policy, be may withhold
reimbursements of such amounts as he
deems prudent until he determines, in
accordance with §264.143(i), that the
owner or operator is no longer required
to maintain financial assurance for
final closure of the facility If the Re-
gional Administrator does not instruct
the insurer to make such reimburse-
ments, he will provide the owner or op-
erator with a detailed written state-
ment of reasons
(6) The owner or operator must main-
tain the policy in full force and effect
until the Regional Administrator con-
sents to termination of the policy by
the owner or operator as specified in
paragraph (e)(10) of this section Fail-
ure to pay the premium, without sub-
stitution of alternate financial assur-
ance as specified in this section, will
constitute a significant violation of
these regulations, warranting such
remedy as the Regional Administrator
deems necessary Such violation will
be deemed to begin upon receipt by the
Regional Administrator of a notice of
future cancellation, termination, or
failure to renew due to nonpayment of
the premium, rather than upon the
date of expiration
(7) Each policy must contain a provi-
sion allowing assignment of the policy
to a successor owner or operator Such
assignment may be conditional upon
consent of the insurer, provided such
consent is not unreasonably refused
(8) The policy must provide that the
insurer may not cancel, terminate, or
fail to renew the policy except for fail-
ure to pay the premium The auto-
matic renewal of the policy must, at a
minimum, provide the insured with the
option of renewal at the face amount of
the expiring policy If there is a failure
to pay the premium, the insurer may
elect to cancel, terminate, or fail to
renew the policy by sending notice by
certified mail to the owner or operator
and the Regional Administrator Can-
cellation, termination, or failure to
renew may not occur, however, during
the 120 days beginning with the date of
receipt of the notice by both the Re-
gional Administrator and the owner or
operator, as evidenced by the return re-
ceipts Cancellation, termination, or
failure to renew may not occur and the
policy will remain in full force and ef-
fect in the event that on or before the
date of expiration
(i) The Regional Administrator
deems the facility abandoned, or
(ii) The permit is terminated or re-
voked or a new permit is denied; or
(iii) Closure is ordered by the Re-
gional Administrator or a U S district
court or other court of competent ju-
risdiction, or
(iv) The owner or operator is named
as debtor in a voluntary or involuntary
proceeding under Title 11 (Bank-
ruptcy), U S Code, or
(v) The premium due is paid
(9) Whenever the current closure cost
estimate increases to an amount great-
er than the face amount of the policy,
the owner or operator, within 60 days
after the Increase, must either cause
the face amount to be increased to an
amount at least equal to the current
closure cost estimate and submit evi-
dence of such increase to the Regional
Administrator, or obtain other finan-
cial assurance as specified in this sec-
tion to cover the increase Whenever
the current closure cost estimate de-
creases, the face amount may be re-
duced to the amount of the current clo-
sure cost estimate following written
approval by the Regional Adminis-
trator
(10) The Regional Administrator will
give written consent to the owner or
247

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§ 264.143
40 CFR Ch. I (7—1—02 Edition)
operator that he may terminate the in-
surance policy when
(1) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section; or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
nce with §264 143(1)
(f) Financial test and corporate guar-
a tee for closure (1) An owner or oper-
ator may satisfy the requirements of
this section by demonstrating that he
passes a financial test as specified in
this paragraph To pass this test the
owner or operator must meet the cr1-
teria of either paragraph (fXl)(i) or (ii)
o section-
i) he owner or operator must have
Two of the following three ratios’
a ratio of total liabilities to net worth
less than 2 0; a ratio of the sum of net
income plus depreciation, depletion,
and amortization to total liabilities
greater than 0.1, and a ratio of current
assets to current liabilities greater
than 1.5: and
(B) Net working capital and tangible
net worth each at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates. and
(C) Tangible net worth of at least $10
million; and
(D) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates
(ii) The owner or operator must have’
(A) A Current rating for his most re-
cent bond issuance of AAA, AA, A. or
BBB as issued by Standard and Poor’s
or Aaa, Aa, A. or Baa as issued by
Moody’s, and
(B) Tangible net worth at least six
times the sum of the current closure
and post-closure cost; estimates and the
current plugging and abandonment
cost estimates, and
(C) Tangible net worth of at least $10
million, and
(D) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates
(2) The phrase “current closure and
post-closure cost estimates” as used in
paragraph (f)(1) of this section refers to
the cost estimates required to be
shown in paragraphs 1—4 of the letter
from the owner’s or operator’s chief fi-
nancial officer ( 264.15l(f)). The phrase
“current plugging and abandonment
cost estimates” as used in paragraph
(fXl) of this section refers to the cost
estimates required to be shown in para-
graphs 1—4 of the letter from the own-
er’s or operator’s chief financial officer
( 144 ,7O(f) of this title)
(3) To demonstrate that he meets
this test, the owner or operator must
submit the following items to the Re-
gional Administrator
(i) A letter signed by the owner’s or
operator’s chief financial officer and
w s specified in §264.151(f), and
(ii) opy of the independent cer-
t ublic accountant’s report on ex-
amination of the owner’s or operator’s
financial statements for the latest
completed fiscal year; and
(iii) A special report from the owner’s
or operator’s independent certified pub-
lic accountant to the owner or operator
stating that
(A) He has compared the data which
the letter from the chief financial offi-
cer specifies as having been derived
from the independently audited, year-
end financial statements for the latest
fiscal year with the amounts in such fi-
nancial statements; and
(B) In connection with that proce-
dure, no matters came to his attention
which caused him to believe that the
specified data should be adjusted
(4) An owner or operator of a new fa-
cility must submit the items specified
in paragraph (fl(3) of this section to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for treat-
ment, storage, or disposal
(5) After the initial submission of
items specified in paragraph (f)(3) of
this section, the owner or operator
must send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year This Information must consist of
248

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Environmental Protection Agency
§264.143
all three items specified in paragraph
(0(3) of this section
(6) If the owner or operator no longer
meets the requirements of paragraph
(f)(1) of thidti7 ustseE 1f5-
tice to the Regional Adm1mst.r t9r of
intent to establish alternate financial
assurance as specified in this section
The notice must be sent by certified
mall withIn 90 days after the end of the
fiscal year for which the year-end fi-
nancial data show that the owner or
operator no longer meets the require-
ments The owner or operator must
provide the alternate financial assur-
ance wIthin 120 days after the end of
such fiscal year
(7) The Regional Administrator may,
based on a reasonable belief that the
owner or operator may no longer meet
the requirements of paragraph (0(1) of
this section, require reports of finan-
cial condition at any time from the
owner or operator in addition to those
specified in paragraph (fX3) of this sec-
tion If the Regional Administrator
finds, on the basis of such reports or
other information, that the owner or
operator no longer meets the require-
ments of paragraph (0(1) of this sec-
tion, the owner or operator must pro-
vide alternate financial assurance as
specified in this section within 30 days
after notification of such a finding
(8) The Regional Administrator may
disallow use of this test on the basis of
qualifications in the opinion expressed
by the independent certified public ac-
countant in his report on examination
of the owner’s or operator’s financial
statements (see paragraph (f)(3)(ii) of
this section) An adverse opinion or a
disclaimer of opinion will be cause for
disallowance The Regional Adminis-
trator will evaluate other qualifica-
tions on an individual basis The owner
or operator must provide alternate fi-
nancial assurance as specified in this
section within 30 days after notifica-
tion of the disallowance
(9) The owner or operator is no longer
required to submit the items specified
in paragraph (0(3) of this section when
( I) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264 143(i)
(10) An owner or operator may meet
the requirements of this section by ob-
taining a written guarantee. The guar-
antor must be the direct or higher-tier
parent corporation of the owner or op-
erator, a firm whose parent corpora-
tion is also the parent corporation of
the owner or operator, or a firm with a
“substantial business relationship”
with the owner or operator The guar-
antor must meet the requirements for
owners or operators in paragraphs (0(1)
through (8) of this section and must
comply with the terms of the guar-
antee The wording of the guarantee
must be identical to the wording speci-
fied in §264 151(h) The certified copy of
the guarantee must accompany the
items sent to the Regional Adminis-
trator as specified in paragraph (0(3) of
this section One of these items must
be the letter from the guarantor’s chief
financial officer If the guarantor’s par-
ent corporation is also the parent cor-
poration of the owner or operator, the
letter must describe the value received
in consideration of the guarantee If
the guarantor is a firm with a “sub-
stantial business relationship” with
the owner or operator, this letter must
describe this “substantial business re-
lationship” and the value received in
consideration of the guarantee. The
terms of the guarantee must provide
that
(i) If the owner or operator fails to
perform final closure of a facility cov-
ered by the corporate guarantee in ac-
cordance with the closure plan and
other permit requirements whenever
required to do so, the guarantor will do
so or establish a trust fund as specified
in §264 143(a) in the name of the owner
or operator
(ii) The corporate guarantee will re-
main in force unless the guarantor
sends notice of cancellation by cer-
tified mail to the owner or operator
and to the Regional Administrator.
Cancellation may not occur, however,
during the 120 days beginning on the
date of receipt of the notice of can-
cellation by both the owner or operator
and the Regional Administrator, as
evidenced by the return receipts.
(iii) If the owner or operator fails to
provide alternate financial assurance
249

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§ 264.144
40 CFR Ch. 1(7—1-02 Edition)
as specified in this section and obtain
the written approval of such alternate
assurance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the corporate guar-
antee from the guarantor, the guar-
antor will provide such alternative fi-
nancial assurance in the name of the
owner or operator
(g) Use of multiple financial mecha-
nisms An owner or operator may sat-
isfy the requirements of this section by
establishing more than one financial
mechanism per facility These mecha-
nisms are limited to trust funds, surety
bonds guaranteeing payment into a
trust fund, letters of credit, and insur-
ance The mechanisms must be as spec-
ified in paragraphs (a), (b), (d). and (e).
respectively, of this section, except
that it is the combination of mecha-
nisms, rather than the single mecha-
nism, which must provide financial as-
surance for an amount at least equal to
the current closure cost estimate If an
owner or operator uses a trust fund in
combination with a surety bond or a
letter of credit, he may use the trust
fund as the standby trust fund for the
other mechanisms A single standby
trust fund may be established for two
or more mechanisms The Regional Ad-
ministrator may use any or all of the
mechanisms to provide for closure of
the facility
(h) Use of a financial mechanism for
multiple facilities An owner or operator
may use a financial assurance mecha-
nism specified in this section to meet
the requirements of this section for
more than one facility Evidence of fi-
nancial assurance submitted to the Re-
gional Administrator must include a
list showing, for each facility, the EPA
Identification Number, name, address
and the amount of funds for closure as-
sured by the mechanism If the facili-
ties covered by the mechanism are in
more than one Region, identical evi-
dence of financial assurance must be
submitted to and maintained with the
Regional Administrators of all such
Regions The amount of funds available
through the mechanism must be no
less than the sum of funds that would
be available if a separate mechanism
had been established and maintained
for each facility In directing funds
available through the mechanism for
closure of any of the facilities covered
by the mechanism, the Regional Ad-
ministrator may direct only the
amount of funds designated for that fa-
cility, unless the owner or operator
agrees to the use of additional funds
available under the mechanism
(i) Release of the owner or operator
from the requirements of this section.
Within 60 days after receiving certifi-
cations from the owner or operator and
an independent registered professional
engineer that final closure has been
completed in accordance with the ap-
proved closure plan, the Regional Ad-
ministrator will notify the owner or
operator in writing that he is no longer
required by this section to maintain fi-
nancial assurance for final closure of
the facility, unless the Regional Ad-
ministrator has reason to believe that
final closure has not been in accord-
ance with the approved closure plan
The Regional Administrator shall pro-
‘ide the owner or operator a detailed
written statement of any such reason
to believe that closure has not been in
accordance with the approved closure
plan
(47 FR 15047. Apr 7, 1982, as amended at 51
FR i6448. May 2. 1986, 57 FR 42835. Sept 16.
19921
* 264.144 Cost estimate for post-closure
care.
(a) The owner or operator of a dis-
posal surface impoundment, disposal
miscellaneous unit, land treatment
unit, or landfill unit, or of a surface
impoundment or waste pile required
under § 264 228 and 264 258 to prepare a
contingent closure and post-closure
plan, must have a detailed written esti-
mate. in current dollars. of the annual
cost of post-closure monitoring and
maintenance of the facility in accord-
ance with the applicable post-closure
regulations in §*264 117 through 264 120,
264 228. 264 258. 264 280, 264 310, and
264 603
11 The post-closure cost estimate
must be based on the costs to the
owner or operator of hiring a third
party to conduct post-closure care ac-
tivit.ies A third party is a party who is
neither a parent nor a subsidiary of the
250

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Environmental Protection Agency
§264.145
owner or operator (See definition of
parent corporation in § 264 141(d))
(2) The post-closure cost estimate is
calculated by multiplying the annual
post-closure cost estimate by the num-
ber of years of post—closure care re-
quired under §264 117
(b) During the active life of the facil-
Ity, the owner or operator must adjust
the post-closure cost estimate for in-
flation within 60 days prior to the anni-
versary date of the establishment of
the financial instrument(s) used to
comply with § 264 145 For owners or op-
erators using the financial test or cor-
porate guarantee, the post-closure cost
estimate must be updated for inflation
within 30 days after the close of the
firm’s fiscal year and before the sub-
mission of updated Information to the
Regional Administrator as specified in
§264 145(0(5) The adjustment may be
made by recalculating the post-closure
cost estimate in current dollars or by
using an inflation factor derived from
the most recent Implicit Price Deflator
for Gross National Product published
by the U.S Department of Commerce
In its Survey of Current Business as
specified in §264 145(b)(l) and (2) The
inflation factor is the result of dividing
the latest published annual Deflator by
the Deflator for the previous year
(1) The first adjustment is macic by
multiplying the post-closure cost esti-
mate by the Inflation factor The result
is the adjusted post-closure cost esti-
mate
(2) Subsequent adjustments are made
by multiplying the latest adjusted
post-closure cost estimate by the latest
inflation factor
(C) During the active life of the facil-
ity, the owner or operator must revise
the post-closure cost estimate within
30 days after the Regional Adminis-
trator has approved the request to
mothfy the post-closure plan, if the
change in the post-closure plan in-
creases the cost of post-closure care
The revised post-closure cost estimate
must be adjusted for inflation as speci-
fied in §264 144(b)
(d) The owner or operator must keep
the following at the facility during the
operating life of the facility. The latest
post-closure cost estimate prepared in
accordance with §264 144 (a) and (c)
and, when this estimate has been ad-
justed in accordance with §264 144(b),
the latest adjusted post-closure cost es-
timate.
(47 FR 15047, Apr 7, 1982. as amended at 47
FR 32357, July 26, 1982, 50 FR 4514, Jan 31,
1985, 51 FR 16449, May 2, 1986, 52 FR 46964,
Dec iS, 19871
§ 264.145 Financial assurance for post-
closure care.
The owner or operator of a hazardous
waste management unit subject to the
requirements of §264 144 must establish
financial assurance for post-closure
care in accordance with the approved
post-closure plan for the facility 60
days prior to the initial receipt of haz-
ardous waste or the effective date of
the regulation, whichever is later. He
must choose from the following op-
tions
(a) Post-closure trust fund (1) An
owner or operator may satisfy the re-
quirements of this section by estab-
lishing a post-closure trust fund which
conforms to the requirements of this
paragraph and submitting an originally
signed duplicate of the trust agreement
to the Regional Administrator. An
owner or operator of a new facility
must submit the onginally signed du-
plicate of the trust agreement to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for dis-
posal The trustee must be an entity
which has the authority to act as a
trustee and whose trust operations are
regulated and examined by a Federal or
State agency
(2) The wording of the trust agree-
ment must be identical to the wording
specified in §264 151(a)(1), and the trust
agreement must be accompanied by a
formal certification of acknowledg-
ment (for example, see §264 151(a)(2)).
Schedule A of the trust agreement
must be updated within 60 days after a
change in the amount of the current
post-closure cost estimate covered by
the agreement
(3) Payments into the trust fund
must be made annually by the owner or
operator over the term of the initial
RCR.A permit or over the remaining op-
erating life of the facility as estimated
in the closure plan, whichever period is
shorter; this period is hereafter re-
ferred to as the ‘pay-in period” The
251

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§264.145
40 CFR Ch. I (7—1—02 EdItion)
payments Into the post-closure trust
fund must be made as followr
(1) For a new facility, the first pay-
ment must be made before the initial
receipt of hazardous waste for disposal
A receipt from the trustee for this pay-
ment must be submitted by the owner
or operator to the Regional Adminis-
trator before this initial receipt of haz-
ardous waste. The first payment must
be at least equal to the current post-
closure cost estimate, except as pro-
vided in §264 145(g), divided by the
number of years In the pay-in period
Subsequent payments must be made no
later than 30 days after each
anniversay date of the first payment.
The amount of each subsequent pay-
ment must be determined by this for-
mula
CE-CV
Next payment =
where CE is the current post-closure
cost estimate. CV Is the current value
of the trust fund, and Y is the number
of years remaining in the pay-in pe-
riod
(ii) If an owner or operator estab-
lishes a trust fund as specified in
§ 265.145(a) of this chapter, and the
value of that trust fund is less than the
current post-closure cost estimate
when a permit is awarded for the facil-
ity, the amount of the current post-clo-
sure cost estimate still to be paid into
the fund must be paid in over the pay-
in period as defined in paragraph (a)(3)
of this section Payments must con-
tinue to be made no later than 30 days
after each anniversary date of the first
payment made pursuant to Part 265 of
this chapter The amount of each pay-
ment must be determmed by this for-
mula:
CE-CV
Next payment =
where CE is the current post-closure
cost estimate, CV is the current value
of the trust fund, and Y is the number
of years remaining in the pay-in pe-
riod
(4) The owner or operator may accel-
erate payments into the trust fund or
he may deposit the full amount of the
current post-closure cost estimate at
the time the fund Is established How-
ever, he must maintain the value of the
fund at no less than the value that the
fund would have if annual payments
were made as specified In paragraph
(a)(3) of this section
(5) If the owner or operator estab-
lishes a post-closure trust fund after
having used one or more alternate
mechanisms specified in this section or
in § 265 145 of this chapter. his first pay-
ment must be in at least the amount
that the fund would contain if the trust
fund were established initially and an-
nual payments made according to spec-
ifications of this paragraph and
§ 265 145(a) of this chapter, as applica-
ble
(6) After the pay-in period is com-
pleted. whenever the current post-clo-
sure cost estimate changes during the
operating life of the facility, the owner
or operator must compare the new esti-
mate with the trustee’s most recent
annual valuation of the trust fund If
the value of the fund is less than the
amount of the new estimate, the owner
or operator, within 60 days after the
change in the cost estimate, must ei-
ther deposit an amount into the fund
so that its value after this deposit at
least equals the amount of the current
post-closure cost estimate, or obtain
other financial assurance as specified
in this section to cover the difference.
(7) During the operating life of the fa-
cility, if the value of the trust fund is
greater than the total amount of the
current post-closure cost estimate, the
owner or operator may submit a writ-
ten request to the Regional Adminis-
trator for release of the amount in ex-
cess of the current post-closure cost es-
timate
(8) If an owner or operator sub-
stitutes other financial assurance as
specified in this section for all or part
of the trust fund, he may submit a
written request to the Regional Admin-
Istrator for release of the amount in
excess of the current post-closure cost
estimate covered by the trust fund
(9) Within 60 days after receiving a
request from the owner or operator for
release of funds as specified in para-
graph (a) (7) or (8) of this section, the
Regional Administrator will instruct
the trustee to release to the owner or
operator such funds as the Regional
Administrator specifies in writing
252

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Environmental Protection Agency
§ 264.145
(10) During the period of post-closure
care, the Regional Administrator may
approve a release of funds if the owner
or operator demonstrates to the Re-
gional Administrator that the value of
the trust fund exceeds the remaining
cost of post-closure care
(11) An owner or operator or any
other person authorized to conduct
post-closure care may request reim-
bursements for post-closure care ex-
penditures by submitting itemized bills
to the Regional Administrator. Within
60 days after receiving bills for post—
closure care activities, the Regional
Administrator will instruct the trustee
to make reimbursements in those
amounts as the Regional Adminis-
trator specifies in writing, if the Re-
gional Administrator determines that
the post-closure care expenditures are
in accordance with the approved post-
closure plan or otherwise justified. If
the Regional Administrator does not
instruct the trustee to make such re-
imbursements. he will provide the
owner or operator with a detailed writ-
ten statement of reasons
(12) The Regional Administrator will
agree to termination of the trust when
(i) An owner or operator substitutes
alternate financial assurance as spec-
fied in this section, or
( Ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264 145(1)
(b) Surety bond guaranteeing payment
into a post-closure trust fund (1) An
owner or operator may satisfy the re-
quirements of this section by obtaining
a surety bond which conforms to the
requirements of this paragraph and
submitting the bond to the Regional
Administrator An owner or operator of
a new facility must submit the bond to
the Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for dis-
posal The bond must be effective be-
fore this initial receipt of hazardous
waste The surety company Issuing the
bond must, at a minimum, be among
those listed as acceptable sureties on
Federal bonds in Circular 570 of the
U S Department of the Treasury
(2) The wording of the surety bond
must be identical to the wording speci-
fied in §264 lbl(b)
(3) The owner or operator who uses a
surety bond to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the bond, all payments made
thereunder will be deposited by the
surety directly into the standby trust
fund in accordance with instructions
from the Regional Administrator This
standby trust fund must meet the re-
quirements specified in §264 145(a), ex-
cept that
(1) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
surety bond, and
(ii) Until the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in §264 145(a),
(B) Updating of Schedule A of the
trust agreement (see §264 151(a)) to
show current post-closure cost esti-
mates,
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement
(4) The bond must guarantee that the
owner or operator will
(i) Fund the standby trust fund in an
amount equal to the penal sum of the
bond before the beginning of final clo-
sure of the facility, or
(ii) Fund the standby trust fund in an
amount equal to the penal sum within
15 days after an administrative order
to begin final closure issued by the Re-
gional Administrator becomes final, or
within 15 days after an order to begin
final closure is issued by a U S district
court or other court of competent ju-
risdiction, or
(iii) Provide alternate financial as-
surance as specified in this section, and
obtain the Regional Administrator’s
written approval of the assurance pro-
vided, within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the bond from the sur-
ety
(5) Under the terms of the bond, the
surety will become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond
253

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§ 264.145
40 CFR Ch. I (7—1—02 Edition)
(6) The penal sum of the bond must
be in an amount at least equal to the
current post-closure cost estimate, ex-
cept as provided in §264 145(g)
(7) Whenever the current post-closure
cost estimate increases to an amount
greater than the penal sum, the owner
or operator, within 60 days after the in-
crease, must either cause the penal
sum to be Increased to an amount at
least equal to the current post-closure
cost estimate and submit evidence of
such increase to the Regional Adminis-
trator, or obtain other financial assur-
ance as specified in this section to
cover the increase Whenever the cur-
rent post-closure cost estimate de-
creases, the penal sum may be reduced
to the amount of the current post-clo-
sure cost estimate following written
approval by the Regional Adminis-
trator
(8) Under the terms of the bond, the
surety may cancel the bond by sending
notice of cancellation by certified mail
to the owner or operator and to the
Regional Administrator Cancellation
may not occur, however, during the 120
days beginning on the date of receipt of
the notice of cancellation by both the
owner or operator and the Regional Ad-
ministrator, as evidenced by the return
receipts
(9) The owner or operator may cancel
the bond if the Regional Administrator
has given prior written consent based
on his receipt of evidence of alternate
financial assurance as specified in this
section
(c) Surety bond guaranteeing perform-
ance of post-closure care (1) An owner or
operator may satisfy the requirements
of this section by obtaining a surety
bond which conforms to the require-
ments of this paragraph and submit-
ting the bond to the Regional Adminis-
trator An owner or operator of a new
facility must submit the bond to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for dis-
posal The bond must be effective be-
fore this initial receipt of hazardous
waste The surety company issuing the
bond must, at a minimum, be among
those listed as acceptable sureties on
Federal bonds in Circular 570 of the
U.S Department of the Treasury
(2) The wording of the surety bond
must be identical to the wording speci-
fied in §264 151(c)
(3) The owner or operator who uses a
surety bond to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the bond, all payments made
thereunder will be deposited by the
surety directly into the standby trust
fund in accordance with instructions
from the Regional Administrator This
standby trust fund must meet the re-
quirements specified in § 264.145(a), ex-
cept that
(i) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
surety bond, and
(ii) Unless the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in § 264 145(a);
(B) Updating of Schedule A of the
trust agreement (see §264.151(a)) to
show current post-closure cost esti-
mates,
(C) Annual valuations as reQuired by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement.
(4) The bond must guarantee that the
owner or operator will:
( i) Perform post-closure care in ac-
cordance with the post-closure plan
and other requirements of the permit
for the facility; or
( Ii) Provide alternate financial assur-
ance as specified in this section, and
obtain the Regional Administrator a
written approval of the assurance pro-
vided. within 90 days of receipt by both
the owner or operator and the Regional
Administrator of a notice of cancella-
tion of the bond from the surety
(5) Under the terms of the bond, the
surety will become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond Following a final administrative
determination pursuant to section 3008
of RCRA that the owner or operator
has failed to perform post-closure care
in accordance with the approved post-
closure plan and other permit require-
ments, under the terms of the bond the
surety will perform post-closure care in
254

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Environmental Protection Agency
§ 264.145
accordance with the post-closure plan
and other permit requirements or will
deposit the amount of the penal sum
into the standby trust fund
(6) The penal sum of the bond must
be in an amount at least equal to the
current post-closure cost estimate
(7) Whenever the current post-closure
cost estimate increases to an amount
greater than the penal sum during the
operating life of the facility, the owner
or operator, within 60 days after the In-
crease, must either cause the penal
sum to be increased to an amount at
least equal to the current post-closure
cost estimate and submit evidence of
such increase to the Regional Adminis-
trator, or obtain other financial assur-
ance as specified in this section When-
ever the current post-closure cost esti-
mate decreases during the operating
life of the facility, the penal sum may
be reduced to the amount of the cur-
rent post-closure cost estimate fol-
lowing written approval by the Re-
gional Administrator
(8) During the period of post-closure
care, the Regional Administrator may
approve a decrease in the penal sum if
the owner or operator demonstrates to
the Regional Administrator that the
amount exceeds the remaining cost of
post-closure care
(9) Under the terms of the bond, the
surety may cancel the bond by sending
notice of cancellation by certified mail
to the owner or operator and to the Re-
gional Administrator Cancellation
may not occur, however, during the 120
days beginning on the date of receipt of
the notice of cancellation by both the
owner or operator and the Regional Ad-
ministrator, as evidenced by the return
receipts
(10) The owner or operator may can-
cel the bond if the Regional Adininis-
trator has given prior written consent
The Regional Administrator will pro-
vide such written consent when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section; or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264 145(i)
(11) The surety will not be liable for
deficiencies in the performance of post-
closure care by the owner or operator
after the Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264 145(i)
(d) Post-closure letter of credit (1) An
owner or operator may satisfy the re-
quirements of this section by obtaining
an irrevocable standby letter of credit
which conforms to the requirements of
this paragraph and submitting the let-
ter to the Regional Administrator An
owner or operator of a new facility
must submit the letter of credit to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for dis-
posal. The letter of credit must be ef-
fective before this initial receipt of
hazardous waste The issuing institu-
tion must be an entity which has the
authority to issue letters of credit and
whose letter-of-credit operations are
regulated and examined by a Federal or
State agency
(2) The wording of the letter of credit
must be identical to the wording speci-
fied in §264 151(d)
(3) An owner or operator who uses a
letter of credit to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the letter of credit, all
amounts paid pursuant to a draft by
the Regional Administrator will be de-
posited by the issuing institution di-
rectly into the standby trust fund in
accordance with instructions from the
Regional Adznirnstrator. This standby
trust fund must meet the requirements
of the trust fund specified in
§ 264 145(a), except that
(i) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
letter of credit, and
(ii) Unless the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in §264.145(a),
(B) Updating of Schedule A of the
trust agreement (see §264.151(a)) to
show current post-closure cost esti-
mates,
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement
255

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§264.145
40 CFR Ch. I (7—1—02 EdItion)
(4) The letter of credit must be ac-
companied by a letter from the owner
or operator referring to the letter of
credit by number, issuing institution,
and date, and providing the following
information, the EPA Identification
Number, name, and address of the facil-
Ity, and the amount of funds assured
for post-closure care of the facility by
the letter of credit
(5) The letter of credit must be irrev-
ocable and issued for a period of at
least 1 year. The letter of credit must
provide that the expiration date will be
automatically extended for a period of
at least 1 year unless, at least 120 days
before the current expiration date, the
issuing institution notifies both the
owner or operator and the Regional Ad-
ministrator by certified mail of a deci-
sion not to extend the expiration date
Under the terms of the letter of credit,
the 120 days will begin on the date
when both the owner or operator and
the Regional Administrator have re-
ceived the notice, as evidenced by the
return receipts
(6) The letter of credit must be issued
in a amount at least equal to the cur-
rent post-closure cost estimate, except
as provided in § 264 145(g)
(7) Whenever the current post-closure
cost estimate increases to an amount
greater than the amount of the credit
during the operating life of the facil-
ity, the owner or operator, within 60
days after the increase, must either
cause the amount of the credit to be in-
creased so that it at least equals the
current post-closure cost estimate and
submit evidence of such increase to the
Regional Administrator, or obtain
other financial assurance as specified
in this section to cover the increase
Whenever the current post-closure cost
estimate decreases during the oper-
ating life of the facility, the amount of
the credit may be reduced to the
amount of the current post-closure
cost estimate following written ap-
proval by the Regional Administrator
(8) During the period of post-closure
care, the Regional Administrator may
approve a decrease in the amount of
the letter of credit if the owner or op..
erator demonstrates to the Regional
Administrator that the amount ex-
ceeds the remaining cost of post-clo-
sure care
(9) Following a final administrative
determination pursuant to section 3008
of RCRA that the owner or operator
has failed to perform post-closure care
in accordance with the approved post-
closure plan and other permit require-
ments, the Regional Administrator
may draw on the letter of credit
(10) If the owner or operator does not
establish alternate financial assurance
as specified in this section and obtain
written approval of such alternate as-
surance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice from
the issuing institution that it has de-
cided not to extend the letter of credit
beyond the current expiration date, the
Regional Administrator will draw on
the letter of credit The Regional Ad-
ministrator may delay the drawing if
the issuing institution grants an exten-
sion of the term of the credit During
the last 30 days of any such extension
the Regional Administrator will draw
on the letter of credit if the owner or
operator has failed to provide alternate
financial assurance as specified in this
section and obtain written approval of
such assurance from the Regional Ad-
ministrator
(11) The Regional Administrator will
return the letter of credit to the
issuing institution for termination
when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §264 145(i)
(e) Post-closure insurance (1) An
owner or operator may satisfy the re-
quirements of this section by obtaining
post-closure insurance which con forms
to the requirements of this paragraph
and submitting a certificate of such in-
surance to the Regional Administrator
An owner or operator of a new facility
must submit the certificate of insur-
ance to the Regional Administrator at
least 60 days before the date on which
hazardous waste is first received for
disposal The insurance must be effec-
tive before this initial receipt of haz-
ardous waste At a minimum, the in-
surer must be licensed to transact the
256

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Environmental Protection Agency
§264.145
business of insurance, or eligible to
provide insurance as an excess or sur-
plus lines insurer, in one or more
States
(2) The worthug of the certificate of
insurance must be identical to the
wording specified in § 264 151(e)
(3) The post-closure insurance policy
must be issued for a face amount at
least equal to the current post-closure
cost estimate, except as provided in
§264 145(g). The term “face amount”
means the total amount the insurer is
obligated to pay under the policy Ac-
tual payments by the insurer will not
change the face amount, although the
insurer’s future liability will be low-
ered by the amount of the payments
(4) The post-closure insurance policy
must guarantee that funds will be
available to provide post-closure care
of the facility whenever the post-clo-
sure period begins. The policy must
also guarantee that once post-closure
care begins, the insurer will be respon-
sible for paying out funds, up to an
amount equal to the face amount of
the policy, upon the direction of the
Regional Administrator, to such party
or parties as the Regional Adminis-
trator specifies
(5) An owner or operator or any other
person authorized to conduct post-clo-
sure care may request reimbursements
for post-closure care expenditures by
submitting itemized bills to the Re-
gional Administrator Within 60 days
after receiving bills for post-closure
care activities, the Regional Adminis-
trator will instruct the insurer to
make reimbursements in those
amounts as the Regional Adminis-
trator specifies In writing, if the Re-
gional Administrator determines that
the post-closure care expenditures are
in accordance with the approved post-
closure plan or otherwise justified If
the Regional Administrator does not
instruct the insurer to make such re-
imbursements, be will provide the
owner or operator with a detailed writ-
ten statement of reasons
(6) The owner or operator must main-
tain the policy in full force and effect
until the Regional Administrator con-
sents to termination of the policy by
the owner or operator as specified in
paragraph (e)(1l) of this section Fail-
ure to pay the premium, without sub-
stitution of alternate financial assur-
ance as specified in this section, will
constitute a significant violation of
these regulations, warranting such
remedy as the Regional Administrator
deems necessary Such violation will
be deemed to begin upon receipt by the
Regional Administrator of a notice of
future cancellation, termination, or
failure to renew due to nonpayment of
the premium, rather than upon the
date of expiration
(7) Each policy must contain a provi-
sion allowing assignment of the policy
to a successor owner or operator Such
assignment may be conditional upon
consent of the insurer, provided such
consent is not unreasonably refused
(8) The policy must provide that the
insurer may not cancel, terminate, or
fail to renew the policy except for fail-
ure to pay the premium The auto-
matic renewal of the policy must, at a
minimum, provide the insured with the
option of renewal at the face amount of
the expiring policy. If there is a failure
to pay the premium, the insurer may
elect to cancel, terminate, or fail to
renew the policy by sending notice by
certified mail to the owner or operator
and the Regional Administrator Can-
cellation, termination, or failure to
renew may not occur, however, during
the 120 days beginning with the date of
receipt of the notice by both the Re-
gional Administrator and the owner or
operator, as evidenced by the return re-
ceipts. Cancellation, termination, or
failure to renew may not occur and the
policy will remain in full force and ef-
fect in the event that on or before the
date of expiration
(1) The Regional Administrator
deems the facility abandoned, or
(ii) The permit is terminated or re-
voked or a new permit is denied, or
(iii) Closure is ordered by the Re-
gional Administrator or a If S district
court or other court of competent ju-
risdiction, or
(iv) The owner or operator is named
as debtor in a voluntary or involuntary
proceeding under Title 11 (Bank-
ruptcy), U.S Code; or
(v) The premium due is paid
(9) Whenever the current post-closure
cost estimate Increases to an amount
greater than the face amount of the
policy during the operating life of the
257

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§264.145
40 CFR Ch. I (7—1-02 Edition)
facility, the owner or operator, within
60 days after the increase, must either
cause the face amount to be increased
to an amount at least equal to the cur-
rent post-closure cost estimate and
submit evidence of such increase to the
Regional Administrator, or obtain
other financial assurance as specified
in this section to cover the increase
Whenever the current post-closure cost
estimate decreases during the oper-
ating life of the facility, the face
amount may be reduced to the amount
of the current post-closure cost esti-
mate following written approval by the
Regional Administrator
(10) Commencing on the date that li-
ability to make payments pursuant to
the policy accrues, the insurer will
thereafter annually increase the face
amount of the policy Such increase
must be equivalent to the face amount
of the policy, less any payments made,
multiplied by an amount equivalent to
85 percent of the most recent invest-
ment rate or of the equivalent coupon-
issue yield announced by the U S
Treasury for 26-week Treasury securi-
ties
(11) The Regional Administrator will
give written consent to the owner or
operator that he may terminate the in-
surance policy when
(I) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
p.nce with §264 145( 1)
f (f) Financial test and corporate guar-
antee for post-closuTe care (1) An owner
or operator may satisfy the require-
‘ nents of this section by demonstrating
that he passes a financial test as speci-
fied in this paragraph To pass this test
the owner or operator must meet the
criteria of either paragraph (f)(1)(i) or
(ii) of this section
(i) The owner or operator must have
(A) Two of the following three ratios
a ratio of total liabilities to net worth
less than 2.0, a ratio of the sum of net
income plus depreciation, depletion,
and amortization to total liabilities
greater than 0], and a ratio of current
assets to current liabilities greater
than 1 5: and
(B) Net working capital and tangible
net worth each at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates, and
(C) Tangible net worth of at least 310
million, and
(D) Assets in the United States
amounting to at least 90 percent of his
total assets or at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates
(ii) The owner or operator must have
(A) A current rating for his most re-
cent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor’s
or Aaa, Aa, A or Baa as issued by
Moody’s, and
(B) Tangible net worth at least six
times the sum of the current closure
and post-closure cost estimates and the
current plugging and abandonment
cost estimates; and
(C) Tangible net worth of at least 310
million, and
(D) Assets located in the United
States amounting to at least 90 percent
of his total assets or at least six times
the sum of the current closure and
post-closure cost estimates and the
current plugging and abandonment
cost estimates
(2) The phrase current closure and
post-closure cost estimates” as used in
paragraph (fXl) of this section refers to
the cost estimates required to be
shown in paragraphs 1—4 of the letter
from the owner’s or operator’s chief fi-
nancial officer ( 264 151(f)) The phrase
“current plugging and abandonment
cost estimates” as used in paragraph
(f)(1) of this section refers to the cost
estimates required to be shown in para-
graphs 1—4 of the letter from the own-
er’s or operator’s chief financial officer
( 144 70(f) of this title)
(3) To demonstrate that he meets
this test, the owner or operator must
submit the following items to the Re-
gional Administrator
(i) A letter signed by the owner’s or
operator’s chief financial officer and
worded as specified in §264 151(f). and
(ii) A copy of the independent cer-
tified public accountant’s report on ex-
amination of the owner’s or operator’s
258

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Environmental Protection Agency
§264.145
financial statements for the latest
completed fiscal year, and
(iii) A special report from the owner’s
or operator’s independent certified pub-
lie accountant to the owner or operator
stating that.
(A) He has compared the data which
the letter from the chief financial offi-
cer specifies as having been derived
from the Independently audited, year-
end financial statements for the latest
fiscal year with the amounts in such fi-
nancial statements; and
(B) In connection with that proce-
dure, no matters came to his attention
which caused him to believe that the
specified data should be adjusted
(4) An owner or operator of a new fa-
cility must submit the items specified
in paragraph (fl(3) of this section to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for dis-
posal
(5) After the initial submission of
items specified in paragraph (f)(3) of
this section, the owner or operator
must send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year This information must consist of
all three items specified in paragraph
(fl(3) of this section
(6) If the owner or operator no longer
meets the requirements of paragraph
(fl(1) of this section, he must send no-
tice to the Regional Administrator of
intent to establish alternate financial
assurance as specified in this section
The notice must be sent by certified
mail within 90 days after the end of the
fiscal year for which the year-end fi-
nancial data show that the owner or
operator no longer meets the require-
ments The owner or operator must
provide the alternate financial assur-
ance within 120 days after the end of
such fiscal year
(7) The Regional Administrator may,
based on a reasonable belief that the
owner or operator may no longer meet
the requirements of paragraph (0(1) of
this section, require reports of finan-
cial condition at any time from the
owner or operator in addition to those
specified in paragraph (0(3) of this sec-
tion If the Regional Administrator
finds, on the basis of such reports or
other information, that the owner or
operator no longer meets the require-
ments of paragraph (fl(1) of this sec-
tion, the owner or operator must pro-
vide alternate financial assurance as
specified in this section within 30 days
after notification of such a finding.
(8) The Regional Administrator may
disallow use of this test on the basis of
qualifications in the opinion expressed
by the independent certified public ac-
countant in his report on examination
of the owner’s or operator’s financial
statements (see paragraph (f)(3)(ii) of
this section) An adverse opinion or a
disclaimer of opinion will be cause for
disallowance The Regional Adminis-
trator will evaluate other qualifica-
tions on an individual basis The owner
or operator must provide alternate fi-
nancial assurance as specified in this
section within 80 days after notifica-
tion of the disaiiowance
(9) During the period of post-closure
care, the Regional Administrator may
approve a decrease in the current post-
closure cost estimate for which this
test demonstrates financial assurance
if the owner or operator demonstrates
to the Regional Administrator that the
amount of the cost estimate exceeds
the remaining cost of post-closure care
(10) The owner or operator is no
longer required to submit the items
specified in paragraph (fl(3) of this sec-
tion when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with 26l 145(1)
(11) An owner or operator may meet
the requirements for this section by
obtaining a written guarantee The
guarantor must be the direct of higher-
tier parent corporation of the owner or
operator, a firm whose parent corpora-
tion is also the parent corporation of
the owner or operator, or a firm with a
“substantial business relationship”
with the owner or operator The guar-
antor must meet the requirements for
owners or operators in paragraphs (0(1)
through (9) of this section and must
comply with the terms of the guar-
antee The wording of the guarantee
must be identical to the wording speci-
fied in §264 151(h) A certified copy of
259

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§264.145
40 CFR Ch. I (7—1—02 EdItion)
the guarantee must accompany the
items sent to the Regional Adminis-
trator as specified in paragraph (0(3) of
this section One of these items must
be the letter from the guarantor’s chief
financial officer If the guarantor’s par-
ent corporation is also the parent cor-
poration of the owner or operator, the
letter must describe the value received
in consideration of the guarantee If
the guarantor is a firm with a “sub-
stantial business relationship” with
the owner or operator, this letter must
describe this “substantial business re-
lationship” and the value received in
consideration of the guarantee The
terms of the guarantee must provide
that
(i) If the owner or operator falls to
perform post-closure care of a facility
covered by the corporate guarantee in
accordance with the post-closure plan
and other permit requirements when-
ever required to do so, the guarantor
will do so or establish a trust fund as
specified in 264 145(a) in the name of
the owner or operator.
(ii) The corporate guarantee will re-
main in force unless the guarantor
sends notice of cancellation by cer-
tified mail to the owner or operator
and to the Regional Administrator
Cancellation may not occur, however,
during the 120 days beginning on the
date of receipt of the notice of can-
cellation by both the owner or operator
and the Regional Administrator, as
evidenced by the return receipts
(iii) If the owner or operator fails to
provide alternate financial assurance
as specified in this section and obtain
the written approval of such alternate
assurance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the corporate guar-
antee from the guarantor, the guar-
antor will provide such alternate finan-
cial assurance in the name of the
owner or operator
(g) Use of multiple financial mecha-
nisms An owner or operator may sat-
isfy the requirements of this section by
establishing more than one financial
mechanism per facility These mecha-
nisms are limited to trust funds, surety
bonds guaranteeing payment into a
trust fund, letters of cretht, and insur-
anne The mechanisms must be as spec-
ified in paragraphs (a), (b), (d), and (e),
respectively, of this section, except
that it is the combination of mecha-
nisms, rather than the single mecha-
nism, which must provide financial as-
surance for an amount at least equal to
the current post-closure cost estimate
If an owner or operator uses a trust
fund in combination with a surety bond
or a letter of credit, he may use the
trust fund as the standby trust fund for
the other mechanisms A single stand-
by trust fund may be established for
two or more mechanisms The Regional
Administrator may use any or all of
the mechanisms to provide for post-
closure care of the facility
(h) Use of a financial mechanism for
multiple facilities An owner or operator
may use a financial assurance mecha-
nism specified in this section to meet
the requirements of this section for
more than one facility Evidence of fi-
nancial assurance submitted to the Re-
gional Administrator must include a
list showing, for each facility, the EPA
Identification Number, name, address,
and the amount of funds for post-clo-
sure care assured by the mechanism If
the facilities covered by the mecha-
nism are in more than one Region,
identical evidence of financial assur-
ance must be submitted to and main-
tained with the Regional Administra-
tore of all such Regions The amount of
funds available through the mechanism
must be no less than the sum of funds
that would be available if a separate
mechanism had been established and
maintained for each facility. In direct-
ing funds available through the mecha-
nism for post-closure care of any of the
facilities covered by the mechanism,
the Regional Administrator may direct
only the amount of funds designated
for that facility, unless the owner or
operator agrees to the use of additional
funds available under the mechanism
(I) Release of the owner or operator
from the requirements of this section
Within 60 days after receiving certifi-
cations from the owner or operator and
an independent registered professional
engineer that the post-closure care pe-
riod has been completed for a haz-
ardous waste disposal unit in accord-
ance with the approved plan, the Re-
gional Administrator will notify the
260

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Environmental Protection Agency
§264 .147
owner or operator that he is no longer
required to maintain financial assur-
ance for post-closure care of that unit,
unless the Regional Administrator has
reason to believe that post-closure care
has not been in accordance with the ap-
proved post-closure plan The Regional
Administrator shall provide the owner
or operator with a detailed written
statement of any such reason to be-
lieve that post-closure care has not
been in accordance with the approved
post-closure plan
(47 FR 15047, Apr 7, 1982, as amended at 51
FR 16449. May 2. 1986. 57 FR 42836. Sept 16.
i992 1
§264.146 Use of a mechanism for fi-
nancial assurance of both closure
and post-closure care.
An owner or operator may satisfy the
requirements for financial assurance
for both closure and post-closure care
for one or more facilities by using a
trust fund, surety bond, letter of cred-
it, insurance, financial test, or cor-
porate guarantee that meets the speci-
fications for the mechanism in both
264 143 and 264 145 The amount of
funds available through the mechanism
must be no less than the sum of funds
that would be available if a separate
mechanism had been established and
maintained for financial assurance of
closure and of post-closure care
§264J47 Liability requirements.
(a) Coverage for sudden accidental oc-
currences An owner or operator of a
hazardous waste treatment, storage, or
disposal facility, or a group of such fa-
cilities. must demonstrate financial re-
sponsibility for bodily injury and prop-
erty damage to third parties caused by
sudden accidental occurrences arising
from operations of the facility or group
of facilities The owner or operator
must have and maintain liability cov-
erage for sudden accidental occur-
rences in the amount of at least $1 mil-
lion per occurrence with an annual ag-
gregate of at least $2 million, exclusive
of legal defense costs This liability
coverage may be demonstrated as spec-
ified in paragraphs (a) (1). (2). (3) (4
(5), or (6) of this section
(1) An owner or operator may dem-
onstrate the required liability coverage
by having liability insurance as speci-
fied in this paragraph
(1) Each insurance policy must be
amended by attachment of the Haz-
ardous Waste Facility Liability En-
dorsement or evidenced by a Certifi-
cate of Liability Insurance The word-
ing of the endorsement must be iden-
tical to the wording specified in
§264 151(i) The wording of the certifi-
cate of insurance must be identical to
the wording specified in §264 151(j). The
owner or operator must submit a
signed duplicate original of the en-
dorsement or the certificate of insur-
ance to the Regional Administrator, or
Regional Administrators if the facili-
ties are located in more than one Re-
gion If requested by a Regional Ad-
ministrator, the owner or operator
must provide a signed duplicate origi-
nal of the insurance policy An owner
or operator of a new facility must sub-
mit the signed duplicate original of the
Hazardous Waste Facility Liability En-
dorsement or the Certificate of Liabil-
ity Insurance to the Regional Adminis-
trator at least 60 days before the date
on which hazardous waste is first re-
ceived for treatment, storage, or dis-
posal The insurance must be effective
before this initial receipt of hazardous
waste
(ii) Each insurance policy must be
issued by an insurer which, at a min-
imum. is licensed to transact the busi-
ness of insurance, or eligible to provide
insurance as an excess or surplus lines
insurer, in one or more States
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraphs (1) and (g) of
this section
(3) An owner or operator may meet
the requirements of this section by ob-
taining a letter of credit for liability
coverage as specified in paragraph (h)
of this section
(4) An owner or operator may meet
the requirements of this section by ob-
taining a surety bond for liability cov-
erage as specified in paragraph (i) of
this section
261

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§264.147
(5) An owner or operator may meet
the requirements of this section by ob-
taining a trust fund for liability cov-
erage as specified in paragraph (j) of
this section.
(6) An owner or operator may dem-
onstrate the required liability coverage
through the use of combinations of in-
surance, financial test, guarantee, let-
ter of credit, surety bond, and trust
fund, except that the owner or operator
may not combine a financial test cov-
ering part of the liability coverage re-
quirement with a guarantee unless the
financial statement of the owner or op-
erator is not consolidated with the fi-
nancial statement of the guarantor
The amounts of coverage demonstrated
must total at least the minimum
amounts required by this section If
the owner or operator demonstrates
the required coverage through the use
of a combination of financial assur-
ances under this paragraph, the owner
or operator shall specify at least one
such assurance as “primary” coverage
and shall specify other assurance as
“excess” coverage
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever
(i) A claim results in a reduction in
the amount of financial assurance for
liability coverage provided by a finan-
cial instrument authorized in para-
graphs (a)(1) through (a)(6) of this sec-
tion. or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden acci-
dental occurrence arising from the op-
eration of a hazardous waste treat-
ment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (a)(1)
through (a)(6) of this section; or
(iii) A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-sud-
den accidental occurrence arising from
the operation of a hazardous waste
treatment, storage, or disposal facility
is issued against the owner or operator
or an instrument that is providing fi-
nancial assurance for liability coverage
under paragraphs (a)(1) through (a)(6)
of this section
40 CFR Ch. I (7—1—02 Edition)
(b) Coverage for nonsudden accidental
occurrences An owner or operator of a
surface impoundment, landfill, land
treatment facility, or disposal mis-
cellaneous unit that is used to manage
hazardous waste, or a group of such fa-
cilities, must demonstrate financial re-
sponsibility for bodily injury and prop-
erty damage to third parties caused by
nonsudden accidental occurrences aris-
ing from operations of the facility or
group of facilities. The owner or oper-
ator must have and maintain liability
coverage for nonsudden accidental oc-
currences in the amount of at least $3
million per occurrence with an annual
aggregate of at least $6 million, exclu-
sive of legal defense costs An owner or
operator who must meet the require-
ments of this section may combine the
required per-occurrence coverage levels
for sudden and nonsudden accidental
occurrences into a single per-occur-
rence level, and combine the required
annual aggregate coverage levels for
sudden and nonsudden accidental oc-
currences into a single annual aggre-
gate level Owners or operators who
combine coverage levels for sudden and
nonsudden accidental occurrences must
maintain liability coverage in the
amount of at least $4 million per occur-
rence and $8 million annual aggregate
This liability coverage may be dem-
onstrated as specified in paragraphs (b)
(1), (2), (3), (4), (5), or (6). of this sec-
tion
(1) An owner or operator may dem-
onstrate the required liability coverage
by having liability insurance as speci-
fied in this paragraph
(i) Each insurance policy must be
amended by attachment of the Haz-
ardous Waste Facility Liability En-
dorsement or evidenced by a Certifi-
cate of Liability Insurance. The word-
ing of the endorsement must be iden-
tical to the wording specified in
§264 151(i) The wording of the certifi-
cate of insurance must be identical to
the wording specified in §264 151(J) The
owner or operator must submit a
signed duplicate original of the en-
dorsement or the certificate of insur-
ance to the Regional Administrator, or
Regional Administrators if the facili-
ties are located in more than one Re-
gion If requested by a Regional Ad-
ministrator, the owner or operator
262

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Environmental Protection Agency
§264.147
must provide a signed duplicate origi-
nal of the insurance policy An owner
or operator of a new facility must sub-
mit the signed duplicate original of the
Hazardous Waste Facility Liability En-
dorsement or the Certificate of Liabil-
ity Insurance to the Regional Adminis-
trator at least 60 days before the date
on which hazardous waste is first re-
ceived for treatment, storage, or dis-
posal. The insurance must be effective
before this initial receipt of hazardous
waste.
(ii) Each insurance policy must be
issued by an insurer which, at a min-
imum, is licensed to transact the busi-
ness of insurance, or eligible to provide
insurance as an excess or surplus lines
insurer, in one or more States
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraphs (0 and (g) of
this section
(3) An owner or operator may meet
the requirements of this section by ob-
taining a letter of credit for liability
coverage as specified in paragraph (h)
of this section
(4) An owner or operator may meet
the requirements of this section by ob-
taining a surety bond for liability cov-
erage as specified in paragraph (i) of
this section.
(5) An owner or operator may meet
the requirements of this section by ob-
taining a trust fund for liability cov-
erage as specified in paragraph (j) of
this section
(6) An owner or operator may dem-
onstrate the required liability coverage
through the use of combinations of in-
surance, financial test, guarantee, let-
ter of credit, surety bond, and trust
fund, except that the owner or operator
may not combine a financial test cov-
ering part of the liability coverage re-
quirement with a guarantee unless the
financial statement of the owner or op-
erator is not consolidated with the fi-
nancial statement of the guarantor
The amounts of coverage demonstrated
must total at least the minimum
amount required by this section If the
owner or operator demonstrates the re-
quired coverage through the use of a
combination of financial assurances
under this paragraph, the owner or op-
erator shall specify at least one such
assurance as “primary” coverage and
shall specify other assurance as “ex-
cess” coverage
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever
(i) A Claim results in a reduction in
the amount of financial assurance for
liability coverage provided by a finan-
cial instrument authorized in para-
graphs (b)(1) through (b)(6) of this sec-
tion, or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden acci-
dental occurrence arising from the op-
eration of a hazardous waste treat-
ment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (b)(i)
through (b)(6) of this section, or
(iii) A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-sud-
den accidental occurrence arising from
the operation of a hazardous waste
treatment, storage, or disposal facility
is issued against the owner or operator
or an instrument that is providing fi-
nancla] assurance for liability coverage
under paragraphs (b)(1) through (b)(6)
of this section
(c) Request for variance If an owner or
operator can demonstrate to the satis-
faction of the Regional Administrator
that the levels of financial responsi-
bility required by paragraph (a) or (b)
of this section are not consistent with
the degree and duration of risk associ-
ated with treatment, storage, or dis-
posal at the facility or group of facili-
ties, the owner or operator may obtain
a variance from the Regional Adminis-
trator The request for a variance must
be submitted to the Regional Adminis-
trator as part of the application under
§ 270.14 of this chapter for a facility
that does not have a permit, or pursu-
ant to the procedures for permit modi-
fication under § 124 5 of this chapter for
a facihty that has a permit If granted,
the variance will take the form of an
adjusted level of required ]iability cov-
erage, such level to be based on the Re-
gional Administrator’s assessment of
the degree and duration of risk associ-
ated with the ownership or operation of
263

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§264.147
40 CFR Ch. I (7—1—02 Edition)
the facility or group of facilities The
Regional Administrator may require
an owner or operator who requests a
variance to provide such technical and
engineering information as is deemed
necessary by the Regional Adminis-
trator to determine a level of financial
responsibility other than that required
by paragraph (a) or (b) of this section
Any request for a variance for a per-
mitted facility will be treated as a re-
quest for a permit modification under
270 41(a)(5) and 124 5 of this chapter
(d) Adjustments by the Regional Admin-
istrator If the Regional Administrator
determines that the levels of financial
responsibility required by paragraph
(a) or (b) of this section are not con-
sistent with the degree and duration of
risk associated with treatment, stor-
age, or disposal at the facility or group
of facilities, the Regional Adminis-
trator may ad)ust the level of financial
responsibility required under para-
graph (a) or (b) of this section as may
be necessary to protect human health
and the environment This adjusted
level will be based on the Regional Ad-
ministrator’s assessment of the degree
and duration of risk associated with
the ownership or operation of the facil-
ity or group of facilities In addition, if
the Regional Administrator determines
that there is a significant risk to
human health and the environment
from nonsudden accidental occurrences
resulting from the operations of a fa-
cility that is not a surface impound-
ment. landfill, or land treatment facil-
ity, he may require that an owner or
operator of the facility comply with
paragraph (b) of this section An owner
or operator must furnish to the Re-
gional Administrator, within a reason-
able time, any information which the
Regional Administrator requests to de-
termine whether cause exists for such
adjustments of level or type of cov-
erage Any adlustment of the level or
type of coverage for a facility that. has
a permit will be treated as a permit
modification under 270 41(a)(5) and
124 5 of this chapter
(e) Period of coverage Within 60 days
after receiving certifications from the
owner or operator and an independent
registered professional engineer that
final closure has been completed in ac-
cordance with the approved closure
plan, the Regional Administrator will
notify the owner or operator in writing
that he is no longer required by this
section to maintain liability coverage
for that facility, unless the Regional
Administrator has reason to believe
that closure has not been in accordance
with the approved closure plan
(f) Financial test for liability coverage.
(1) An owner or operator may satisfy
the requirements of this section by
demonstrating that he passes a finan-
cial test as specified in this paragraph.
To pass this test the owner or operator
must meet the criteria of paragraph
(f)(l)(i) or (ii)
(i) The owner or operator must have
(A) Net working capital and tangible
net worth each at least six times the
amount of liability coverage to be dem-
onstrated by this test, and
(B) Tangible net worth of at least $10
million, and
(C) Assets in the United States
amounting to either (1) At least 90 per-
cent of his total assets, or (2) at least
six times the amount of liability cov-
erage to be demonstrated by this test
(ii) The owner or operator must have
(A) A current rating for his most re-
cent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor’s,
or Aaa, Aa, A, or Baa as issued by
Moody’s. and
(B) Tangible net worth of at least $10
million, and
(C) Tangible net worth at least six
times the amount of liability coverage
to be demonstrated by this test. and
(Di Assets in the United States
amounting to either (1) At least 90 per-
cent of his total assets, or (2) at least
six times the amount of liability cov-
erage to be demonstrated by this test
(2) The phrase “amount of liability
coverage” as used in paragraph (f)(l) of
this section refers to the annual aggre-
gate amounts for which coverage is re-
quired under paragraphs (a) and (b) of
this section
(31 To demonstrate that he meets
this test, the owner or operator must
submit the following three items to the
Regional Administrator
ill A letter signed by the owner’s or
operator’s chief financial officer and
worded as specified in §264 151(g) If an
owner or operator is using the financial
test to demonstrate both assurance for
264

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Environmental Protection Agency
§264.147
closure or post-closure care, as speci-
fied by 264 143(0, 264 145(f), 265 143(e),
and 265 145(e), and liability coverage,
he must submit the letter specified in
§ 264 151(g) to cover both forms of finan-
ctal responsibility; a separate letter as
specified in § 264.151(0 is not required
(ii) A copy of the independent cer-
tified public accountant’s report on ex-
amination of the owner’s or operator’s
financial statements for the latest
completed fiscal year
(iii) A special report from the owner’s
or operator’s independent certified pub-
lic accountant to the owner or operator
stating that’
(A) He has compared the data which
the letter from the chief financial offi-
cer specifies as having been derived
from the independently audited, year-
end financial statements for the latest
fiscal year with the amounts in such fi-
nancial statements, and
(B) In connection with that proce-
dure, no matters came to his attention
which caused him to believe that the
specified data should be adjusted
(4) An owner or operator of a new fa-
cility must submit the items specified
in paragraph (0(3) of this section to the
Regional Administrator at least 60
days before the date on which haz-
ardous waste is first received for treat-
ment, storage, or disposal
(5) After the initial submission of
items specified in paragraph (0(3) of
this section, the owner or operator
must send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year This information must consist of
all three items specified in paragraph
(0(3) of this section
(6) If the owner or operator no longer
meets the requirements of paragraph
(f)(1) of this section, he must obtain in-
surance, a letter of credit, a surety
bond, a trust fund, or a guarantee for
the entire amount of required liability
coverage as specified in this section
Evidence of liability coverage must be
submitted to the Regional Adminis-
trator within 90 days after the end of
the fiscal year for which the year-end
financial data show that the owner or
operator no longer meets the test re-
quirements
(7) The Regional Administrator may
disallow use of this test on the basis of
qualifications in the opinion expressed
by the independent certified public ac-
countant in his report on examination
of the owner’s or operator’s financial
statements (see paragraph (f)(3)(ii) of
this section) An adverse opinion or a
disclaimer of opinion will be cause for
disallowance The Regional Adminis-
trator will evaluate other qualifica-
tions on an individual basis The owner
or operator must provide evidence of
insurance for the entire amount of re-
quired liability coverage as specified in
this section within 30 days after notifi-
cation of disallowance
(g) Guarantee for liability coverage (1)
Subject to paragraph (g)(2) of this sec-
tion, an owner or operator may meet
the requirements of this section by ob-
taining a written guarantee, herein-
after referred to as “guarantee “ The
guarantor must be the direct or higher-
tier parent corporation of the owner or
operator, a firm whose parent corpora-
tion is also the parent corporation of
the owner or operator, or a firm with a
‘substantial business relationship”
with the owner or operator The guar-
antor must meet the requirements for
owners or operators in paragraphs (fl(1)
through (fl(6) of this section The word-
ing of the guarantee must be identical
to the wording specified in
§264 151(h)(2) of this part A certified
copy of the guarantee must accompany
the items sent to the Regional Admin-
istrator as specified in paragraph (fl(3)
of this section One of these items must
be the letter from the guarantor’s chief
financial officer If the guarantor’s par-
ent corporation is also the parent cor-
poration of the owner or operator, this
letter must describe the value received
in consideration of the guarantee If
the guarantor is a firm with a “sub-
stantial business relationship” with
the owner or operator, this letter must
describe this “substantial business re-
lationship” and the value received in
consideration of the guarantee
0) If the owner or operator fails to
satisfy a judgment based on a deter-
mination of liability for bodily injury
or property damage to third parties
caused by sudden or nonsudden acci-
dental occurrences (or both as the case
may be), arising from the operation of
facilities covered by this corporate
guarantee, or fails to pay an amount
265

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§ 264.147
40 CFR Ch. I (7—1—02 Edition)
agreed to in settlement of claims aris-
ing from or alleged to arise from such
injury or damage, the guarantor will
do so up to the limits of coverage.
(ii) (Reservedi
(2)(i) In the case of corporations in-
corporated in the United States, a
guarantee may be used to satisfy the
requirements of this section only if the
Attorneys Genera] or Insurance Com-
missioners of (A) the State in which
the guarantor is incorporated, and (B)
each State in which a facility covered
by the guarantee is located have sub-
mitted a written statement to EPA
that a guarantee executed as described
in this section and § 264 151(h)(2) is a le-
gaily valid and enforceable obligation
in that State
(ii) In the case of corporations incor-
porated outside the United States, a
guarantee may be used to satisfy the
requirements of this section only if (A)
the non-U S corporation has identified
a registered agent for service of process
in each State In which a facility cov-
ered by the guarantee is located and In
the State in which it has its principal
place of business, and (B) the Attorney
Genera] or Insurance Commissioner of
each State in which a facility covered
by the guarantee is located and the
State in which the guarantor corpora-
tion has its principal place of business,
has submitted a written statement to
EPA that a guarantee executed as de-
scribed in this section and §264 151(h)(2)
is a legally valid and enforceable obli-
gation in that State
(h) Letter of credit for liability coverage
(1) An owner or operator may satisfy
the requirements of this section by ob-
taining an irrevocable standby letter
or credit that conforms to the require-
ments of this paragraph and submit-
ting a copy of the letter of credit to the
Regional Administrator
(2) The financial institution issuing
the letter of credit must be an entity
that has the authority to issue letters
of credit and whose letter of credit op-
erations are regulated and examined by
a Federal or State agency
(8) The wording of the letter of credit
must be identical to the wording speci-
fied in §264 151(k) of this part.
(4) An owner or operator who uses a
letter of credit to satisfy the require-
ments of this section may also estab-
lish a standby trust fund Under the
terms of such a letter of credit, all
amounts paid pursuant to a draft by
the trustee of the standby trust will be
deposited by the issuing institution
into the standby tru8t in accordance
with instructions from the trustee The
trustee of the standby trust fund must
be an entity which has the authority to
act as a trustee and whose trust oper-
ations are regulated and examined by a
Federal or State agency
(5) The wording of the standby trust
fund must be identical to the wording
specified in §264 151(n).
(i) Surety bond for liability coverage (1)
An owner or operator may satisfy the
requirements of this section by obtain-
ing a surety bond that conforms to the
requirements of this paragraph and
submitting a copy of the bond to the
Regional Administrator
(2) The surety company issuing the
bond must be among those listed as ac-
ceptable sureties on Federal bonds in
the most recent Circular 570 of the U.S.
Department of the Treasury.
(3) The wording of the surety bond
must be identical to the wording speci-
fied in §264 151(1) of this part.
(4) A surety bond may be used to sat-
isfy the requirements of this section
only if the Attorneys General or Insur-
ance Commissioners of (i) the State in
which the surety is incorporated, and
(ii) each State in which a facility cov-
ered by the surety bond is located have
submitted a written statement to EPA
that a surety bond executed as de-
scribed in this section and §264 151(1) of
this part is a legally valid and enforce-
able obligation in that State
(j) Trust fund for liability coverage. (1)
An owner or operator may satisfy the
requirements of this section by estab-
lishing a trust fund that conforms to
the requirements of this paragraph and
submitting an originally signed dupli-
cate of the trust agreement to the Re-
gional Administrator
(2) The trustee must be an entity
which has the authority to act as a
trustee and whose trust operations are
regulated and examined by a Federal or
State agency
(3) The trust fund for liability cov-
erage must be funded for the full
amount of the liability coverage to be
provided by the trust fund before it
266

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Environmental Protection Agency
§264.149
may be relied upon to satisfy the re-
quirements of this section If at any
time after the trust fund is created the
amount of funds in the trust fund is re-
duced below the full amount of the Ii-
ability coverage to be provided, the
owner or operator, by the anniversary
date of the establishment of the fund,
must either add sufficient funds to the
trust fund to cause its value to equal
the full amount of liability coverage to
be provided, or obtain other financial
assurance as specified in this section to
cover the difference For purposes of
this paragraph, “the full amount of the
liability coverage to be provided”
means the amount of coverage for sud-
den and/or nonsudden occurrences re-
quired to be provided by the owner or
operator by this section, less the
amount of financial assurance for li-
ability coverage that is being provided
by other financial assurance mecha-
nisms being used to demonstrate finan-
cial assurance by the owner or oper-
ator
(4) The wording of the trust fund
must be identical to the wording speci-
fied in §264 151(m) of this part
(k) Notwithstanding any other provi-
sion of this part, an owner or operator
using liability insurance to satisfy the
requirements of this section may use,
until October 16, 1982. a Hazardous
Waste Facility Liability Endorsement
or Certificate of Liability Insurance
that does not certify that the insurer is
licensed to transact the business olin-
surance, or eligible as an excess or sur-
plus lines insurer, in one or more
States
(47 FR 16554, Apr 16. 1982, as amended at 47
FR 28627, July 1, 1982. 47 FR 30447, July 13,
i982, 48 FR 301i5, June 30, 1983, 51 FR 16450,
May 2. 1986, 51 FR 25354, July 11, 1986, 52 FR
44320. Nov 18. 1987. 52 FR 46964. Dec 10. 1987.
53 FR 33950, Sept 1, 1988. 56 FR 30200, July 1,
1991, 57 FR 42836, Sept 16, 1992]
I 264.148 Incapacity of owners or oper-
ators, guarantors, or financial insti-
tutions.
(a) An owner or operator must notify
the Regional Administrator by cer-
tified mail of the commencement of a
voluntary or involuntary proceeding
under Title 11 (Bankruptcy), U S Code,
naming the owner or operator as debt-
or, within 10 days after commencement
of the proceeding A guarantor of a cor-
porate guarantee as specified in
264 143(f) and 264 L45(f) must make
such a notification if he is named as
debtor, as required under the terms of
the corporate guarantee ( 264 151(h))
(b) An owner or operator who fulfills
the requirements of §264 143, §264 145,
or §264 147 by obtaining a trust fund,
surety bond, letter of credit, or insur-
ance policy will be deemed to be with-
out the required financial assurance or
liability coverage in the event of bank-
ruptcy of the trustee or issuing institu-
tion, or a suspension or revocation of
the authority of the trustee institution
to act as trustee or of the institution
issuing the surety bond, letter of cred-
it, or insurance policy to issue such in-
struments The owner or operator must
establish other financial assurance or
liability coverage within 60 days after
such an event
§ 264.149 Use of State-required mecha-
nisms.
(a) For a facility located in a State
where EPA is administering the re-
quirements of this subpart but where
the State has hazardous waste regula-
tions that include requirements for fi-
nancial assurance of closure or post-
closure care or liability coverage, an
owner or operator may use State-re-
quired financial mechanisms to meet
the requirements of §264 143, §264 145,
or §264 147, if the Regional Adminis-
trator determines that the State mech-
anisms are at least equivalent to the fi-
nancial mechanism specified in this
subpart The Regional Administrator
will evaluate the equivalency of the
mechanisms principally in terms of (1)
certainty of the availability of funds
for the required closure or post-closure
care activities or liability coverage and
(2) the amount of funds that will be
made available The Regional Adminis-
trator may also consider other factors
as he deems appropriate The owner or
operator must submit to the Regional
Administrator evidence of the estab-
lishment of the mechanism together
with a letter requesting that the State-
required mechanism be considered ac-
ceptable for meeting the requirements
of this subpart The submission must
include the following information The
facility’s EPA Identification Number,
267

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FINANCIAL ASSURANCE REGULATIONS
FOR RCRA SUBTITLE C
CLOSURE AND POST-CLOSURE
Required Wording of Mechanisms
§264.151 Wording of instruments

-------
§264.150
40 CFR Ch. I (7—1—02 Edition)
name, and address, and the amount of
funds for closure or post-closure care
or liabthty coverage assured by the
mechanism. The Regional Adnunis-
trator will notify the owner or oper-
ator of his determination regarding the
mechanism’s acceptability in lieu of fi-
nancial mechanisms specified in this
subpart The Regional Administrator
may require the owner or operator to
submit additional information as is
deemed necessary to make this deter-
mination. Pending this determination,
the owner or operator will be deemed
to be in compliance with the require-
ments of § 264.143, §264 145, or §264 147,
as applicable.
(b) If a State-required mechanism is
found acceptable as specified in para-
graph (a) of this section except for the
amount of funds available, the owner
or operator may satisfy the require-
ments of this subpart by increasing the
funds available through the State-re-
quired mechanism or using additional
financial mechanisms as specified in
this subpart The amount of funds
available through the State and Fed-
eral mechanisms must at least equal
the amount required by this subpart
§ 264.160 State assumption of responsi-
bility.
(a) If a State either assumes legal re-
sponsibility for an owner’s or opera-
tor’s compliance with the closure, post-
closure care, or liability requirements
of this part or assures that funds will
be available from State sources to
cover those requirements, the owner or
operator will be in compliance with the
requirements of §264 143, §264 145. or
§ 264 147 if the Regional Administrator
determines that the State’s assump-
tion of responsibility is at least equiva-
lent to the financial mechanisms speci-
fied in this subpart The Regional Ad-
ministrator will evaluate the equiva-
lency of State guarantees principally
In terms of (1) certainty of the avail-
ability of funds for the required closure
or post-closure care activities or liabil-
ity coverage and (2) the amount of
funds that will be made available The
Regional Administrator may also con-
sider other factors as he deems appro-
priate The owner or operator must
submit to the Regional Administrator
a letter from the State describing the
nature of the State’s assumption of re-
sponsibility together with a letter from
the owner or operator requesting that
the State’s assumption of responsi-
bility be considered acceptable for
meeting the requirements of this sub-
part. The letter from the State must
include, or have attached to it, the fol-
lowing information the facility’s EPA
Identification Number, name, and ad-
dress, and the amount of funds for clo-
sure or post-closure care or liability
coverage that are guaranteed by the
State The Regional Administrator will
notify the owner or operator of Ins de-
termination regarding the accept-
ability of the State’s guarantee in lieu
of financial mechanisms specified in
this subpart. The Regional Adminis-
trator may require the owner or oper-
ator to submit additional information
as Is deemed necessary to make this
determination Pending this deter-
mination. the owner or operator will be
deemed to be in compliance with the
requirements of § 264.143, §264 145, or
§ 264 147, as applicable
(b) If a State’s assumption of respon-
sibility is found acceptable as specified
in paragraph (a) of this section except
for the amount of funds available, the
owner or operator may satisfy the re-
quirements of this subpart by use of
both the State’s assurance and addi-
tional financial mechanisms as speci-
fied in this subpart The amount of
funds available through the State and
Federal mechanisms must at least
equal the amount required by this sub-
part
§ 264.151 Wording of the instruments.
(a)(1) A trust agreement for a trust
fund, as specified in §264.143(a) or
§264145(a) or §265 143(a) or §265 145(a) of
this chapter, must be worded as fol-
lows, except that instructions in brack-
ets are to be replaced with the relevant
information and the brackets deleted
TRUST AGREEMENT
Trust Agreement, the “Agreement,” en-
tered into as of (date] by and between (name
of the owner or operator], a (name of State]
(insert “corporation,” “partnership.” “asso-
ciation.” or “proprietorship”], the “Grant-
or.” and [ name of corporate trustee], (insert
“incorporated in the State of —“ or “a na-
tional bank”], the “Trustee
268

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Environmental Protection Agency
Whereas, the United States Environmental
Protection Agency, “EPA.” an agency of the
United States Government, has established
certain regulations applicable to the Grant-
or. requiring that an owner or operator of a
hssardous waste management facility shall
provide assurance that funds will be avail-
able when needed for closure and/or post-clo-
sure care of the facility.
Whereas, the Grantor has elected to estab-
lish a trust to provide all or part of such fi-
nancial 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 agree-
ment, and the Trustee is willing to act as
trustee,
Now, Therefore, the Grantor and the Trust-
ee agree as follows
Section 1 Definitions As used in this Agree-
ment
(a) The term “Grantor” means the owner
or operator who enters into this Agreement
and any successors or aasigns of the Grantor
(b) The term “Trustee” means the Trustee
who enters into this Agreement and any suc-
cessor Trustee
Section 2 Identification of Facilities and Cost
£stnnates This Agreement pertains to the fa-
cilities and cost estimates identified on at-
tached 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 Grant-
or 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 trans-
(erred 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 Agree-
ment 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 dis-
charge any liabilities of the Grantor estab-
lished by EPA
Section 4 Payment for Closure and Post-Clo-
sure Care The Trustee shall make payments
from the Fund as the EPA Regional Admin-
istrator shall direct, In writing, to provide
for the payment of the Costs of closure andi
or post-closure care of the facilities covered
by this Agreement The Trustee shall reim-
burse the Grantor or other persons as sped-
§264.151
fled 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 writ-
ing In addition, the Trustee shall refund to
the Grantor such amounts as the EPA Re-
gional Administrator specifies in writing
Upon refund, such funds shall no longer con-
stitute 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 in-
vested as a single fund, without distinction
between principal and income, in accordance
with general investment policies and guide-
lines 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, exchang-
ing, selling, and managing the Fund, the
Trustee shall discharge his duties with re-
spect to the trust fund solely in the interest
of the beneficiary and with the care, skill.
prudence, and diligence under the cir-
cumstances then prevailing which persons of
prudence, acting in a like capacity and fa-
miliar 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 de-
fined 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 with-
out liability for the payment of interest
thereon
Section 7 Comminghng and Investment The
Trustee is expressly authorized in its discre-
tion
(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 provi-
sions thereof, to be commingled with the as-
sets 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—1 et seq.
including one which may be created, man-
aged, underwritten, or to which investment
advice is rendered or the shares of which are
269

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§ 264.151
sold by the Trustee The Trustee may vote
such shares in its discretion
Section 8 Express Powei-s of Trustee Without
in any way limiting the powers and discre-
tions 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 in-
quire into the validity or expediency of any
such sale or other disposition.
(b) To make, execute, acknowledge, and de-
liver any and all documents of transfer and
conveyance and any and all other instru-
ments 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 certifi-
cates representing such securities with cer-
tificates of the same issue held by the Trust-
ee 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 iii bulk in the name
of the nominee of such depositary with other
securities deposited therein by another per-
son, or to deposit or arrange for the deposit
of any securities issued by the United States
Government, or any agency or instrumen-
tality thereof, with a Federal Reserve bank.
but the books and records of the Trustee
shall at all times show that all such securi-
ties are part of the Fund.
(d) To deposit any cash in the Fund in in-
terest-bearing accounts maintained or sav-
ings 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 ad)ust 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 bro-
kerage commissions incurred by the Fund
shall be paid from the Fund All other ex-
penses incurred by the Trustee in connection
with the administration of this Trust, in-
cluding 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 disburse-
ments of the Trustee shall be paid from the
Fund
Section 10 Annual Voluation 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 ap-
propriate EPA Regional Administrator a
40 CFR Ch. I (7—1—02 Edition)
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 ann iversary date of establish-
ment 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 Admin-
istrator shall constitute a conclusively bind-
ing 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 re-
spect to any question arising as to the con-
struction 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 Trust-
ee shall be entitled to reasonable compensa-
tion for its services as agreed upon in writ-
ing from time to time with the Grantor
Section 13 Succe.ssor 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 suc-
cessor accepts the appointment The suc-
cessor trustee shall have the same powers
and duties as those conferred upon the
Trustee hereunder Upon the successor trust-
ee’s acceptance of the appointment, the
Trustee shall assign, transfer, and pay over
to the successor trustee the funds and prop-
erties 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 com-
petent lurisdiction 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 In-
curred 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 or-
ders, 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 des-
Ignees 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, re-
quests, and instructions All orders, re-
quests. and instructions by the EPA Re-
gional Administrator to the Trustee shall be
in writing, signed by the EPA Regional Ad-
ministrators of the Regions in which the fa-
cilities are located, or their designees. and
270

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Environmental Protection Agency
the Trustee shall act and shall be fully pro-
tected in acting in accordance with such Or-
ders, requests, and instructions The Trustee
shall have the right to assume, in the ab-
sence of written notice to the contrary, that
no event constituting a change or a termi-
nation 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, re-
quests, and instructions from the Grantor
and/or EPA, except as provided for herein
Section 15 Notice of Nonpayment The Trust-
ee shall notify the Grantor and the appro-
priate EPA Regional Administrator, by cer-
tified mail within 10 days following the expi-
ration of the 30-day period after the anniver-
sary of the establishment of the Trust, if no
payment is received from the Grantor during
that period. After the pay-in period is com-
pleted, the Trustee shall not be required to
send a notice of nonpayment
Section 16 Amendment of Agreement This
Agreement may be amended by an instru-
ment in writing executed by the Grantor, the
Trustee, and the appropriate EPA Regional
Administrator, or by the Trustee and the ap-
propriate 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 con-
tinue until terminated at the written agree-
ment of the Grantor, the Trustee, and the
EPA Regional Administrator, or by the
Trustee and the EPA Regional Adminis-
trator, if the Grantor ceases to exist Upon
termination of the Trust, all remaining trust
property, less final trust administration ex-
penses. shall be delivered to the Grantor
Section 18 immunity and Indemnification
The Trustee shall not incur personal liabil-
ity of any nature in connection with any act
or omission, made in good faith, in the ad-
ministration 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 rea-
son of any act or conduct in its official ca-
pacity, including all expenses reasonably in-
curred in its defense in the event the Grant-
or falls to provide such defense
Section 19 Choice of Law. This Agreement
shall be administered, construed, and en-
forced 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
§264.151
the interpretation or the legal efficacy of
this Agreement
In Witness Whereof the parties have caused
this Agreement to be executed by their re-
spective officers duly authorized and their
corporate seals to be hereunto affixed and at-
tested as of the date first above written The
parties below certify that the wording of this
Agreement is identical to the wording speci-
fled in 40 CFR 264 151(a)(1) as such regula-
tions were constituted on the date first
above written
(Signature of Grantor]
[ Title]
Attest
(Title]
[ Seal)
(Signature of Trustee]
Attest
[ Title]
(Seal]
(2) The following is an example of the
certification of acknowledgment which
must accompany the trust agreement
for a trust fund as specified in
§ 264 143(a) and 264 145(a) or § 265 143(a)
or 265 145(a) of this chapter State re-
quirements may differ on the proper
content of this acknowledgment
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 de-
scribed in and which executed the above in-
strument, that she/he knows the seal of said
corporation, that the seal affixed to such in-
strument 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]
(b) A surety bond guaranteeing pay-
ment into a trust fund, as specified in
§ 264 143(b) or § 264 145(b) or § 265 143(b)
or §265 145(b) of this chapter, must be
worded as follows, except that instruc-
tions in brackets are to be replaced
with the relevant information and the
brackets deleted
FINANCIAL GUARANTEE BOND
Date bond executed
Effective date
Principal [ legal name and business address
of owner or operator]
271

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§264.151
Type of Organization [ insert “individual,”
“joint venture,’ “partnership, or “cor-
poration”]
State of incorporation __________________
Surety(les) [ name(s) and business ad-
dress(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 Pro-
tection Agency (hereinafter called EPA), in
the above penal sum for the payment of
which we bind ourselves, our heirs, execu-
tors, administrators, successors, and assigns
jointly and severally, provided that, where
the Surety(ies) are corporations acting as cc-
sureties, we, the Sureties, bind ourselves in
such sum “jointly and severally’ only for
the purpose of allowing a loint action or ac-
tions 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 li-
ability shall be the full amount of the penal
sum
Whereas said Principal is required, under
the Resource Conservation and Recovery Act
as amended (RCR.A), to have a permit or In-
terim statue in order to own or operate each
hazardous waste management facility identi-
fied above, and
Whereas said Principal is required to pro-
vide financial assurance for closure, or clo-
sure and post-closure care, as a condition of
the permit or interim status, and
Whereas said Principal shall establish a
standby trust fund as is required when a sur-
ety bond is used to provide such financial as-
surance.
Now, Therefore, the Conditions of the obli-
gation are such that if the Principal shall
faithfully, before the beginning of final clo-
sure 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 ju-
risdiction,
Or. if the Principal shall provide alternate
financial assurance, as specified in subpart 11
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
40 CFR Ch. I (7—1—02 Edition)
Regional Administrator(s) O’om the Sur-
ety(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 Re-
gional 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 Adminiatrator
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 ahall the obligation of the Sur-
ety(ies) hereunder exceed the amount of said
penal sum
The Surety(Ies) may cancel the bond by
sending notice of cancellation by certified
maii to the Principal and to the EPA Re-
gional Administrator(s) for the Region(s) in
which the facility(les) is (are) located, pro-
vided. 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) re-
ceive(s) written authorization for termi-
nation of the bond by the EPA Regional Ad-
rnlnistrator(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 re-
quired
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 permis-
sion of the EPA Regional Administrator(s)
In Witness Whereof, the Principal and Sur-
ety(ies) have executed this Financial Guar-
antee 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 word-
ing 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
[ Signature(s)]
Principal
272

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§264.151
Environmental Protection Agency
(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 aeal,and other information in the
same manner as for Surety above]
Bond premium S ____________________
(C) A surety bond guaranteeing per-
formance of closure and/or post-closure
care, as specified in §264 143(c) or
§264 145(c), must be worded as follows,
except that the instructions in brack-
ets are to be replaced with the relevant
information and the brackets deleted.
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 ‘corpora-
tion”)
State of incorporation __________________
Surety(ies) [ name(s) and business ad-
dress(es)] __________________________________
EPA Identification Number, name, address,
and closure and/or post-closure amount(s) for
each facility guaranteed by this bond [ indi-
cate closure and post-closure amounts sepa-
rately]
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 Pro-
tection Agency (hereinafter called EPA). in
the above penal sum for the payment of
which we bind ourselves, our heirs, execu-
tors, 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 ac-
tions 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 li-
ability 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 pro-
vide financial assurance for closure, or clo-
sure 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 sur-
ety bond is used to provide such financial as-
surance,
Now. Therefore, the conditions of this obli-
gation are such that if the PrincIpal shall
faithfully perform closure, whenever re-
quired 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 per-
form 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, stat-
utes, 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 Re-
gional Administrator’s written approval of
euch assurance, within 90 days after the date
notice of cancellation is received by both the
Principal and the EPA Regional Admin-
istrator(s) from the Surety(ies), then this ob-
ligation 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 Ad-
ministrator that the Principal baa been
found in violation of the closure require-
ments 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 Ad-
ministrator that the Principal has been
found In violation of the post-closure re-
quirements of 40 CPR part 264 for a facility
for which this bond guarantees performance
of post-closure care. the Surety(ies) shall ei-
ther 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
273

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§ 264.151
40 CFR Ch. I (7—1-02 Edition)
standby trust fund as directed by the EPA
Regional Administrator
Upon notification by an EPA Regional Ad-
ministrator 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 Admin-
istrator(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) notifica-
tion of amendments to closure plans, per-
mits, applicable laws, statutes, rules, and
regulations and agrees that no such amend-
ment 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 Sur-
ety(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 Re-
gion(s) in which the facility(ies) is (are) lo-
cated, provided, however, that cancellation
shall not occur during the 120 days beginning
on the date of receipt of the notice of can-
cellation 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) re-
ceive(s) written authorization for termI-
nation of the bond by the EPA Regional Ad-
ministrator(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 re-
quired
Principal and Surety(ies) hereby agree to
adjust the penal sum of the bond yearly so
that it guarantees a new closure andior 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 permis-
sion of the EPA Regional Administrator(s)
In Witness Whereof, The Principal and Sur-
ety(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 word-
tog of this surety bond is identical to the
wording specified in 40 CFR 264 1 51(c) as such
regulation was constituted on the date this
bond was executed
[ Signature(s)]
(Name(s))
[ Title(s)]
[ Corporate seal)
Principal
Corporate Surety(ies)
[ Name and address]
State of incorporation. __________________
Liability limit S _________________________
[ 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 $ _______________________
(d) A letter of credit, as specified In
§ 264.143(d) or §264 145(d) or §265 143(c) or
§265 145(c) of this chapter, must be
worded as follows, except that instruc-
tions in brackets are to be replaced
with the relevant information and the
brackets deleted
IRREVOCABLE STANDBY LE’rrER 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 S. available upon
presentation (insert, if more than one Re-
gional 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 fol-
lows “I certify that the amount of the draft
is payable pursuant to regulations issued
under authority of the Resource Conserva-
tion 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 be-
fore 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 cur-
rent expiration date In the event you are so
notified, any unused portion of the credit
274

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Environmental Protection Agency
§ 264.151
shall be available upon presentation of your
sight draft for 120 days after the date of re-
ceipt by both you and (owners or operator’s
name], as shown on the signed return re-
ceipts
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 the 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
and copyrighted by the International Chain-
ber of Commerce,’ or “the Uniform Commer-
cial Code”]
(e) A certlflcate of insurance, as spec-
ified in §264 143(e) or §264 145(e) or
§ 265 143(d) or § 265 145(d) of this chapter,
must be worded as follows, except that
instructions in brackets are to be re-
placed with the relevant information
and the brackets deleted
CERTIFICATE OF INSURANCE FOR
CLOSURE OR POST-CLOSURE CARE
Name and Address of Insurer
(herein called the “Insurer”) _____________
Name and Address of Insured
(herein called the “Insured”) ____________
Facilities Covered (List for each facility
The EPA Identification Number, name, ad-
dress, and the amount of insurance for clo-
sure and/or the amount for post-closure
care (these amounts for all facilities cov-
ered must total the face amount shown
below)]
Face Amount _______________________
Policy Number ______________________
Effective Date ___________________________
The Insurer hereby certifies that it
has issued to the Insured the policy of
insurance identified above to provide
financial assurance for [ insert “clo-
sure” or “closure and post-closure
care” or “post-closure care”] for the
facilities identified above The Insurer
further warrants that such policy con-
forms in all respects with the require-
ments of 40 CFR 264.143(e), 264 145(e),
265.143(d), and 265 145(d), as applicable
and as such regulations were con-
stituted on the date shown imme-
diately below It is agreed that any
provision of the pollcy inconsistent
with such regulations is hereby amend-
ed to eliminate such inconsistency
Whenever requested by the EPA Re-
gional Administrator(s) of the U S En-
vironmental Protection Agency, the
Insurer agrees to furnish to the EPA
Regional Administrator(s) a duplicate
original of the policy listed above, in-
cluding all endorsements thereon
I hereby certify that the worthng 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
[ Authorized signature for Insurer]
[ Name of person signing]
(Title of person signing]
Signature of witness or notary __________
[ Date]
(1) A letter from the chief financial
officer, as specified in §264 143(f) or
264.145(f), or §265 143(e) or 265 143(e) of
this chapter, must be worded as fol-
lows, except that instructions in brack-
ets are to be repiaced with the relevant
information and the brackets deleted
LETTER FROM CHIEF FINANCIAL OFFICER
[ Address to Regional Administrator of every
Region in which facilities for which financial
responsibility is to be demonstrated through
the financial test are located]
I am the chief financial officer of [ name
and address of firm] This letter is in support
of this firm’s use of the financial test to
demonstrate financial assurance for closure
and/or post-closure costs, as specified in sub-
part H of 40 CFR parts 264 and 265
(Fill out the following five paragraphs re-
garding facilities and associated cost esti-
mates If your firm has no facilities that be-
long in a particular paragraph, write “None”
in the space Indicated For each facility, In-
clude its EPA Identification Number, name.
address, and current closure and/or post-clo-
sure cost estimates IdentIfy each cost esti-
mate 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 assur-
ance for Closure or post-closure care is dem-
onstrated through the financial test speci-
fied 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, throngh the guar-
antee specified in subpart H of 40 CFR parts
275

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§264.151
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 oper-
ator, and receiving the following value in
consideration of this guarantee _______ or
(3) engaged in the following substantial busi-
ness relationBhip 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 estab-
lishing Buch relationship to this letter]
3 In States where EPA is not admin-
istering the financial requirements of sub-
part H of 40 CFR part 264 or 265, this firm, as
owner or operator or guarantor, Is dem-
onstrating financial assurance for the clo-
sure or post-Closure care of the following fa-
cilities 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 fa-
cilities for which financial assurance for clo-
sure 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
i-equlred”J to file a Form 10K with the Secu-
rities 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 com-
pleted fiscal year. ended (date]
(Fill in Alternative I if the criteria of para-
graph (f)(l)(i) of §264 143 or §264 145, or of
paragraph (e)(1)(i) of §265 143 or §265 145 of
this chapter are used Fill in Alternative II if
the criteria of paragraph (f)(1)(ii) of §264 143
or §264 145. or of paragraph (e)(1)(il) of
§ 265 143 or § 265 145 of this chapter are used ]
40 CFR Ch. I (7—1—02 Edition)
ALTERNATIVE I
1 Sum of current closure and post-closure
cost estimate (total of all cost estimates
shown in the five paragraphs above] S_______
‘2 Total liabilities (if any portion of the
closure or post-closure cost estimates is in-
cluded in total liabilities, you may deduct
the amount of that portion from this line
and add that amount to lines 3 and
4]$________
‘3 Tangible net worth $______
‘4 Net worth S_______
‘S Current assets 3
‘6 Current liabilities $________
7 Net working capital (line 5 minus line 6)
S__________
‘8 The sum of net Income plus deprecia-
tion, depletion, and amortization $_______
‘9 Totai assets In U S (required only if
less than 90% of firm’s assets are located in
the U S ) S______
10 Is line 3 at least SlO million 9 (Yea/No)
11 Is line 3 at least 6 times line 1 (Yes/No)
12 Is line 7 at least 6 times line j9 (Yes/No)
‘13 Are at least 90% of firm’s assets lo-
cated in the U S 9 I I not, complete line 14
(Yes/No) _______
14 Is line 9 at least 6 times line 1’ (Yes/No)
15 Is line 2 divided by line 4 less than 2 0
(Yes/No) _______
16 Is line 8 divIded by line 2 greater than
0 1’ (Yes/No) ________
17 Is line 5 divided by line 6 greater than
1 59 (Yes/No) _______
ALTERNATIVE II
1 Sum of current closure and post-closure
cost estimates (total of all cost estimates
shown in the five paragraphs above) $_______
2 Current bond rating of most recent
issuance of this firm and name of rating
service _______
3 Date of issuance of bond _______
4 Date of maturity of bond ______
‘5 Tangible net worth (if any portion of
the closure and post-closure cost estimates
is included in “total liabilities” on your
firm’s financial statements, you may add the
amount of that portion to this line] $_______
‘6 Total assets in U S (required only if
less than 90% of firm’s assets are located in
the U S ) S______
7 Is line 5 at least $10 mIllion 9 (Yes/No)
8 Is line 5 at least 6 times line 1 (Yes/No)
*9 Are at least 90% of firm’s assets located
in the U S’ If not, complete line 10 (Yes/No)
10 Is line 6 at least 6 times line 1’ (Yes/No)
276

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Environmental Protection Agency
I hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR 254 151(f) as such regulations were
constituted on the date shown immediately
below
(Signature] __________________________
[ Name]
[ Title]
(Date]
(g) A letter from the chief financial
officer, as specified in §264 147(t) or
§265 147(f) of this chapter, must be
worded as follows, except that instruc-
tions in brackets are to be replaced
with the relevant information and the
brackets deleted.
LE’rrER FROM CHIEF FINANCIAL, OFFICER
[ Address to Regional Administrator of
every Region in which facilities for which fi-
nancial 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 dem-
onstrate 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 regard-
ing facilities and liability coverage If there
are no facilities that belong in a particular
paragraph, write “None” in the space indi-
cated 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 nonsud-
den”] accidental occurrences is being dern-
onstrated through the financial test speci-
fied in subpart H of 40 CFR parts 264 and
265 ________
The firm identified above guarantees.
through the guarantee specified in subpart H
of 40 CFR parts 264 and 265, liability coverage
for (insert “sudden” or “nonsudden” of
“both sudden and nonsudden”] accidental oc-
currences 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 cor-
poration of the owner or operator, and re-
ceiving the following value in consideration
of this guarantee ______ or (3) engaged in
the following substantial business relation-
ship with the owner or operator _______. and
receiving the following value in consider-
ation of this guarantee _______J [ Attach a
written description of the business relation-
ship or a copy of the contract establishing
such relationship to this letter]
§264.151
(If you are using the financial test to dem-
onstrate coverage of both liability and clo-
sure and post-closure care, fill in the fol-
lowing five paragraphs regarding facilities
and associated closure and post-closure cost
estimates If there are no facilities that be-
long in a particular paragraph, write ‘None”
in the space indicated For each facility, in-
clude its EPA identification number, name,
address and current closure and/or post-clo-
sure cost estimates Identify each cost esti-
mate as to whether it is for closure or post-
closure care]
1 The firm identified above owns or oper-
ates the following facilities for which finan-
cial assurance for closure or post-closure
care or liability coverage Is demonstrated
through the financial test specified in sub-
part H of 40 CFR parts 264 and 265 The cur-
rent closure and/or post-closure cost esti-
mate covered by the test are shown for each
facility ________
2 The firm identified above guarantees.
through the guarantee specified in subpart H
of 40 CFR parts 264 and 265, the closure and
post-closure care or liability coverage of the
following facilities owned or operated by the
guaranteed party The current cost esti-
mates for closure or post-closure care so
guaranteed are shown for each facility
3 In States where EPA is not admin-
istering the financial requirements of sub-
part H of 40 CFR parts 264 and 265, this firm
Is demonstrating financial assurance for the
closure or post-closure care of the following
facilities through the use of a test equivalent
or substantially equivalent to the financial
test specified in subpart H or 40 CFR parts
264 and 265 The current closure or post-clo-
sure cost estimates covered by such a test
are shown for each facility _______
4 The firm identified above owns or oper-
ates the following hazardous waste manage-
meat facilities for which financial assurance
for closure or, if a disposal facility, post-clo-
sure care, is not demonstrated either to EPA
or a State through the financial test or any
other financial assurance mechanisms speci-
fied in subpart H of 40 CFE 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 or
guarantor of the following UIC facilities for
which financial assurance for plugging and
abandonment is required under part 144 and
is assured through a financial test The cur-
rent closure cost estimates as required by 40
CFR 14462 are shown for each facil-
ity _______
This firm [ insert “is required” or “is not
required”] to file a Form 10K with the Secu-
rities and Exchange Commission (SEC) for
the latest fiscal year
277

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§ 264.151
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 com-
pleted fiscal year, ended [ date]
Part A Liability Coverage for Accidental
Occurrences
[ Fill in Alternative I if the Criteria of para-
graph (f)(1)(i) of §264 141 or §265 147 are used
Fill in Alternative II if the criteria of para-
graph (f)(1)(ii) of §264 147 or §265 147 are
used]
ALTERNATIVE 1
I Amount of annual aggregate liability
coverage to be demonstrated S ______-
2 Current assets $ ______
*3 Current $ ______
4 Net working capital (line 2 minus line 3)
S _________
*5 Tangible net worth $ _______
*6 If less than 90% of assets are located in
the U S . give total U S assets S ______
7 Is line 5 at least $10 million’ (Yes/No)
8 Is line 4 at least 6 times line 1’ (Yes/No)
9 Is line 5 at. least 6 times line 1’ (Yes/No)
10 Are at least 90% of assets located iii
the U S’ (Yes/No) ______ If not, complete
line 11
11 Is line 6 at least 6 times line 1” (Yes/No)
ALTER -ATIVE II
1 Amount of annual aggregate liability
coverage to be demonstrated $ _______
2 Current bond rating of most recent
issuance and name of rating service ______
3 Date of issuance of bond ______________
4 Date of maturity of bond _______
5 Tangible net worth S ______
6 Total assets in U S (required only if
less than 90% of assets are located in the
U S)S _____
7 Is line 5 at least 610 million’ (Yes/Not
8 Is line 5 at least 6 times line 1’ ——
9 Are at least, 90% of assets located in the
U S’ If not, complete line 10 (Yea’No
10 Is line 6 at least 6 times line I’ _______
(Fill in part B if you are using the finan-
cial test to demonstrate assurance of both li-
ability 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 para-
graphs (f)(1)(i) of §264 143 or §264 145 and
40 CFR Ch. I (7—1—02 Edition)
(fXl)(i) of §264 147 are used or if the criteria
of paragraphs (e)(1)(i) of §265 143 or §265145
and (t)(1)(i) of §265 147 are used Fill in Alter-
native II if the criteria of paragraphs
(fXl)(ii) of §264143 or §264 145 and (f)(1)(ii) of
§ 264 147 are used or if the criteria of para-
graphs (e)(1)(i) of §265 143 or §265 145 and
(f)(1)(ii) of §265 14? are used]
ALTERNATIVE I
1 Sum of current closure and post-closure
cost estimates (total of all cost estimates
listed above) $ _______
2 Amount of annual aggregate liability
coverage to be demonstrated $ _______
3 Sum of lines 1 and 2 S _______
°4 Total liabilities (if any portion of your
closure or post-closure cost estimates is in-
cluded in your total liabilities, you may de-
duct that portion from this line and add that
amount to lines 5 and 6) S _______
‘5 Tangible net worth S _______
6 Net worth S _______
7 Current assets S _______
‘8 Current liabilities S _______
9 Net working capital (line 7 minus line 8)
S _________
10 The sum of net Income plus deprecia-
tion, depletion, and amortization S_______
‘11 Total assets in U S (required only if
less than 90% of assets are located In the
US 1$ _____
12 Is line 5 at least 510 million’ (Yes/No)
13 Is line 5 at. least 6 times line 3’ (Yes/No)
14 Is line 9 at least 6 times line 3’ (Yes/No)
‘15 Are at least 90% of assets located in
the U S’ (Yes/No) If, not, complete line 16
16 Is line 11 at least 6 times line 39 (Yes/
No)
17 Is line 4 divided by line 6 less than 20’
(Yes/No)
18 Is line 10 divided by line 4 greater than
01’ (Yes/No)
19 Is line 7 divIded by line 8 greater than
1 5’ (Yes/NO)
ALTERNATIVE II
1 Sum of Current closure and post-closure
cost estimates (total of all cost estimates
listed above) $ _______
2 Amount of annual aggregate liability
coverage to be demonstrated S _______
3 Sum of linesl and 2$ ______
4 Current bond rating of most recent
issuance and name of rating service _______
S Date of issuance of bond _______ _______
6 Date of maturity of bond ______
“7 Tangible net worth (if any portion of
the Closure or post-closure Cost estimates is
included in “total liabilities” on your finan-
cial statements you may add that portion to
this line) _______ S _______
‘6 Total assets in the U S (required only
if less than 90% of assets are located in the
US IS _____
278

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Environmental Protection Agency
9 Is line ‘I at least SlO million’ (Yes/No)
10 Is line 7 at least 6 times line 3’ (Yes/No)
*11 Are at least 90% of assets located In
the U S ‘ (Yea/No) If not complete line 12
12 Ia 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]
(h)(1) A corporate guarantee, as spec-
ified In §264 143(f) or §264 145(f), or
§ 265.143(e) or §265 145(e) of this chapter,
must be worded as follows, except that
instructions in brackets are to be re-
placed with the relevant information
and the brackets deleted
CORPORATE GUARANTEE FOR CLOSURE OR
POST-CLOSURE CARE
Guarantee made this (date) by [ name of
guaranteeing entity], a business corporation
organized under the laws of the State of (in-
sert name of State]. herein referred to as
guarantor This guarantee is made on behalf
Of the [ owner or operator] of [ business ad-
dress], which is [ one of the following “our
subsidiary”, “a subsidiary of (name and ad.
dress of common parent corporation], of
which guarantor is a subsidiary”, or ‘an en-
tity 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
teat 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 fa-
cility(ies) covered by this guarantee [ List
for each facility EPA Identification Nuni-
ber, name, and address Indicate for each
whether guarantee is for closure, post-clo-
sure care, or both]
3 “Closure plans” and “post-closure
plans” as used below refer to the plans main-
tained as required by subpart G of 40 CFR
parts 264 and 265 for the closure and post-clo-
sure care of facilities as identified above
I For value received from (owner or oper-
ator). 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
§264.151
closure or post-closure plans and other per-
mit or interim status requirements whenever
required to do so. the guarantor shall do so
or establish a trust fund as specified in sub-
part 11 of 40 CFR part 264 or 265, as applica-
ble, in the name of [ owner or operator] in the
amount of the current closure or post-clo-
sure 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 fi-
nancial 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 facllity(ies) is(are) lo-
cated and to (owner or operator] that ha in-
tends to provide alternate financial assur-
ance 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 un-
less (owner or operator] has done so
6 The guarantor agrees to notify the EPA
Regional Administrator by certified mall, 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
‘1 Guarantor agrees that within 30 days
after being notified by an EPA Regional Ad-
ministrator of a determination that guar-
antor no longer meets the financial test cri-
teria or that he is disallowed from con-
tinuing as a guarantor of closure or post—clo-
sure care, he shall establish alternate finan-
cial 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 modi-
fication or alteration of an obligation of the
owner or operator pursuant to 40 CFR part
264 or 265
9 Guarantor agrees to remain bound under
this guarantee for as long as (owner or oper-
ator] must comply with the applicable finan-
cial assurance requirements of subpart H of
40 CFR parts 264 and 265 for the above-listed
facilities, except as provided in paragraph 10
o agreement
10 [ Insert the following language if the
ntor is (a) a direct or higher-tier cor-
porate parent, or (b) a firm whose parent cor-
poration is also the parent corporation of the
owner or operator]
Guarantor may terminate this guarantee
by sending notice by certified mail to the
279

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§264.151
40 CFR Ch. I (7—1—02 Edition)
EPA Regional Administrator(s) for the Re-
gion(s) in which the facility(ies) is(are) 10-
cated and to [ owner or operator), provided
that this guarantee may not be terminated
unless and until [ the owner or operator] ob-
tains, and the EPA Regional Adnunis-
trator(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 guar-
antor 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 facillty(ies) is(are) located and by [ the
owner or operator]
11 Guarantor agrees that if [ owner or oper-
ator] fails to provide alternate financial as-
surance 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 assur-
ance 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 ex-
pressly waives notice of amendments or
modifications of the closure and/or post-clo-
sure plan and of amendments or modifica-
tions of the facility permit(s)
I hereby certify that the wording of this
guarantee is Identical to the wording speci-
fied in 40 CFR 264 151(h) as such regulations
were constituted on the date first above
written
Effective date __________________________
(Name of guarantor) ____________________
[ Authorized signature for guarantor] _______
[ Name of person signing) ________________
(Title of person signing) _______________
Signature of witness or notary ___________
(2) A guarantee, as specified in 9264 147(g)
or 9265 147(g) of this chapter. must be worded
as follows, except that instructions in brack-
ets are to be replaced with the relevant in-
formation and the brackets deleted
GUARANTEE FOR LIAmLFrY CovERAoE
Guarantee made this [ date] by [ name of
guaranteeing entity], a business corporation
organized under the laws of [ if incorporated
within the United States Insert “the State of
_______ and insert name of State. if incor-
porated outside the United States insert the
name of the country in which incorporated.
the principal place of business within the
United States, and the name and address of
the registered agent in the State of the prin-
cipal 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 sub-
sidiary.” “a subsidiary of [ name and address
of common parent corporation], or which
guarantor is a subsidiary,” or “an entity
with which guarantor has a substantial busi-
ness relationship, as defined In 40 CFR [ ei-
ther 264 141(h)]’, to any and all third parties
who have sustained or may sustain bodily in-
jury 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 guarautors as
specified in 40 CFR 264 147(g) and 265 147(g)
2 [ Owner or operator] owns or operates the
following hazardous waste management fa-
cility(ies) covered by this guarantee [ 1 . 1st
for each facility EPA identification number,
name, and address, and if guarantor is incor-
porated outside the United States list the
name and address of the guarantor’s reg-
istered agent in each State] This corporate
guarantee satisfies RCRA third-party liabil-
ity requirements for [ insert ‘sudden” or
‘nonsudden” or “both sudden and nonsud-
den”] 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 oper-
ator]. guarantor guarantees to any and all
third parties who have sustained or may sus-
tain bodily injury or property damage caused
by (sudden and/or nonsudden] accidental oc-
currences arising from operations of the fa-
cility(ies) covered by this guarantee that in
the event that [ owner or operator] fails to
satisfy a judgment or award based on a de-
termination of liability for bodily injury or
property damage to third parties caused by
(sudden and/or nonsudden] accidental occur-
rences. 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 in-
jury 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 dam-
ages that [ insert owner or operator] would be
280

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Environmental Protection Agency
obligated to pay in the absence of the con-
tract or agreement
(b) Any obligation of [ insert owner or oper-
atar i under a workers’ compensation, dis-
ability benefits, or unemployment com-
pensation law or any similar law
(c) Bodily injury t O’
(1) An employee of (insert owner or oper-
ator] arising from, and in the course of, em-
ployment 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 employ-
ment by [ insert owner or operator) This ex-
clusion applies
(A) Whether (insert owner or operator)
may be liable as an employer or in any other
capaoity, and
(B) To any obligation to share damages
with or repay another person who must pay
damages because of the injury to persons
identtfted tn paragraphs (1) and (2)
(d) Bodily injury or property damage aris-
ing out of the ownership, maintenance, use,
or entrnstment to others of any aircraft.
motor vehicle or watercraft
( 5) Property damage to
(1) Any property owned, rented, or occu-
pied 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 op-
erator),
(4) Personal property in the care, custody
or control of (insert owner or operator],
(5) flat particular part of real property on
which [ insert owner or operator) or any con-
tractors or subcontractors working directly
or indirectly on behalf of (insert owner or op-
eratorl are performing operations, if the
property damage arises out of tbese oper-
ations
5 Guarantor agrees that if, at the end of
any fiscal year before termination of this
guarantee, the guarantor fails to meet the fi-
naxiciai test criteria, guarantor shall send
within 90 days, by certified mail, notice to
the EPA Regional Administrator(s) for the
Region [ sl in which the facllity(ies) is(are) lo-
cated and to [ owner or operator] that he in-
tends to provide alternate liability coverage
as specified in 40 CFR 264 147 and 265 147, as
applicable, in the name of [ owner or oper-
ator) Within 120 days after the end of such
fiscal year, the guarantor shall establish
such lisbility coverage unless (owner or op-
erator) has done so
6 The guaractor 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 Ad-
§264,151
ministrator of a determination that guar-
antor no longer meets the financial test cri-
teria or that he Is disallowed from con-
tinuing as a guarantor, he shall establish al-
ternate l lsbility coverage as specified in 40
fiFE 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 amend-
ment or modification of the liability require-
ments set by 40 fiFE 264 147 and 265 147, pro-
vided that such modification shall become
effective only if a Regional AdmInistrator
does not disapprove the modification within
30 days of reoeipt of notification of the modi-
fication
9 Guarantor agrees to remain bound under
this guarantee for so long as (owner or oper-
atorj must comply with the applicable re-
quirements of 40 fiFE 264 147 and 265 142 for
the above-listed facility(ies), except as pro-
vided in paragraph 10 of this agreement
10 (Insert the following language if the
guarantor is (a) a direct or higher-tier cor-
porate parent, or (b) a firm whose parent cor-
poration is also the parent corporation of the
owner or operator)
Guarantor may terminate this guarantee
by sending notice by certified mall to the
EPA Regional Administrator(s) for the Re-
gion(s) in which the fscillty(ies) is(are) lo-
cated and to (owner or operator], provtded
that this guarantee may not be terminated
unless and until [ the owner or operator] ob-
tains, and the EPA Regional Adminis-
trator(s) approve(s), alternate liability cov-
erage complying wIth 40 fiFE 264 147 and/or
265 147
(Insert the following language if the guar-
antor 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 mall, 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 no-
tice of acceptance of this guarantee by any
party
12 Guarantor agrees that this guarantee is
in sdditioo to and does not affect any other
responsibility or liability of the guarantor
with respect to the covered faoilitiee
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 lisbility
claim should be paid The certification must
be worded as follows, except that instruc-
tions in brackets are to be replaced with the
relevant information and the brackets de-
leted
281

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§ 264.151
40 CFR Ch. I (7—1-02 Edition)
CER’FIFICATION OF VALID CLAIM
The undersigned, as parties [ insert Prin-
cipal) and [ insert name and address of third-
party claimant(s)), hereby certify that the
claim of bodily injury and/or property dam-
age caused by a (sudden or nonsudden] acci-
dental occurrence arising from operating
(Principals hazardous waste treatment,
storage, or disposal facility should be paid in
the amount of S
[ Signatures) ______________________________
Principal ________________________________
(Notary) Date _________________________
(Signatures) __________________________________
Claimant(s) __________________________________
(Notary) Date __________________________
(b) A valid final court order establishing a
)udgment against the Principal for bodily in-
jury or property damage caused by sudden or
nonsudden accidental occurrences arising
from the operation of the Principals 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 speci-
fied in 40 CFR 264 151(h)(2) as such regula-
tions were constituted on the date shown im-
mediately below
Effective date ____________________________
[ Name of guarantor] ____________________
(Authorized signature for guarantor] _______
(Name of person signing] ________________
(Title of person signing) ________________
Signature of witness of notary ___________
(I) A hazardous waste facility liabil-
ity endorsement as required in § 264 147
or § 265 147 must be worded as follows,
except that instructions in brackets
are to be replaced with the relevant in-
formation and the brackets deleted
HAZARDOUS WASTE FACILITY LIABILITY
ENDORSEMENT
1 This endorsement certifies that the pol-
icy to which the endorsement is attached
provides liability insurance covering bodily
injury and property damage in connection
with the insured’s obligation to demonstrate
financial responsibility under 40 CFR 264 147
or 265 147 The coverage applies at (list EPA
Identification Number, name, and address for
each facility] for (insert “sudden accidental
occurrences,” “nousudden accidental occur-
rences,” or “sudden and nonsudden acci-
dental occurrences”, if coverage is for mul-
tiple facilities and the coverage Is different
for different facilities, indicate which facili-
ties are insured for sudden accidental occur-
rences, which are insured for nonsudden acci-
dental occurrences, and which are insured
for both) The limits of liability are [ insert
the dollar amount of the ‘each occurrence”
and “annual aggregate” limits of the Insur-
er’s liability], exclusive of legal defense
costs
2 The insurance afforded with respect to
such occurrences is subject to all Of the
terms and conditions of the policy, provided,
however, that any provisions of the policy
inconsistent with subsections (a) through Ce)
of this Paragraph 2 are hereby amended to
conform with subsections (a) through Ce)
(a) Bankruptcy or insolvency of the in-
sured shall not relieve the Insurer of its obli-
gations under the policy to which this en-
dorsement is attached
(b) The Insurer is liable for the payment of
amounts within any deductible applicable to
the policy, with a right of reimbursement by
the insured for any such payment made by
the Insurer This provision does not apply
with respect to that amount of any deduct-
ible for which coverage Is demonstrated as
specified in 40 CFR 264 147(f) or 265 147(f)
Cc) Whenever requested by a Regional Ad-
ministrator of the U S Environmental Pro-
tection Agency (EPA), the Insurer agrees to
furnish to the Regional Administrator a
signed duplicate original of the policy and
all endorsements
Cd) Cancellation of this endorsement.
whether by the Inaurer, the insured, a parent
corporation providing insurance coverage for
its subsidiary, or by a firm having an insur-
able interest in and obtaining liability insur-
ance on behalf of the owner or operator of
the hazardous waste management facility,
will be effective only upon written notice
and only after the expiration of 60 days after
a copy of such written notice is received by
the Regional Administrator(s) of the EPA
Region(s) in which the !acility(les) is(are) lo-
cated
(e) Any other termination of this endorse-
ment will be effective only upon written no-
tice and only after the expiration of thirty
(30) days after a copy of such written notice
is received by the Regional Administrator(s)
of the EPA Region(s) in which the facil-
ity(ies) is (are) located
Attached to and forming part of policy No
issued by [ name of Insurer], h rein
called the Insurer, of (address of Insurer) to
[ name of insured] of (address) this — day of
—, 19_ The effective date of said policy
is — day of, 19_
I hereby certify that the wording of this
endorsement is identical to the wording
specified in 40 CFR 264 151(i) as such regula-
tion was constituted on the date first above
written, and that the Insurer Is licensed to
transact the business of insurance, or eligi-
ble to provide insurance as an excess or sur-
plus lines insurer, in one or more States
282

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Environmental Protection Agency
§264.151
(Signature of Authorized Representative of
Insurer]
[ Type name]
(Title], Authorized Representive of [ name of
Insurer]
(Address of Representative)
(j) A certificate of liability insurance
as required in §264 147 or §265 147 must
be worded as follows, except that the
instructions in brackets are to be re-
placed with the relevant information
and the brackets deleted’
hAZARDOUS WASTE FACILITY CERTIFICATE OF
LL BILiTY INSURANCE
I [ Name of Insurer), (the “Insurer”), of
[ address of Insurer) hereby certifies that it
has iBsued liability insurance covering bod-
ily injury and property damage to [ name of
insured], (the “insured”), of (address of in-
sured] in connection with the insured’s obli-
gation to demonstrate financial responsi-
bility under 40 CFR 264 147 or 265 147 The
coverage applies at (list EPA Identification
Number, name, and address for each facilityj
for (insert “sudden accidental occurrences,”
“nonsudden accidental occurrences,” or
‘sudden and nonsudden accidental occur-
rences” • if coverage is for multiple facilities
and the coverage is different for different fa-
cilities. ind icate which facilities are insured
for sudden accidental occurrences, which are
insured for nonsudden accidental occur-
rences, and which are insured for both) The
limits of liability are (Insert the dollar
amount of the “each occurrence” and “an-
nual aggregate” limits of the Insurer’s liabil-
ity], exclusive of legal defense costs The
coverage is provided under policy number
issued on (date] The effective date of
said policy is [ date]
2 The Insurer further certifies the fol-
lowing with respect to the insurance de-
scribed in Paragraph 1
(a) Bankruptcy or insolvency of the in-
sured shall not relieve the Insurer of its obli-
gations under the policy
(b) The Insurer is liable for the payment of
amounts within any deductible applicable to
the policy, with a right of reimbursement by
the insured for any such payment made by
the Insurer This provision does not apply
with respect to that amount of any deduct-
ible for which coverage is demonstrated as
specified in 40 CFR 264 147(f) or 265 147(f)
(C) Whenever requested by a Regional Ad-
ministrator of the U S Environmental Pro-
tection Agency (EPA). the Insurer agrees to
furnish to the Regional Administrator a
signed duplicate original of the policy and
all endorsements
(d) Cancellation of the insurance, whether
by the insurer, the insured, a parent
corportation providing insurance coverage
for its subsidiary, or by a firm having an in-
surable interest in and obtaining liability in-
surance on behalf of the owner or operator of
the hazardous waste management facility.
will be effective only upon written notice
and only after the expiration of 60 days after
a copy of such written notice is received by
the Regional Administrator(s) of the EPA
Region(s) in which the facility(les) ls(are) lo-
cated
(e) Any other termination of the insurance
will be effective only upon written notice
and only after the expiration of thirty (30)
days after a copy of such written notice is
received by the Regional Administrator(s) of
the EPA Region(s) in which the facllity(ies)
is (are) located
I hereby certify that the wording of this
instrument is identical to the wording speci-
fied in 40 CFR 264 151( J) as such regulation
was constituted on the date first above writ-
ten, and that the Insurer is licensed to trans-
act the business of insurance, or eligible to
provide insurance as an excess or surplus
lines Insurer, in one or more States
(Signature of authorized representative of
Insurer]
[ Type name]
(Title], Authorized Representative of [ name
of Insurer]
(A fRepresetaU Z
(k) A letter of credit, as specified in
§ 264 147(h) or 265 147(h) of this chapter,
must be worded as follows, except that
instructions in brackets are to be re-
placed with the relevant information
and the brackets de]eted’
IRREVOCABLE STANDBY Lan-ER 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
or operator’s name and address] for third-
party liability awards or settlements up to
(in words) U S dollars S__________ per oc-
currence and the annual aggregate amount
of [ in words) U S dollars $ , for
sudden accidental occurrences and/or for
third-party liability awards or settlements
up to the amount of [ in words) U S dollars
$___________ per occurrence, and the annual
aggregate amount of (in words] U S dollars
S , for nonsudden accidental oc-
currences available upon presentation of a
sight draft bearing reference to this letter of
credit No __________, and [ insert the fol-
lowing language if the letter of credit is
283

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§ 264.151
40 CFR Ch. I (7—1—02 Edition)
being used without a standby trust fund ‘(1)
a signed certificate reading as follows
CERTIFICATE OF VALID CLAIM
Tile undersigned, as parties [ Insert prin-
cipal] and (insert name and address of third
party claimant(s)], hereby certify that the
claim of bodily Injury and/or property dam-
age caused by a (sudden or nonsudden] acci-
dental occurrence arising from operations of
(principal’s] hazardous waste treatment,
storage, or disposal facility should be paid in
the amount of S [ I 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 li-
ability in a contract or agreement This ex-
clusion does not apply to liability for dam-
ages that (insert principal) would be obli-
gated to pay in tile 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) aria.
ing 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 employ-
ment by (insert principal]
This exclusion applies
(A) Whether (insert principal] may be ha-
ills 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 aris-
ing Out of the ownership, maintenance, use,
or entrustroent to others of any aircraft,
motor vehicle or watercraft
Ce) Property damage to
(1) Any property owned, rented, or occu-
pled by (insert principal),
(2) Premises that are sold, given away or
abandoned by (insert principal) if the prop-
erty 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 indi-
rectly on behalf of (insert principal] are per-
forming operations, if the property damage
arises out of these operations
(Signatures) ______________________________
Grantor
[ Signatures) ______________________________
Claimant(s) ___________________________
or (2) a valid final court order establishing a
judgment against the Grantor for bodily in-
jury or property damage caused by sudden or
nonsudden accidental occurrences arising
from the operation of the Grantor’s facility
or group of facilities
This letter of credit is effective as of (date]
and shall expire on (date) at least one year
later], but such expiration date shall be
automatically extended for a period of (at
least one year] on (date and on each succes-
sive expiration date, unless, at least 120 days
before the current expiration date, we notify
you. tile USEPA Regional Administrator for
Region [ Region #), and (owner’s or operator’s
name] by certified mail that we have decided
not to extend this letter of credit beyond the
current expiration date
Whenever this letter of credit is drawn on
under and In compliance with the terms of
this credit, we shall duly honor such draft
upon presentation to us
(Insert the following language it a standby
trust fund is not being used “In the event
that this letter of credit is used in combina-
tion with another mechanism for liability
coverage, this letter of credit shall be con-
sidered (insert “primary” or “excess” cov-
erage]”
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
and copyrighted by the International Cham-
ber of Commerce,” or “the Uniform Commer-
cial Code”]
(I) A surety bond, as specified in
§264 147(h) or §265 147(h) of this chap-
ter, must be worded as follows except
that instructions in brackets are to be
replaced with the relevant information
and the brackets deleted
PAYMENT BOND
Surety Bond No (Insert number)
Parties [ Insert name and address of owner
or operator), Principal, incorporated in (In-
sert State of incorporation) of (Insert city
and State of principal place of business) and
(Insert name and address of surety corn-
pany(ies)], Surety Company(ies), of (Insert
surety(ies) place of business)
EPA Identification Number, name, and ad-
dress for each facility guaranteed by this
bond _______
284

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Environmental Protection Agency
Sudden ecodenlal NansLdden sco-
seojiTences denial ecsnrTencas
Penal Sure Per (insert emeunil (insert erreunil
Occurrence
MisS Aggregate ( insert amount] ( insert emounil
Purpose This is an agreement between the
Snrety(iea] and the Principal under which
the Surety(ies). ita(their) successors and as-
signees, agree to be responsible for the pay-
ment of claims agalnat the Principal for bod-
ily injury and/or property damage to third
parties caused by [ “sudden” and/or “nonsud-
den”) accidental occorrences arising front
operations of the facility or group of facili-
ties in the sums prescribed herein, snbjsct to
the governing provisions and the following
conditions
Governing Provisions
(1) Section 3004 of the Resource Conserva-
tion and Recovery Act of 1916, as amended
(2) Rules and regulations of the U S Envi-
ronmental Protection Agency (EPA), par-
ticularly 40 CFR (‘j264 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 applica-
ble governing provisions that require the
Principal to have and maintain liability oov-
erege for bodily injury and property damage
to third parties caused by (“sudden” and/or
“nonsudden” I accidental occurrences arising
from operations of the facility or gronp of fa-
cilitiea 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 li-
ability In a contract or agreement This ex-
clusion does not apply to liability for dam-
ages that [ insert principal] would be obli-
gated 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) aris-
ing from, and In tbe 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 employ-
ment by [ insert prIncipal] This exclusion ap-
plies
(A) Whether [ insert principal] may be lia-
ble as an employer or in eny other capacity,
and
(B) To any obligation to share damages
with or repay another person who must pay
damages because of the injury to porsona
identified In paragraphs (1) and (2)
(d) Bodily injury or property damage aris-
ing out of the ownership, maintenance, use,
§264.151
or ectrustment to others of any aircraft,
motor vehicle or watercraft
(e) Property damage to
( I) Any property owned, rented, or occu-
pied by [ insert principal],
(2) PremIses that are sold, given away or
abandoned by (insert principal] if the prop-
erty damage arises out of any part of those
premises.
(3) Property loaned to (tnaert principal],
(4) Persoual 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 subcoutractors working directly or indi-
rectly on behalf of [ insert principal] are per-
forming operations, if the property damage
arises outer 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(lee) shall satisfy a third
party liability claim only npon 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 moat
be worded as follows, except that instruc-
tions in brackets are to be replaced with the
relevant iuformation and the brackets de-
leted
CEivrxflcaTior4 01’ VALTO CLAiM
The codersigned. 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 consudden]
accidentlal occurrence arising fl’om oper-
ating [ Principal’s] hazardous waste treat-
ment, storage, or disposal facility should be
paid In the amount of S [
[ Signature l
Principal
(Notary] Date
[ Signature(s)]
Claimant(s)
[ Notary] Date
or (b) A valId final court order establishing
a 3udgment against the Principal for bodily
injury or property damage caused by sudden
or nonsodden 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 cov-
erage, this bond will be considered [ insert
“primary” or “excess”] coverage
(6) The liability of the Surety(les) shall not
be discharged by any payment or succession
of payments hereunder, unless and until such
285

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§ 264 ] 51
payment or payments shall amount in the
aggregate to the penal sum of the bond In
no event shall the obligation of the Sur-
ety(ies) hereunder exceed the amount of saId
annual aggregate penal sum, provided that
the Surety(ies) furnish(es) notice to the Re-
gienal Administrator forthwith of all claims
filed and payments made by the Surety(ies)
under this bond
(7) The Surety(iea) may cancel the bond by
sending notice of cancellation by certified
mall to the Principal and the USEPA Re-
gional Administrator for Region (Region #],
provided, however, that cancellation shall
not occur during tbe 120 days beginning on
the date of receipt of the notice of cancelia-
ticn by the Principal and the Regional Ad-
ministrator, as evidenced by the return re-
ceipt
(8) The Principal may terminate this bond
by sending written notice to the Surety(ies)
and to the EPA Regionai Administrator(s) of
the EPA Region(s) in which the bonded facil-
ity(iee) is (are) located
(9) The Snrety(lea) hereby waive(s) notifi-
cation of amendments to applicable laws,
statutes, rules and regulations and agree(s)
that no euch amendment shall in any way al-
leviate its (their) obligation on this bond
(10) This bond is effective from (Insert
date] (1201 am, standard time, at the ad-
dress of the Principal as stated herein) and
shall continue in force until terminated as
described above
In Witness Whereof, the Principal and Sur-
ety(iee) have executed this Bond and have af-
fixed their seals on the date set forth above
The persona whose signatures appear below
hereby certify that they are authorized to
execute this anrety bond on behalf of the
Principal and Surety(iee) and that the word-
ing of this surety bond Ia 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 3 ___________________
[ 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 $ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
(m)(1) A trust agreement, as specified
in § 264,147(j) or §265 147(i) of this chap-
ter, must be worded as follows, except
40 CFR Ch. I (7—1-02 Edition)
that lnstructions in brackets are to be
replaced with the relevant information
and the brackets deleted
TRUST A0REEMENT
Trust Agreement, the “Agreement,” en-
tered into as of [ date) by and between (name
of the owner or operator) a (name of State)
(insert “corporation,” “partnership,” “asso-
ciation,” or “proprietorship”), the “Grant-
or,” and (name of ccrporate trustee], [ insert,
“incorporated in the State of ______“or “a
national bank”], the “truetee”
Whereas, the United States Environmental
Protection Agency, “EPA,” an agency of the
United States Government, has established
certain regulations applicable to the Grant-
or, requiring that an owner or operator of a
hazardous waste management facility or
group of facilities mnst demonstrate finan-
cIal responsibility for bodily injury and
property damage to third parties caused by
sudden accidental and/or nonsudden acci-
dental occurrences arising from operations
of the facility or group of facilities
Whereas, the Grantor has eiected to estab-
lish a trust to assure all or part of such fi-
nancial responsibility for the facilities iden-
tified herein
Whereas, the Grantor, acting through its
duly authorized officers, has selected the
Trustee to be the trustee under this agree-
ment, and the Trustee is willing to act as
trustee
Now, therefore, the Grantor and the Trust-
ee 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 suc-
cessor Trustee
Section 2 Identification of Fac i l ities This
agreement pertains to the facilities Identi-
fied on attached acheduis A (on schedule A,
for each facility list the EPA Identification
Number, name, and addreas of the facii-
ity(ies) and the amount of liability coverage,
or portions thereof, if more than one instru-
ment affcrds combined coverage as dem-
onstrated by this Agreement)
Section 3 Establishment of Fund The
Grantor and the Truatae hereby establish a
trust fund, hereinafter the “Fund,” for the
benefit of any and all third parties injured or
damaged by taudden and/or nonsndden] acci-
dental occurrences arising from operation of
the facillty(ies) covered by this guarantee, in
the amounts of _________ (up to 31 million)
per occnrrence and __________ (up to 32 mil-
lion] annual aggregate for sadden accidental
occurrences and _________ [ up to $3 mil-
lion] per occurrence and __________ [ up to 36
286

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Environmental Protection Agency
million) annual aggregate for nonsudden oc-
currences, except that the Fund is not estab-
lished 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 li-
ability in a contract or agreement This ex-
clusion does not apply to liability for dam-
ages 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
Cc) 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 employ-
ment 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 aris-
ing out or 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 occu-
pied by (insert Grantor).
(2) Premises that are sold, given away or
abandoned by (insert Grantor] if the prop-
erty 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 indi-
rectly on behalf of (insert Grantor] are per-
forming 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 con-
sisting of the property, which is acceptable
to the Trustee, described in Schedule B at-
tached 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 under-
§ 264,151
take any responsibility for the amount or
adequacy of, nor any duty to collect from
the Grantor, any payments necessary to dis-
charge any liabilities of the Grantor estab-
lished by EPA
Section 4 Payment for Bodily Injury or
Property Damage The Trustee shall satisfy a
third party liability claim by making pay-
ments 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 instruc-
tions In brackets are to be replaced with the
relevant information and the brackets de-
leted
CERTIFICATION OF VALID CLAIM
The undersigned, as parties (insert Grant-
or) and [ insert name and address of’ third
party claimant(s)], hereby certify that the
claim of bodily injury andior property dam-
age caused by a (sudden or nonsudden] acci-
dental occurrence arising from operating
(Grantor’s] hazardous waste treatment, stor-
age, Or disposal facility should be paid in the
amount of S( j
[ Signatures]
Grantor
[ Signatures]
Claimant(s)
(b) A valid final court order establishing a
judgment against the Grantor for bodily in-
jury 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 invest-
ment policies and guideiines which the
Grantor may communicate in writing to the
Trustee from time to time, subject. however.
to the provisions of this section In invest-
ing. reinvesting, exchanging, selling, and
managing the Fund, the Trustee shall dis-
charge his duties with respect to the trust
fund solely in the interest of the beneficiary
and with the care, skill, prudence, and dili-
gence undei the circumstance then pre-
vailing which persons of prudence, acting in
a like capacity and familiar with such mat-
ters, would use in the conduct of an enter-
prise of a like character and with like aims,
ezcept that
Ci) Securities or other obligations of the
Grantor, or any other owner or Operator of
the facilities, or any of their affiliates as de-
fined in the Investment Company Act of 1940.
287

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§264.151
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
uniuvested for a reasonable time and with-
out liability for the payment of interest
thereon
Section 7 Commingling and Investment The
Trustee is expressly authorized in its discre-
tion
(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 provi-
sions thereof, to be commingled with the as-
sets 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 8la-1 et seq.
including one which may be created, man-
aged. 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 B ExpTess Powers of Trustee With-
out in any way limiting the powers and dis-
cretions 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 in-
quire into the validity or expediency of any
such sale or other disposition.
(b) To make, execute, acknowledge, and de-
liver any and all documents of transfer and
conveyance and any and all other instru-
ments that may be necessary or appropriate
to carry out the powers herein granted,
(0) To register any securities held in the
Fund in its own name or in the name of a
nominee and to bold any security in bearer
form or in book entry, or to combine certifi-
cates representing such securities with cer-
tificates of the same issue held by the Trust-
ee 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 per-
son, or to deposit or arrange for the deposit
of any securities issued by the United States
Government. or any agency or instrumen-
tality thereof, with a Federal Reserve bank,
40 CFR Ch. 1(7—1—02 Edition)
but the books and records of the Trustee
shall at all times show that all such securi-
ties are part of the Fund,
Cd) To deposit any cash in the Fund in in-
terest-bearing accounts maintained or sav-
ings 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 bro-
kerage commissions Incurred by the Fund
shall be paid from the Fund All other ex-
penses incurred by the Trustee in connection
with the administration of this Trust, in-
cluding 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 disburse-
ments 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 ap-
propriate 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 establish-
ment 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 Admin-
istrator shall constitute a conclusively bind-
ing assent by the Grantor barring the Grant-
or 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 re-
spect to any question arising as to the con-
struction 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 com-
pensation 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 suc-
cessor accepts the appointment The suc-
cessor trustee shall have the same powers
and duties as those conferred upon the
Trustee hereunder Upon the successor trust-
ee’s acceptance of the appointment, the
Trustee shall assign, transfer, and pay over
288

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Environmental Protection Agency
§264.151
to the successor trustee the funds and prop-
erties 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 com-
petent 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 in-
curred 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 des-
ignees 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, re-
quests, and instructions All orders, re-
quests, and instructions by the EPA Re-
gional Administrator to the Trustee shall be
in writing, signed by the EPA Regional Ad-
ministrators of the Regions in which the fa-
cilities are located, or their desig’nees, and
the Trustee shall act and shall be fully pro-
tected in acting in accordance with such or-
ders, requests, and instructions The Trustee
shall have the right to assume, in the ab-
sence of written notice to the contrary, that
no event constituting a change or a termi-
nation 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, re-
quests, and instructions from the Grantor
and/or EPA, except as provided for herein
Section 15 Notice of Nonpayment If a pay-
ment for bodily injury or property damage is
made under Section 4 of this trust, the
Trustee shall notify the Grantor of such pay-
ment and the amount(s) thereof within five
(5) working days The Grantor shall, on or
before the anniversary date of the establish-
ment of the Fund following such notice, ei-
ther make payments to the Trustee in
amounts sufficient to cause the trust to re-
turn to its value immediately prior to the
paymCnt of claims under Section 4, or shall
provide written proof to the Trustee that
other financial assurance for liability cov-
erage has been obtained equalling the
amount necessary to return the trust to its
value prior to the payment of claims If the
Grantor does not either make payments to
the Trustee or provide the Trustee with such
proof, the Trustee shall within 10 working
days after the anniversary date of the estab-
lishment of the Fund provide a written no-
tics of nonpayment to the EPA Regional Ad-
ministrator
Section 16 Amendment of AgTeement This
Agreement may be amended by an instru-
ment in writing executed by the Grantor, the
Trustee, and the appropriate EPA Regional
Administrator, or by the Trustee and the ap-
propriate EPA Regional Administrator if the
Grantor ceases to exist
Section 17 Iri’evocabzlity and Tenrnnatton
Subject to the right of the parties to amend
this Agreement as provided in Section 16,
this Trust shall be irrevocable and shall con-
tinue until terminated at the written agree-
ment of the Grantor, the Trustee, and the
EPA Regional Administrator, or by the
Trustee and the EPA Regional Adminis-
trator, if the Grantor ceases to exist Upon
termination of the Trust. all remaining trust
property, less final trust administration ex-
penses, shall be delivered to the Grantor
The Regional Administrator will agree to
termination of the Trust when the owner or
operator substitutes alternate financial as-
surance as specified in this section
Section 18 Immunity and Indemnification
The Trustee shall not incur personal liabil-
ity of any nature in connection with any act
or omission, made in good faith, in the ad-
ministration 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 rea-
son of any act or conduct in its official ca-
pacity, Including all expenses reasonably in-
curred in its defense in the event the Grant-
or fails to provide such defense
Section 19 Choice of Law This Agreement
shall be administered, construed, and en-
forced according to the laws of the State of
[ enter 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
In Witness Whereof the parties have caused
this Agreement to be executed by their re-
spective officers duly authorized and their
Corporate seals to be hereunto affixed and at-
tested as of the date first above written The
parties below certify that the wording of this
Agreement Is identical to the wording speci-
fied in 40 CFR 264 151(m) as such regulations
were constituted on the date first above
written
[ Signature of Grantor]
[ Title]
Attest’
[ Title]
289

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§264.151
[ Seal]
[ Signature of Trustee]
Attest.
[ Title]
(Seal]
(2) The following is an example of the cer-
tification of acknowledgement which must
accompany the trust agreement for a trust
fund as specified In § 264 l47 ) or 265 147(j) of
this chapter State requirements may differ
on the proper content of this acknowledge-
ment
State of
County of ____________________________
On this (date], before me personally came
[ owner or operator] to me known, who, being
by rue duly sworn, did depose and say that
she/he resides at (address), that she/he is
[ title] of [ corporation], the corporation de-
scribed In and whIch executed the above In-
strument, that she/he knows the seal of said
corporation, that the seal affixed to such In-
strument 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)
(n)(1) A standby trust agreement as
specified iii §264 147(h) or 265 147(h) of
this chapter. must be worded as fol-
lows. except that Instructions In brack-
ets are to be replaced with the relevant
information and the brackets deleted
STANDBY TRUST AGREEMEN’I’
Trust Agreement, the “Agreement,” en-
tered into as of (date] by and between (name
of the owner or operator] a (name of a State)
(insert “corporation.” “partnership.” “asso-
ciation.” or “proprietorship”], the “Grant-
or.” 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 Grant-
or, requiring that an owner or operator of a
hazardous waste management facility or
group of facilities must demonstrate finan-
cial responsibility for bodily injury and
property damage to third parties caused by
sudden accidental and/or nonsudden acci-
dental occurrences arising from operations
of the facility or group of facilities
Whereas, the Grantor has elected to estab-
lish a standby trust into which the proceeds
from a letter of credit may be deposited to
assure all or part of such financial responsi-
bility for the facilities identified herein
40 CFR Ch. I (7—1—02 Edition)
Whereas, the Grantor, acting through its
duly authorized officers, has selected the
Trustee to be the trustee under this agree-
ment, and the Trustee is willing to act as
trustee
Now, therefore, the Grantor and the Trust-
ee 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 suc-
cessor Trustee
Section 2 Identification of Facilities This
agreement pertains to the facilities identi-
fied on attached schedule A [ on schedule A.
for each facility list the EPA Identification
Number, name, and address of the facil-
ity(ies) and the amount of liability coverage.
or portions thereof, if more than one instru-
ment affords combined coverage as dem-
onstrated by this Agreement)
Section 3 Establishment of Ftrnd The
Grantor and the Trustee hereby establish a
standby trust fund, hereafter the “Fund,” for
the benefit of any and all third parties in-
jured or damaged by (sudden and/or nonsud-
den] accidental occurrences arising from op-
eration of the faciiity(ies) covered by this
guarantee, in the amounts of __________
(up to $1 million] per occurrence and
__________ [ up to $2 million) annual aggre-
gate for sudden accidental occurrences and
__________ (up to $3 million] per occur-
rence and __________ (up to $6 million] an-
nual aggregate for nonsudden occurrences,
except that the Fund Is not established for
the benefit of third parties for the following
iai Bodily injury or property damage for
ahich (insert Grantor] is obligated to pay
damages by reason of the assumption of li-
ability in a contract or agreement This ex-
clusion does not apply to liability for dam-
ages that (insert Grantor] would be obligated
to pay in the absence of the contract or
agreement
1W Any obligation of [ insert Grantor]
under a workers’ compensation, disability
benefits, or unemployment compensation
law or any similar law
c Bodily Injury to
Ill 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 employ-
ment by (insert Grantor]
This exclusion applies
IM V hetber (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)
290

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§ 264.151
Environmental Protection Agency
(d) Bodily injury or property damage aris-
ing 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 occu-
pLed by [ insert Grantor],
(2) Premises that are sold, given away or
abandoned by (insert Grantor] If the prop-
erty damage arises out of any part of those
premises.
(2) 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 indi-
rectly on behalf of [ insert Grantor] are per-
forming 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 con-
sisting 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, to-
gether 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 under-
take any responsibility for the amount or
adequacy of, nor any duty to collect from
the Grantor, any payments necessary to dis-
charge any liabilities of the Grantor estab-
lished by EPA
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 docu-
ments
(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 instruc-
tions in brackets are to be replaced with the
relevant information and the brackets de-
leted
CERTIFICATION OF VALID CLAIM
The undersigned, as parties (insert Grant-
or] and [ insert name and address of third
party claimant(s)], hereby certify that the
claim of bodily Injury and/or property dam-
age caused by a (sudden or nonsudden) acci-
dental occurrence arising from operating
(Grantor’s] hazardous waste treatment, stor-
age, or disposal facility should be paid in the
amount of $(
[ Signature] ____________________________
Grantor
[ Signatures] ____________________________
Claimant(s) ______________________________
(b) A valid final court order establishing a
judgment against the Grantor for bodily in-
jury 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 ac-
cordance with the requirements of 40 CFR
264 151(k) and Section 4 of this Agreement
Section 6 Trustee Management The Trustee
shall Invest and reinvest the principal and
income. In accordance with general Invest-
ment policies and guidelines which the
Grantor may communicate In writing to the
Trustee from time to time, subject, however,
to the provisione of this Section In Invest-
ing, reinvesting, exchanging, selling, and
managing the Fund, the Trustee shall dis-
charge his duties with respect to the truat
fund solely In the interest of the beneficiary
and with the care, skill, prudence, and dili-
gence under the circumstances then pre-
vailing which persons of prudence, acting in
a like capacity and familiar with such mat-
ters, would use in the conduct of an enter-
prise 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 de-
fined 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 with-
out liability for the payment of interest
thereon
Section 7 Commingling and investment The
Trustee is expressly authorized in its discre-
tion
(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 provi-
sions thereof, to be commingled with the as-
sets 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 BOa-i et seq.
including one which may be created, man-
aged. underwritten, or to which investment
291

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§ 264151
40 CFR Ch. I (7—1-02 Edition)
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 With-
out in any way limiting the powers and dis-
cretions 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 in-
quire Into the validity or expediency of any
such sale or other disposition,
(b) To make, execute, acknowledge, and de-
liver any and all documents of transfer and
conveyance and any and all other instru-
ments 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 certifi-
cates representing such securities with cer-
tificates of the same issue held by the Trust-
ee 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 per-
son, or to deposit or arrange for the deposit
of any securities issued by the United States
Government, or any agency or instrumen-
tality thereof, with a Federal Reserve Bank,
but the books and records of the Trustee
shall at all times show that all such securi-
ties are part of the Fund,
(d) To deposit any cash in the Fund in in-
terest-bearing accounts maintained or sav-
ings 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 bro-
kerage commissions incurred by the Fund
shall be paid from the Fund All other ex-
penses incurred by the Trustee in connection
with the administration of this Trust, in-
cluding 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 disburse-
ments 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 re-
spect to any question arising as to the coo-
struction 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 11 Trustee Compensation The
Trustee shall be entitled to reasonable com-
pensation 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 suc-
cessor accepts the appointment The suc-
cessor trustee shall have the same powers
and duties as those conferred upon the
Trustee hereunder Upon the successor trust-
ee’s acceptance of the appointment, the
Trustee shall assign, transfer, and pay over
to the successor trustee the funds and prop-
erties 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 com-
petent 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 In-
curred 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 des-
ignate 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 con-
trary, 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 oc-
curred 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 instru-
ment in writing executed by the Grantor, the
Trustee, and the EPA Regional Adminl-
trator, or by the Trustee and the EPA Re-
gional 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,
292

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Environmental Protection Agency
§264.171
this Trust shall be irrevocable and shall con-
tinue until terminated at the written agree-
ment of the Grantor, the Trustee, and the
EPA Regional Administrator, or by the
Trustee and the EPA Regional Adminis-
trator, if the Grantor ceases to exist Upon
termination of the Trust, all remaining trust
property, less final trust administration ex-
penses, shall be paid to the Grantor
The Regional Administrator will agree to
termination of the Trust when the owner or
operator substitutes alternative financial as-
surance as specified in this section
Section 16 Immunity and indemnification
The Trustee shall not incur personai liabil-
ity or any nature in connection with any act
or omission, made in good faith, in the ad-
ministration 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 subiected by rea-
son of any act or conduct in its official Ca-
pacity, including all expenses reasonable in-
curred in its defense in the event the Grant-
or fails to provide such defense
Section 17 Choice of Law This Agreement
shall be administered, construed, and en-
forced according to the laws of the State of
(enter name of State)
Section 18 Inte7pTetatlon As used in this
Agreement words in the singular include the
piural 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 re-
spective officers duly authorized and their
corporate seals to be hereunto affixed and at-
tested as of the date first above written The
parties below certify that the wording of this
Agreement is identical to the wording speci-
fied In 40 CFR 264 151(n) as such regulations
were constituted on the date first above
written
(Signature of Grantor]
(Title)
Attest
(Title)
[ Seal)
[ Signature of Trustee)
Attest
[ Title)
[ Seal]
(2) The following is an example of the cer-
tification of acknowledgement which must
accompany the trust agreement for a stand-
by trust fund as specified in section 264 l47th 1
or 265 147(h) or this chapter State require-
merits may differ on the proper content of
this acknowledgement
State of
County of ____________________________
On this (date], before me personally came
[ owner or operator) to me known, who, being
by me duly sworn, did depose and say that
she/he resides at [ address], that she/he Is
(title) of (corporation), the corporation de-
scribed in and which executed the above in-
strument. that she/he knows the seal of said
corporation, that the seal affixed to such in-
strument is such corporate seal, that it was
so affixed by order of the Board of Directors
of said corporation, and that shelhe signed
her/his name thereto by like order
(Signature of Notary Public)
(47 FR 15059. Apr 7, 1982. as amended at 47
FE 16556, Apr 16. 1982. 47 FR 17989, Apr 27.
1982. 47 FR 19995, May 10. 1982. 47 FR 28627,
July 1, 1982. 51 FR 16450, May 2, 1986, 51 FR
25354 July 11, 1986, 52 FR 44320, Nov 18, 1987,
53 FR 33952. Sept 1, 1988, 57 FR 42836. Sept
16. 1992, 59 FR 29960, June 10. 1994]
Subpart I—Use and Management
of Containers
SOURCE 46 FR 2866, Jan 12, 1981, unless
otherwise noted
* 264.170 Applicability.
The regulations in this subpart apply
to owners and operators of all haz-
ardous waste facilities that store con-
tainers of hazardous waste, except as
§ 264 1 provides otherwise
IComment Under §261 7 and §261 33(c), if
a hazardous waste is emptied from a
container the residue remaining in the
container is not considered a hazardous
waste if the container is “empty” as
defIned in §261 7 In that event, man-
agement of the container is exempt
from the requirements of this subpart]
264.171 Condition of containers.
If a container holding hazardous
waste is not in good condition (e g • se-
vere rusting, apparent structural de-
fectsr or if it begins to leak, the owner
or operator must transfer the haz-
ardous waste from this container to a
container that is in good condition or
manage the waste in some other way
that complies with the requirements of
this part
293

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FINANCIAL ASSURANCE REGULATIONS
FOR RCRA SUBTITLE C
CLOSURE AND POST-CLOSURE
Changes to Permits
§270.40 Transfer of Permits

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Environmental Protection Agency
activities shall be evidenced by a firm
public commitment satisfactory to the
Director, such as resolution of the
board of directors of a corporation
148 FR 14228. Apr I, 1983. as amended at 48
FR 30114. June 30. 19831
Subpart D—Changes to Permit
§ 270.40 Transfer of permits.
(a) A permit may be transferred by
the permittee to a new owner or oper-
ator only if the permit has been modi-
fied or revoked and reissued (under
§270 40(b) or §270 41(b)(2)) to identify
the new permittee and incorporate
such other requirements as may be
necessary under the appropriate Act
(b) Changes in the ownership or oper-
ational control of a facility may be
made as a Class I modification with
prior written approval of the Director
in accordance with §270 42 The new
owner or operator must submit a re-
vised permit application no later than
90 days prior to the scheduled change
A written agreement containing a spe-
cific date for transfer of permit respon-
sibility between the current and new
pei-mittees must also be submitted to
the Director When a transfer of owner-
ship or operational control occurs, the
old owner or operator shall comply
with the requirements of 40 CFR part
264. subpart H (Financial Require-
ments) until the new owner or operator
has demonstrated that he or she is
complying with the requirements of
that subpart The new owner or oper-
ator must demonstrate compliance
with subpart H requirements within six
months of the date of the change of
ownership or operational control of the
facility Upon demonstration to the Di-
rector by the new owner or operator of
compliance with subpart H. the Direc-
tor shall notify the old owner or oper-
ator that he or she no longer needs to
comply with subpart H as of the date of
demonstration
153 FR 37935, Sept 28 19881
§ 270.41 Modification or revocation
and reissuance of permits.
When the Director receives any infor-
mation (for example, inspects the facil-
ity, receives information submitted by
the perrnittee as required in the permit
§ 270.41
(see §270 30). receives a request for rev-
ocation and reissuance under § 124 5 or
conducts a review of the permit file).
he or she may determine whether one
or more of the causes listed in para-
graphs (a) and (b) of this section for
modification, or revocation and
reissuance or both exist If cause ex-
ists, the Director may modify or re-
voke and reissue the permit accord-
ingly, subject to the limitations of
paragraph (c) of this section. and may
request an updated application if nec-
essary When a permit is modified, only
the conditions subject to modification
are reopened If a permit is revoked
and reissued, the entire permit is re-
opened and subject to revision and the
permit is reissued for a new term (See
40 CFR 124 5(c)(2) ) If cause does not
exist under this section. the Director
shall not modify or revoke and reissue
the permit, except on request of the
permittee If a permit modification is
requested by the permittee. the Direc-
tor shall approve or deny the request
according to the procedures of 40 CFR
270 42 Otherwise, a draft permit must
be prepared and other procedures in
part 124 (or procedures of an authorized
State program) followed
(a) Causes for modification The fol-
lowing are causes for modification, but
not revocation and reissuance. of per-
mits. the following may be causes for
revocation and reissuance, as well as
modification, when the permittee re-
quests or agrees
(I) Alterations There are material and
substantial alterations or additions to
the permitted facility or activity
which occurred after permit issuance
which justify the application of permit
conditions that are different or absent
in the existing permit
(2) Information The Director has re-
ceived information Permits may be
modified during their terms for this
cause only if the information was not
available at the time of permit
issuance (other than revised regula-
tions, guidance, or test methods) and
would have justified the application of
different permit conditions at the time
of issuance
(3) New statutory requirements or regu-
lations The standards or regulations on
which the permit was based have been
345

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FINANCIAL ASSURANCE REGULATIONS
FOR RCRA SUBTITLE C
CLOSURE AND POST-CLOSURE
Interim Facilities
§265.140 Applicability
§265.141 Definitions of terms as used in this subpart
§265.142 Cost estimate for closure
§265.143 Financial assurance for closure
§265.144 Cost estimate for post-closure care
§265.145 Financial assurance for post-closure care
§265.146 Use of mechanism for financial assurance of both closure and post-closure care
§265.147 Liability requirements

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§265.140
40 CFR Ch. I (7—1—02 Edition)
(2) The requirements for facility-wide
corrective action in §264 101 of this
chapter;
(3) The requirements of 40 CFR 264.91
through 264.100.
(b)(l) The Regional Administrator, in
issuing enforceable documents under
§265 121 In lieu of permits, will assure a
meaningful opportunity for public in-
volvement which, at a minimum, in-
cludes public notice and opportunity
for public comment.
(i) When the Agency becomes in-
volved in a remediation at the facility
as a regulatory or enforcement matter,
(ii) On the proposed preferred remedy
and the assumptions upon which the
remedy is based, in particular those re-
lated to land use and site characteriza-
tion, and
(II I) At the time of a proposed deci-
sion that remedial action is complete
at the facility These requirements
must be met before the Regional Ad-
ministrator may consider that the fa-
cility has met the requirements of 40
CFR 2’70 1(c)(7), unless the facility
qualifies for a mothfication to these
public involvement procedures under
paragraph (b)(2) or (3) of this section
(2) If the Regional Administrator de-
termines that even a short delay in the
implementation of a remedy would ad-
versely affect human health or the en-
vironment, the Regional Administrator
may delay compliance with the re-
quirements of paragraph (b)(1) of this
section and implement the remedy im-
mediately However, the Regional Ad-
ministrator must assure involvement
of the public at the earliest oppor-
tunity, and, in all cases, upon making
the decision that additional remedial
action is not needed at the facility
(3) The Regional Administrator may
allow a remediation initiated prior to
October 22, 1998 to substitute for cor-
rective action required under a post-
closure permit even if the public in-
volvement requirements of paragraph
(b)(l) of this section have not been met
so long as the Regional Administrator
assures that notice and comment on
the decision that no further remedi-
ation is necessary to protect human
health and the environment takes
place at the earliest reasonable oppor-
tunity after October 22, 1998
[ 63 FR 56734, Oct 22. 1998]
Subpart H—Financial
Requirements
SOURCE 47 FR 15064, Apr 7, 1982, unless
otherwise noted
§ 265.140 Applicability.
(a) The requirements of §t265 142,
265 143 and 265 147 through 265 150 apply
to owners or operators of all hazardous
waste facilities, except as provided oth-
erwise in this section or in §265 1
(b) The requirements of §t265 144 and
265 146 apply only to owners and opera-
tors of
(1) Disposal facilities,
(2) Tank systems that are required
under §264 197 of this chapter to meet
the requirements for landfills, and
(3) Containment buildings that are
required under §265 1102 to meet the re-
quirements for landfills
(C) States and the Federal govern-
ment are exempt from the require-
ments of this subpart
(U) The Regional Administrator may
replace all or part of the requirements
of this subpart applying to a regulated
unit with alternative requirements for
financial assurance set out in the per-
mit or in an enforceable document (as
defined in 40 CFR 270 1(c)(7)), where the
Regional Administrator
(1) Prescribes alternative require-
ments for the regulated unit under
§265 90(1) and/or 265 110(d), and
(2) Determines that it is not nec-
essary to apply the requirements of
this subpart because the alternative fi-
nancial assurance requirements will
protect human health and the environ-
ment
[ 47 FR 15064, Apr 7, 1982, as amended at 51
FR 16455. May 2, 1986. 51 FR 25479. July 14,
1986. 57 FR 37267. Aug 18. 1992, 63 FR 56734,
Oct 22. 1998]
§ 265.141 Definitions of terms as used
in this subpart.
(a) Closure plan means the plan for
closure prepared in accordance with
the requirements of § 265.112
(b) Current closure cost estaniate means
the most recent of the estimates pre-
pared in accordance with §265 142 (a),
(b), and (c)
(c) Current post-closure cost estimate
means the most recent of the estimates
478

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Environmental Protection Agency
prepared in accordance with §265 144
(a), (b), and (c)
(d) Parent corporation means a cor-
poration which directly owns at least
50 percent of the voting stock of the
corporation which is the facility owner
or operator; the latter corporation Is
deemed a “subsidiary” of the parent
corporation
(e) Post-closure plan means the plan
for post-closure care prepared in ac-
cordance with the requirements of
§ 265 117 through 265 120.
(f) The following terms are used In
the specifications for the financial
tests for closure, post-closure care, and
liability coverage The definitions are
intended to essist in the understanding
of these regulations and are not in-
tended to limit the meanings of terms
in a way that conflicts with generally
accepted accounting practices
Assets means all existing and all
probable future economic benefits
obtained or controlled by a particular
entity
Current assets means cash or other as-
sets or resources commonly identified
as those which are reasonably expected
to be realized in cash or sold or con-
sumed during the normal operating
cycle of the business
Current liabilities means obligations
whose liquidation is reasonably ex-
pected to require the use of existing re-
sources properly classifiable as current
assets or the creation of other current
liabilities
Current plugging and abandonment cost
estimate means the most recent of the
estimates prepared in accordance with
§ 144 62(a), (b), and (c) of this title
Independently audited refers to an
audit performed by an independent cer-
tified public accountant in accordance
with generally accepted auditing
standards
Liabilities means probable future sac-
rifices of economic benefits arising
from present obligations to transfer as-
sets or provide services to other enti-
ties in the future as a result of past
transactions or events.
Net woTking capital means current as-
sets minus current liabilities.
Net worth means total assets minus
total liabilities and is equivalent to
owner’s equity
§265.141
Tangible net worth means the tangible
assets that remain after deducting li-
abilities, such assets would not include
intangibles such as goodwill and rights
to patents or royalties
(g) In the liability insurance require-
ments the terms bodily injury and prop-
erty damage shall have the meanings
given these terms by applicable State
law However, these terms do not in-
clude those liabilities which, con-
sistent with standard industry prac-
tice, are excluded from coverage in li-
ability policies for bodily injury and
property damage The Agency intends
the meanings of other terms used in
the liability Insurance requirements to
be consistent with their common
meanings within the Insurance Indus-
try The definitions given below of 8ev-
eral of the terms are intended to assist
in the understanding of these regula-
tions and are not intended to limit
their meanings in a way that conflicts
with general insurance industry usage
Accidental occurrence means an acci-
dent, including continuous or repeated
exposure to conditions, which results
in bodily injury or property damage
neither expected nor intended from the
standpoint of the insured
Legal defense costs means any ex-
penses that an insurer incurs In defend-
ing against claims of third parties
brought under the terms and conth-
tions of an insurance policy.
Nonsudden accidental occurrence
means an occurrence which takes place
over time and involves continuous or
repeated exposure
Sudden accidental occurrence means an
occurrence which is not continuous or
repeated in nature
(h) Substantial business relationship
means the extent of a business rela-
tionship necessary under applicable
State law to make a guarantee con-
tract issued incident to that relation-
ship valid and enforceable A “sub-
stantial business relationship” must
arise from a pattern of recent or ongo-
ing business transactions, in addition
to the guarantee itself, such that a cur-
rently existing business relationship
between the guarantor and the owner
479

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§265.142
40 CFR Ch. I (7—1—02 Edition)
or operator is demonstrated to the sat-
isfaction of the applicable EPA Re-
giorial Administrator
[ 47 F t 16558, Apr 16, 1982, as amended at 51
FR 16456, May 2. 1986. 53 FR 33959, Sept 1,
19881
§ 265.142 Cost estimate for closure.
(a) The owner or operator must have
a detailed written estimate, in current
dollars, of the cost of closing the facil-
ity in accordance with the require-
ments in ff265 ill through 265 115 and
applicable closure requirements in
ff265178, 265197, 265228, 265258. 265280
265310, 265351. 265381, 265404. and
265 1102
(1) The estimate must equal the cost
of final closure at the point in the fa-
cility’s active life when the extent and
manner of its operation would make
closure the most expensive, as indi-
cated by its closure plan (see
§265 112(b)). and
(2) The closure cost estimate must be
based on the costs to the owner or op-
erator of hiring a third party to close
the facility A third party is a party
who is neither a parent nor a sub-
sidiary of the owner or operator (See
definition of parent corporation in
§265 141(d) ) The owner or operator may
use costs for on-site disposal if he can
demonstrate that on-site disposal ca-
pacity will exist at all times over the
life of the facility
(3) The closure cost estimate may not
incorporate any salvage value that
may be realized with the sale of haz-
ardous wastes, or non-hazardous wastes
if applicable under §265 113(d), facilIty
structures or equipment, land, or other
assets associated with the facility at
the time of partial or final closure
(4) The owner or operator may not in-
corporate a zero cost for hazardous
wastes, or non-hazardous wastes if ap-
plicable under §265 113(d), that might
have economic value
(b) During the active life of the facil-
ity, the owner or operator must adjust
the closure cost estimate for inflation
within 60 days prior to the anniversary
date of the establishment of the finan-
cial instrument(s) used to comply with
§265 143 For owners and operators
using the financial test or corporate
guarantee, the closure cost estimate
must be updated for inflation within 30
days after the close of the firm’s fiscal
year and before submission of updated
information to the Regional Adminis-
trator as specified in §265 143(e)(3) The
adjustment may be made by recalcu-
lating the closure cost estimate in cur-
rent dollars, or by using an inflation
factor derived from the most recent
Implicit Price Deflator for Gross Na-
tional Product published by the U S
Department of Commerce in its Survey
of Current Business, as specified in para-
graphs (b)(1) and (2) of this section The
inflation factor is the result of dividing
the latest published annual Deflator by
the Deflator for the previous year
(1) The first adjustment is made by
multiplying the closure cost estimate
by the inflation factor The result is
the adjusted closure cost estimate
(2) Subsequent adjustments are made
by multiplying the latest adjusted clo-
sure cost estimate by the latest infla-
tion factor
(c) During the active life of the facil-
ity, the owner or operator must revise
the closure cost estimate no later than
30 days after a revision has been made
to the closure plan which increases the
cost of closure If the owner or oper-
ator has an approved closure plan, the
closure cost estimate must be revised
no later than 30 days after the Re-
gional Administrator has approved the
request to modify the closure plan, if
the change in the closure plan in-
creases the cost of closure The revised
closure cost estimate must be adjusted
for inflation as specified in § 265,142(b)
(d) The owner or operator must keep
the following at the facility during the
operating life of the facility The latest
closure cost estimate prepared in ac-
cordance with ff265,142 (a) and Cc) and,
when this estimate has been adjusted
in accordance with § 265.142(b), the lat-
est adjusted closure cost estimate
(47 FR i5061, Apr 7, 1982, as amended at 50
FR 4514 Jan 31. 1985. 51 FR 16456. May 2.
1986 51 FR 33397, Aug 14, 1989. 57 FR 37267,
Aug iS. i992J
*265.143 Financial assurance for clo-
sure.
By the effective date of these regula-
tions, an owner or operator of each fa-
cility must establish financial assur-
ance for closure of the facility He
480

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Environmental Protection Agency
§265.143
must choose from the options as speci-
fied in paragraphs (a) through (e) of
this section
(a) Closure trust fund. (1) An owner or
operator may satisfy the requirements
of this section by establishing a closure
trust fund which conforms to the re-
quirements of this paragraph and sub-
mitting an originally signed duplicate
of the trust agreement to the Regional
Administrator The trustee must be an
entity which has the authority to act
as a trustee and whose trust operations
are regulated and examined by a Fed-
eral or State agency
(2) The wording of the trust agree-
ment must be identical to the wording
specified in §264 151(a)(1), and the trust
agreement must be accompanied by a
formal certification of acknowledg-
ment (for example, see §264 151(a)(2))
Schedule A of the trust agreement
must be updated within 60 days after a
change in the amount of the current
closure cost estimate covered by the
agreement.
(3) Payments into the trust fund
must be made annually by the owner or
operator over the 20 years beginning
with the effective date of these regula-
tions or over the remaining operating
life of the facility as estimated in the
closure plan, whichever period is short-
er, this period is hereafter referred to
as the “pay-in period” The payments
into the closure trust fund must be
made as follows
(I) The first payment must be made
by the effective date of these regula-
tions, except as provided in paragraph
(a)(5) of this section The first payment
must be at least equal to the current
closure cost estimate, except as pro-
vided in § 265 143(f), divided by the num-
ber of years in the pay-in period
(ii) Subsequent payments must be
made no later than 30 days after each
anniversary date of the first payment
The amount of each subsequent pay-
ment must be determined by this
formula
CE-CV
Next payment = _______
where CE is the current closure cost es-
timate. CV is the current value of the
trust fund, and Y is the number of
years remaining in the pay-in period
(4) The owner or operator may accel-
erate payments into the trust fund or
he may deposit the full amount of the
current closure cost estimate at the
time the fund is established However
he must maintain the value of the fund
at no less than the value that the fund
would have if annual payments were
made as specified in paragraph (a)(3) of
this section
(5) If the owner or operator estab-
lishes a closure trust fund after having
used one or more alternate mecha-
nisms specified in this section, his first
payment must be in at least the
amount that the fund would contain if
the trust fund were established ini-
tially and annual payments made as
specified in paragraph (a)(3) of this sec-
tion
(6) After the pay-in period is com-
pleted, whenever the current closure
cost estimate changes, the owner or op-
erator must compare the new estimate
with the trustee’s most recent annual
valuation of the trust fund If the value
of the fund is less than the amount of
the new estimate, the owner or oper-
ator, within 60 days after the change in
the cost estimate, must either deposit
an amount into the fund so that its
value after this deposit at least equals
the amount of the current closure cost
estimate, or obtain other financial as-
surance as specified in this section to
cover the difference
(7) If the value of the trust fund is
greater than the total amount of the
current closure cost estimate, the
owner or operator may submit a writ-
ten request to the Regional Athninis-
trator for release of the amount in
excess of the current closure cost esti-
mate
(8) If an owner or operator sub-
stitutes other financial assurance as
specified in this section for all or part
of the trust fund, he may submit a
written request to the Regional Admin-
istrator for release of the amount in
excess of the current closure cost esti-
mate covered by the trust fund
(9) Within 60 days after receiving a
request from the owner or operator for
release of funds as specified in para-
graph (a) (7) or (8) of this section, the
Regional Administrator will instruct
the trustee to release to the owner or
481

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§265.143
40 CFR Ch. I (7—1-02 Edition)
operator such funds as the Regional
Administrator specifies in writing
(10) After beginning partial or final
closure, an owner or operator or an-
other person authorized to conduct
partial or final closure may request re-
imbursements for partial or final clo-
sure expenditures by submitting
itemized bills to the Regional Adminis-
trator The owner or operator may re-
quest reimbursements for partial clo-
sure on]y if sufficient funds are re-
maining in the trust fund to cover the
maximum costs of closing the facility
over its remaining operating life No
later than 60 days after receiving bills
for partial or final closure activities,
the Regional Administrator will in-
struct the trustee to make reimburse-
ments in those amounts as the Re-
gional Administrator specifies in writ-
ing, if the Regional Administrator de-
termines that the partial or final clo-
sure expenditures are in accordance
with the approved closure plan, or oth-
erwise justified If the Regional Admin-
istrator has reason to believe that the
maximum cost of closure over the re-
maining life of the facility will be sig-
nificantly greater than the value of the
trust fund, he may withhold reimburse-
ments of such amounts as he deems
prudent until he determines, in accord-
ance with §265 143(h) that the owner or
operator is no longer required to main-
tain financial assurance for final clo-
sure of the facility If the Regional Ad-
ministrator does not instruct the
trustee to make such reimbursements,
he will provide to the owner or oper-
ator a detailed written statement of
reasons
(11) The Regional Administrator will
agree to termination of the trust when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in thi8 section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §265 143(h)
(b) Suret bond guaranteeing payment
in c orure trust fund (1) An owner or
operator may satisfy the requirements
of this section by obtaining a surety
bond which conforms to the require-
ments of this paragraph and submit-
ting the bond to the Regional Adminis-
trator The surety company issuing the
bond must, at a minimum, be among
those listed as acceptable sureties on
Federal bonds in Circular 570 of the
U.S Department of the Treasury
(2) The wording of the surety bond
must be identical to the wording speci-
fied in § 264.151(b)
(3) The owner or operator who uses a
surety bond to satisfy the require-
ments of this section must also estab-
lish a standby trust fund. Under the
terms of the bond, all payments made
thereunder will be deposited by the
surety directly Into the standby trust
fund in accordance with instructions
from the Regional Administrator. This
standby trust fund must meet the re-
quirements specified in §265 143(a), ex-
cept that
(i) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
surety bond; and
(ii) Until the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in §265 143(a),
(B) Updating of Schedule A of the
trust agreement (see §264.151(a)) to
show current closure cost estimates;
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement.
(4) The bond must guarantee that the
owner or operator will
(i) Fund the standby trust fund in an
amount equal to the penal sum of the
bond before the beginning of final clo-
sure of the facility, or
(ii) Fund the standby trust fund in an
amount equal to the penal sum within
15 days after an administrative order
to begin final closure issued by the Re-
gional Administrator becomes final, or
within 15 days after an order to begin
final closure is issued by a U.S district
court or other court of competent ju-
risthction, or
(iii) Provide alternate financial as-
surance as Bpeclfied in this section, and
obtain the Regional Administrator’s
written approval of the assurance pro-
vided, within 90 days after receipt by
both the owner or operator and the
Regional Administrator of a notice of
482

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Environmental Protection Agency
§265.143
cancellation of the bond from the sur-
ety
(5) Under the terms of the bond, the
surety will become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond
(6) The penal sum of the bond must
be in an amount at least equal to the
current closure cost estimate, except
as provided in §265 143(f)
(7) Whenever the current closure cost
estimate increases to an amount great-
er than the penal sum, the owner or op-
erator, within 60 days after the in-
crease, must either cause the penal
sum to be increased to an amount at
least equal to the current closure cost
estimate and submit evidence of such
increase to the Regional Adminis-
trator, or obtain other financial assur-
ance as specified in this section to
cover the increase Whenever the cur-
rent closure cost estimate decreases.
the penal sum may be reduced to the
amount of the current closure cost es-
timate following written approval by
the Regional Administrator
(8) Under the terms of the bond the
surety may cancel the bond by sending
notice of cancellation by certified mail
to the owner or operator and to the Re-
gional Administrator Cancellation
may not occur, however, during the 120
days beginning on the date of receipt of
the notice of’ cancellation by both the
owner or operator and the Regional Ad-
ministrator. as evidenced by the return
receipts
(9) The owner or operator may cancel
the bond if the Regional Administrator
has given prior written consent based
on his receipt of evidence of alternate
financial assurance as specified in this
section
(C) Closure letter of credit (1) An owner
or iif mi ” a%isfy the require-
ments of this section by obtaining an
irrevocable standby letter of credit
which conforms to the requirements of
this paragraph and submitting the let-
ter to the Regional Administrator The
issuing institution must be an entity
which has the authority to issue letters
of credit and whose letter-of-credit op-
erations are regulated and examined by
a Federal or State agency
(2) The wording of the letter of credit
must be identical to the wording speci-
fied in §264 151(d)
(3) An owner or operator who uses a
letter of credit to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the letter of credit, all
amounts paid pursuant to a draft by
the Regional Administrator will be de-
posited by the issuing institution di-
rectly into the standby trust fund in
accordance with instructions from the
Regional Administrator This standby
trust fund must meet the requirements
of the trust fund specified in
§265 143(a), except that
(I) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
letter of credit, and
(ii) Unless the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in §265 143(a),
(B) Updating of Schedule A of the
trust agreement (see §264 151(a)) to
show current closure cost estimates,
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement
(4) The letter of credit must be ac-
companied by a letter from the owner
or operator referring to the letter of
credit by number, issuing institution,
and date, and providing the following
information The EPA Identification
Number, name, and address of the facil-
Ity and the amount of funds assured
for closure of the facility by the letter
of credit
(5) The letter of credit must be irrev-
ocable and issued for a period of at
least 1 year The letter of credit must
provide that the expiration date will be
automatically extended for a period of
at least 1 year unless, at least 120 days
before the current expiration date, the
issuing institution notifies both the
owner or operator and the Regional Ad-
ministrator by certified mail of a deci-
sion not to extend the expiration date
Under the terms of the letter of credit,
the 120 days will begin on the date
when both the owner or operator and
483

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§ 265.143
40 CFR Ch. I (7—1—02 Edition)
the Regional Administrator have re-
ceived the notice, as evidenced by the
return receipts.
(6) The letter of credit must be issued
in an amount at least equal to the cur-
rent closure cost estimate, except as
provided in § 285 143(f)
(7) Whenever the current closure cost
estimate increases to an amount great-
er than the amount of the credit, the
owner or operator, within 60 days after
the Increase, must either cause the
amount of the credit to be increased so
that it at least equals the current clo-
sure cost estimate and submit evidence
of such increase to the Regional Ad-
ministrator, or obtain other financial
assurance as specified in this section to
cover the increase Whenever the cur-
rent closure cost estimate decreases,
the amount of the credit may be re-
duced to the amount of the current
closure cost estimate following written
approval by the Regional Adminis-
trator
(8) Following a final administrative
determination pursuant to section 3008
of RCR.A that the owner or operator
has failed to perform final closure in
accordance with the approved closure
plan when required to do so, the Re-
gional Administrator may draw on the
letter of credit
(9) II the owner or operator does not
establish alternate financial assurance
as specified In this section and obtain
written approval of such alternate as-
surance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice from
the Issuing institution that it has de-
cided not to extend the letter of credit
beyond the current expiration date, the
Regional Administrator will draw on
the letter of credit The Regional Ad-
ministrator may delay the drawing if
the issuing institution grants an exten-
sion of the term of the credit. During
the last 30 days of any such extension
the Regional Administrator will draw
on the letter of credit if the owner or
operator has failed to provide alternate
financial assurance as specified in this
section and obtain written approval of
such assurance from the Regional Ad-
ministrator.
(10) The Regional Administrator will
return the letter of credit to the
issuing institution for termination
when.
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section; or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section In accord-
ance with §265 143(h)
( d) Closure insurance (1) An owner or
operator may s li?y’ the requirements
of this section by obtaining closure in-
surance which conforms to the require-
ments of this paragraph and submit-
ting a certificate of such insurance to
the Regional Administrator By the ef-
fective date of these regulations the
owner or operator must submit to the
Regional Administrator a letter from
an insurer stating that the insurer is
considering issuance of closure insur-
ance conforming to the requirements of
this paragraph to the owner or oper-
ator Within 90 days after the effective
date of these regulations, the owner or
operator must submit the certificate of
insurance to the Regional Adminis-
trator or establish other financial as-
surance as specified in this section At
a minimum, the Insurer must be li-
censed to transact the business of in-
surance, or eligible to provide insur-
ance as an excess or surplus lines in-
surer, In one or more States
(2) The wording of the certificate of
insurance must be identical to the
wording specified in §264 151(e)
(3) The closure insurance policy must
be issued for a face amount at least
equal to the current closure cost esti-
mate, except as provided in § 265 143(f)
The term “face amount” means the
total amount the Insurer is obligated
to pay under the policy. Actual pay-
ments by the insurer will not change
the face amount, although the insur-
er’s future liability will be lowered by
the amount of the payments
(4) The closure insurance policy must
guarantee that funds will be available
to close the facility whenever final clo-
sure occurs The policy must also guar-
antee that once final closure begins,
the insurer will be responsible for pay-
ing out funds, up to an amount equal to
the face amount of the policy, upon the
direction of the Regional Adminis-
trator, to such party or parties as the
Regional Administrator specifies
484

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Environmental Protection Agency
§265.14,3
(5) After beginning partial or final
closure, an owner or operator or any
other person authorized to conduct clo-
sure may request reimbursements for
closure expenditures by submitting
itemized bills to the Regional Adminis-
trator The owner or operator may re-
quest reimbursements for partial clo-
sure only if the remaining value of the
policy is sufficient to cover the max-
imum costs of closing the facility over
its remaining operating life Within 60
days after receiving bills for closure
activities, the Regional Administrator
will instruct the insurer to make reim-
bursements in such amounts as the Re-
gional Administrator specifies in writ-
ing if the Regional Administrator de-
termines that the partial or final clo-
sure expenditures are in accordance
with the approved closure plan or oth-
erwise justified If the Regional Admin-
Istrator has reason to believe that the
maximum cost of closure over the re-
maining life of the facility will be sig-
nificantly greater than the face
amount of the policy, he may withhold
reimbursement of such amounts as he
deems prudent until he determines, in
accordance with §265.143(h), that the
owner or operator is no longer required
to maintain financial assurance for
final closure of the particular facility
If the Regional Administrator does not
instruct the insurer to make such re-
imbursements, he will provide to the
owner or operator a detailed written
statement of reasons.
(6) The owner or operator must main-
tain the policy in full force and effect
until the Regional Administrator con-
sents to termination of the policy by
the owner or operator as specified in
paragraph (d)(10) of this section Fail-
ure to pay the premium, without sub-
stitution of alternate financial assur-
ance as specified in this section, will
constitute a significant violation of
these regulations, warranting such
remedy as the Regional Administrator
deems necessary Such violation will
be deemed to begin upon receipt by the
Regional Administrator of a notice of
future cancellation, termination, or
failure to renew due to nonpayment of
the premium, rather than upon the
date of expiration
(7) Each policy must contain a provi-
sion allowing assignment of the policy
to a successor owner or operator Such
assignment may be conditional upon
consent of the insurer, provided such
consent is not unreasonably refused
(8) The policy must provide that the
insurer may not cancel, terminate, or
fail to renew the policy except for fail-
ure to pay the premium. The auto-
matic renewal of the policy must, at a
minimum, provide the insured with the
option of renewal at the face amount of
the expiring policy If there is a failure
to pay the premium, the insurer may
elect to cancel, terminate, or fail to
renew the policy by sending notice by
certified mail to the owner or operator
and the Regional Administrator Can-
cellation, termination, or failure to
renew may not occur, however, during
the 120 days beginning with the date of
receipt of the notice by both the Re-
gional Administrator and the owner or
operator, as evidenced by the return re-
ceipts. Cancellation, termination, or
failure to renew may not occur and the
policy will remain in full force and ef-
fect in the event that on or before the
date of expiration’
(1) The Regional Administrator
deems the facility abandoned; or
(ii) Interim status is terminated or
revoked: or
(iii) Closure is ordered by the Re-
gional Administrator or a U S district
court or other court of competent ju-
risdiction, or
(iv) The owner or operator is named
as debtor in a voluntary or involuntary
proceeding under Title 11 (Bank-
ruptcy), U.S Code, or
(v) The premium due is paid
(9) Whenever the current closure cost
estimate increases to an amount great-
er than the face amount of the policy,
the owner or operator, within 60 days
after the increase, must either cause
the face amount to be increased to an
amount at least equal to the current
closure cost estimate and submit evi-
dence of such increase to the Regional
Administrator, or obtain other finan-
cial assurance as specified in this sec-
tion to cover the increase Whenever
the current closure cost estimate de-
creases, the face amount may be
reduced to the amount of the current
closure cost estimate following written
approval by the Regional Adminis-
trator
485

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§ 265.143
40 CFR Ch. I (7—1—02 Edition)
(10) The Regional Administrator will
give written consent to the owner or
operator that he may terminate the in-
surance policy when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section; or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with § 265.143(h)
(e) Financial test and corporate guar-
ai je joi ETh1üre (1) An owner or oper-
atoi y satisfy the requirements of
this section by demonstrating that he
passes a financial test as specified in
this paragraph To pass this test the
owner or operator must meet the cri-
teria of either paragraph (e)(1)(i) or (ii)
of this section.
(i) The owner or operator must have
(A) Two of the following three ratios
A ratio of total liabilities to net worth
less than 2 0, a ratio of the sum of net
income plus depreciation, depletion,
and amortization to total liabilities
greater than 0 1, and a ratio of current
assets to current liabilities greater
than 1.5, and
(B) Net working capital and tangible
net worth each at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment coat esti-
mates, and
(C) Tangible net worth of at least $10
million, and
CD) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates
(ii) The owner or operator must have
(A) A current rating for his most re-
cent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor’s
or Aaa, Aa, A, or Baa as issued by
Moody’s, and
(B) Tangible net worth at least six
times the sum of the current closure
and post-closure cost estimates and the
current plugging and abandonment
cost estimates, and
(C) Tangible net worth of at least $10
million, and
(D) Assets located in the United
States amounting to at least 90 percent
of total assets or at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates
(2) The phrase “current closure and
post-closure cost estimates” as used in
paragraph (e)(1) of this section refers to
the cost estimates required to be
shown in paragraphs 1-4 of the letter
from the owner’s or operator’s chief fi-
nancial officer ( 264 151(1 )) The phrase
“current plugging and abandonment
cost estimates” as used in paragraph
(e)(1) of this section refers to the cost
estimates required to be shown in para-
graphs 1—4 of the letter from the own-
er’s or operator’s chief financial officer
( 144 70(f) of this title)
(3) To demonstrate that he meets
this test, the owner or operator must
submit the following items to the Re-
gional Administrator
(1) A letter signed by the owner’s or
operator’s chief financial officer and
worded as specified in §264 151(1), and
(ii) A copy of the independent cer-
tified public accountant’s report on ex-
amination of the owner’s or operator’s
financial statements for the latest
completed fiscal year. and
(iii) A special report from the owner’s
or operator’s independent certified pub-
]ic accountant to the owner or operator
stating that
(A) He has compared the data which
the letter from the chief financial offi-
cer specifies as having been derived
from the independently audited, year-
end financial statements for the latest
fiscal year with the amounts in such fi-
nancial statements, and
(B) In connection with that proce-
dure, no matters came to his attention
which caused him to believe that the
specified data should be adjusted
(4) The owner or operator may obtain
an extension of the time allowed for
submission of the documents specified
in paragraph (e)(3) of this section if the
fiscal year of the owner or operator
ends during the 90 days prior to the ef-
fective date of these regulations and if
the year-end financial statements for
that fiscal year will be audited by an
independent certified public account-
ant The extension will end no later
than 90 days after the end of the own-
er’s or operator’s fiscal year To obtain
486

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Environmental Protection Agency
the extension, the owner’s or opera-
tor’s chief financial officer must send,
by the effective date of these regula-
tions, a letter to the Regional Adminis-
trator of each Region in which the
owner’s or operator’s facilities to be
covered by the financial test are lo-
cated This letter from the chief finan-
cial officer must
(i) Request the extension,
(ii) Certify that he has grounds to be-
lieve that the owner or operator meets
the criteria of the financial test,
(iii) Specify for each facility to be
covered by the test the EPA Identifica-
tion Number, name, address, and cur-
rent closure and post-closure cost esti-
mates to be covered by the test,
(iv) Specify the date ending the own-
er’s or operator’s last complete fiscal
year before the effective date of these
regulations;
(v) Specify the date, no later than 90
days after the end of such fiscal year,
when he will submit tile documents
specified in paragraph (e)(3) of this sec-
tion, and
(vi) Certify that the year-end finan-
cial statements of the owner or oper-
ator for such fiscal year will be audited
by an independent certified public ac-
countant.
(5) After the initial submission of
items specified in paragraph (e)(3) of
this section, the owner or operator
must send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year This information must consist of
all three items specified in paragraph
(e)(3) of this section
(6) If the owner or operator no longer
meets the requirements of paragraph
(e)(1) of this section, he must send no-
tice to the Regional Administrator of
Intent to establish alternate financial
assurance as specified in this section
The notice must be sent by certified
mall within 90 days after the end of the
fiscal year for which the year-end fi-
nancial data show that the owner or
operator no longer meets the require-
ments The owner or operator must
provide the alternate financial assur-
ance within 120 days after the end of
such fiscal year
(7) The Regional Administrator may,
based on a reasonable belief that the
owner or operator may no longer meet
§ 265.143
the requirements of paragraph (e)(1) of
this section, require reports of finan-
cial condition at any time from the
owner or operator In addition to those
specified in paragraph (e)(3) of this sec-
tion. If the Regional Administrator
finds, on the basis of such reports or
other information, that the owner or
operator no longer meets the require-
ments of paragraph (e)(1) of this sec-
tion, the owner or operator must pro-
vide alternate financial assurance as
specified in this section within 30 days
after notification of such a finding.
(8) The Regional Administrator may
disallow use of this test on the basis of
qualifications in the opinion expressed
by the independent certified public ac-
countant in his report on examination
of the owner’s or operator’s financial
statements (see paragraph (e)(3)(ii) of
this section) An adverse opinion or a
disclaimer of opinion will be cause for
disallowance The Regional Adminis-
trator will evaluate other qualifica-
tions on an individual basis The owner
or operator must provide alternate fi-
nancial assurance as specified in this
section within 30 days after notifica-
tion of the disallowance
(9) The owner or operator is no longer
required to submit the items specified
in paragraph (e)(3) of this section when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance wIth §265.143(h).
(10) An owner or operator may meet
the requirements of this section by ob-
tainrng a written guarantee The guar-
antor must be the direct or higher-tier
parent corporation of the owner or op-
erator, a firm whose parent corpora-
tion is also tile parent corporation of
the owner or operator, or a firm with a
substantial business relationship”
with the owner or operator The guar-
antor must meet the requirements for
owners or operators in paragraphs
(e)(1) through (8) of this section and
must comply with the terms of the
guarantee The wording of the guar-
antee must be identical to tile wording
specified In § 264.151(h) A certified copy
of the guarantee must accompany the
487

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§ 265.143
40 CFR Ch. I (7—1—02 Edition)
items sent to the Regional Adminis-
trator as specified in paragraph (e)(3)
of this section One of these items must
be the letter from the guarantor’s chief
financial officer. If the guarantor’s par-
ent corporation is also the parent cor-
poration of the owner or operator, the
letter must describe the value received
in consideration of the guarantee If
the guarantor is a firm with a ‘sub-
stantial business relationship” with
the owner or operator, this letter must
describe this “substantial business re-
lationship” and the value received in
consideration of the guarantee The
terms of the guarantee must provide
that
(1) If the owner or operator fails to
perform final closure of a facility cov-
ered by the corporate guarantee in ac-
cordance with the closure plan and
other interim status requirements
whenever required to do so, the guar-
antor will do so or establish a trust
fund as specified in §265 143(a) in the
name of the owner or operator
(ii) The corporate guarantee will re-
main in force unless the guarantor
sends notice of cancellation by cer-
tified mail to the owner or operator
and to the Regional Administrator
Cancellation may not occur, however,
during the 120 days beginning on the
date of receipt of the notice of can-
cellation by both the owner or operator
and the Regional Administrator, as
evidenced by the return receipts
(iii) If the owner or operator fails to
provide alternate financial assurance
as specified in this section and obtain
the written approval of such alternate
assurance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the corporate guar-
antee from the guarantor, the guar-
antor will provide such alternate finan-
cial assurance in the name of the
owner or operator
(f) Use of mul I mecha-
nisms n owner or operator may t-
isfy the requirements of this section by
establishing more than one financial
mechanism per facility These mecha-
nisms are limited to trust funds, surety
bonds, letters of credit, and insurance
The mechanisms must be as specified
in paragraphs (a) through (d), respec-
tively, of this section, except that it is
the combination of mechanisms, rather
than the single mechanism, which
must provide financial assurance for an
amount at least equal to the current
closure cost estimate If an owner or
operator uses a trust fund in combina-
tion with a surety bond or a letter of
credit, he may use the trust fund as the
standby trust fund for the other mech-
anisms A single standby trust fund
may be established for two or more
mechanisms The Regional Adminis-
trator may use any or all of the mecha-
nisms to provide for closure of the fa-
cility.
(g) Use of a financial mechanism for
multiple facilities An owner or operator
may use a financial assurance mecha-
nism specified in this 8ection to meet
the requirements of this section for
more than one facility Evidence of fi-
nancial assurance submitted to the Re-
gional Administrator must include a
list showing, for each facility, the EPA
Identification Number, name, address,
and the amount of funds for closure as-
sured by the mechanism If the facili-
ties covered by the mechanism are in
more than one Region, identical evi-
dence of financial assurance must be
submitted to and maintained with the
Regional Administrators of all such
Regions The amount of funds available
through the mechanism must be no
less than the sum of funds that would
be available if a separate mechanism
had been established and maintained
for each facility In directing funds
available through the mechanism for
closure of any of the facilities covered
by the mechanism, the Regional Ad-
ministrator may direct only the
amount of funds designated for that fa-
cility, unless the owner or operator
agrees to the use of additional funds
available under the mechanism
(ii) Release of the owner or operator
from the requirements of this section
Within 60 days after receiving certifi-
cations from the owner or operator and
an independent registered professional
engineer that final closure has been
completed in accordance with the ap-
proved closure plan, the Regional Ad-
ministrator will notify the owner or
operator in writing that he is no longer
required by this section to maintain fi-
nancial assurance for final closure of
488

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Environmental Protection Agency
§265.145
the facility, unless the Regional Ad-
ministrator has reason to believe that
final closure has not been in accord-
ance with the approved closure plan.
The Regional Administrator shall pro-
vide the owner or operator a detailed
written statement of any such reason
to believe that closure has not been in
accordance with the approved closure
plan
(47 FR 15064. Apr 7, 1982, as amended at 51
FR 16456, May 2. 1986, 57 FR 42843, Sept 16,
1992]
§ 265.144 Cost estimate for post-closure
care.
(a) The owner or operator of a haz-
ardous waste disposal unit must have a
detailed written estimate, in current
dollars, of the annual cost of post-clo-
sure monitoring and maintenance of
the facility in accordance with the ap-
plicable post-closure regulations in
§ 265 117 through 265 120, 265 228, 265 258,
265.280, and 265 310.
(1) The post-closure cost estimate
must be based on the costs to the
owner or operator of luring a third
party to conduct post-closure care ac-
tivities A third party is a party who is
neither a parent nor subsidiary of the
owner or operator (See definition of
parent corporation in §265 141(d)
(2) The post-closure cost estimate is
calculated by multiplying the annual
post-closure cost estimate by the num-
ber of years of post-closure care re-
quired under §265 117
(b) During the active life of the facil-
ity, the owner or operator must adjust
the post-closure cost estimate for in-
flation within 60 days prior to the anni-
versary date of the establishment of
the financial instrument(s) used to
comply with §265 145. For owners or op-
erators using the financial test or cor-
porate guarantee, the post-closure care
cost estimate must be updated for in-
flation no later than 30 days after the
close of the firm’s fiscal year and be-
fore submission of updated information
to the Regional Administrator as speci-
fied in §265 145(d)(5) The adjustment
may be made by recalculating the post-
closure cost estimate in current dollars
or by using an inflation factor derived
from the most recent Implicit Price
Deflator for Gross National Product
published by the U.S. Department of
Commerce in its Survey of Current Busi-
ness as specified in §265 145 (b)(1) and
(2) The inflation factor is the result of
dividing the latest published annual
Deflator by the Deflator for the pre-
vious year
(1) The first adjustment is made by
multiplying the post-closure cost esti-
mate by the inflation factor The result
Is the adjusted post-closure cost esti-
mate
(2) Subsequent adjustments are made
by multiplying the latest adjusted
post—closure cost estimate by the latest
inflation factor
(C) During the active life of the facil-
ity, the owner or operator must revise
the post-closure cost estimate no later
than 30 days after a revision to the
post-closure plan which increases the
cost of post-closure care If the owner
or operator has an approved post-clo-
sure plan, the post-closure cost esti-
mate must be revised no later than 30
days after the Regional Administrator
has approved the request to modify the
plan, if the change in the post-closure
plan increases the cost of post-closure
care The revised post-closure cost esti-
mate must be adjusted for inflation as
specified in §265 144(b)
(d) The owner or operator must keep
the following at the facility during the
operating life of the facility the latest
post-closure cost estimate prepared in
accordance with §265 144 (a) and (C)
and, when this estimate has been ad-
justed in accordance with §265 144(b),
the latest adjusted post-closure cost es-
timate
(47 FR 15064. Apr 7, 1982, as amended at 50
FR 4514. Jan 31. 1985, 51 FR 16457. May 2.
1986]
§ 265.145 Financial assurance for post-
closure care.
By the effective date of these regula-
tions, an owner or operator of a facility
with a hazardous waste disposal unit
must establish financial assurance for
post-closure care of the disposal
unit(s).
(a) Post-closure trust fund (1) An
owner or operator may satisfy the re-
quirements of this section by estab-
lishing a post-closure trust fund which
conforms to the requirements of this
paragraph and submitting an originally
signed duplicate of the trust agreement
489

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§ 265145
40 CFR Ch. I (7—1-02 Edition)
to the Regional Administrator The
trustee must be an entity which has
the authority to act as a trustee and
whose trust operations are regulated
and examined by a Federal or State
agency
(2) The wording of the trust agree-
ment must be identical to the wording
specified in §264351(a)(l), and the trust
agreement must be accompanied by a
formal certification of acknowledg-
ment (for example, see §261 151(a)(2))
Schedule A of the trust agreement
must be updated within 60 days after a
change in the amount of the current
post-closure cost estimate covered by
the agreement
(3) Payments into the trust fund
must be made annually by the owner or
operator over the 20 years beginning
with the effective date of these regula-
tions or over the remaining operating
life of the facility as estimated in the
closure plan, whichever period is short-
er: this period is hereafter referred to
as the “pay-in period” The payments
into the post-closure trust fund must
be made as follows
( I) The first payment must be made
by the effective date of these regula-
tions, except as provided in paragraph
(a)(5) of this section The first payment
must be at least equal to the current
post-closure cost estimate, except as
provided in §265 145(0. divided by the
number of years in the pay-in period
(ii) Subsequent payments must be
made no later than 30 days after each
anniversary date of the first payment
The amount of each subsequent pay-
ment must be determined by this for-
mula
CE-CV
Next payment =
where CE is the current post-closure
cost estimate, CV is the current value
of the trust fund, and I is the number
of years remaining in the pay-in
period
(4) The owner or operator may accel-
erate payments into the trust fund or
he may deposit the full amount of the
current post-closure cost estimate at
the time the fund is established How-
ever, he must maintain the value of the
fund at no less than the value that the
fund would have if annual payments
were made as specified in paragr&ph
(a)(3) of this section
(5) If the owner or operator estab-
lishes a post-closure trust fund after
having used one or more alternate
mechanisms specified in this section,
his first payment must be in at least
the amount that the fund would con-
tarn if the trust fund wsre established
initially and annual payments made as
specified in paragraph (a)(3) of this sec-
tion
(6) After the pay-in period is com-
pleted, whenever the current post-clo-
sure cost estimate changes during the
operating life of the facility, the owner
or operator must compare the new esti-
mate with the trustee’s most recent
annual valuation of the trust fund If
the value of the fund is less than the
amount of the new estimate, the owner
or operator, within 60 days after the
change in the cost estimate, must ei-
ther deposit an amount into the fund
so that its value after this deposit at
least equals the amount of the current
post-closure cost estimate, or obtain
other financial assurance as specified
in this section to cover the difference
(7) During the operating life of the fa-
cility, if the value of the trust fund is
greater than the total amount of the
current post-closure cost estimate, the
owner or operator may submit a writ-
ten request to the Regional Adminis-
trator for release of the amount in
excess of the current post-closure cost
estimate
(8) If an owner or operator sub-
stitutes other financial assurance as
specified in this section for all or part
of the trust fund, he may submit a
written request to the Regional Admin-
istrator for release of the amount in
excess of the current post-closure cost
estimate covered by the trust fund
(9) Within 60 days after receiving a
request from the owner or operator for
release of funds as specifled in pan-
graph (a) (7) or (8) of this section, the
Regional Administrator will instruct
the trustee to release to the owner or
operator such funds as the Regional
Administrator specifies in writing
(10) During the period of post-closure
care, the Regional Administrator may
approve a release of funds if the owner
or operator demonstrates to the Re-
gional Administrator that the value of
490

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Environmental Protection Agency
tb trust fund exceeds the remaining
cost of post-closure care
(11) An owner or operator or any
other person authorized to conduct
post-closure care may request reim-
bursements for post-closure expendi-
tures by submitting Itemized bills to
the Regional Administrator Within 60
days after receiving bills for post-clo-
sure care activities, the Regional Ad-
ministrator will instruct the trustee to
make reimbursements In those
amounts as the Regional Adminis-
trator specifies in writing, If the Re-
gional Administrator determines that
the post-closure expenditures are in ac-
cordance with the approved post-clo-
sure plan or otherwise justified. If the
Regional Administrator does not in-
struct the trustee to make such reim-
bursements, he will provide the owner
or operator with a detailed written
statement of reasons
(12) The Regional Administrator will
agree to termination of the trust when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section In accord-
ance with § 265.145(h)
(b) Surety bond guaranteeing payment
into a post-closure trust fund. (I) An
owner or operator may satisfy the re-
quirements of this section by obtaining
a surety bond which conforms to the
requirements of this paragraph and
submitting the bond to the Regional
Administrator. The surety company
issuing the bond must, at a minimum,
be among those listed as acceptable
sureties on Federal bonds in Circular
570 of the U S Department of the
Treasury
(2) The wording of the surety bond
must be identical to the wording speci-
fied in §264 151(b).
(3) The owner or operator who uses a
surety bond to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the bond, all payments made
thereunder will be deposited by the
surety directly into the standby trust
fund in accordance with instructions
from the Regional Administrator This
standby trust fund must meet the re-
§ 265.145
quirements specified in §265 145(a), ex-
cept that
( I) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
surety bond, and
(ii) Until the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations.
(A) Payments into the trust fund as
specified in §265 145(a),
(B) Updating of Schedule A of the
trust agreement (see §264 151(a)) to
show current post-closure cost
estimates;
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement
(4) The bond must guarantee that the
owner or operator willS
(i) Fund the standby trust fund in an
amount equal to the penal sum of the
bond before the beginning of final clo-
sure of the facility; or
(ii) Fund the standby trust fund in an
amount equal to the penal sum within
15 days after an administrative order
to begin final closure issued by the Re-
gional Administrator becomes final, or
within 15 days after an order to begin
final closure is issued by a U S district
court or other court of competent ju-
risdiction, or
(iii) Provide alternate financial as-
surance as specified in this section, and
obtain the Regional Administrator’s
written approval of the assurance pro-
vided, within 90 days after receipt by
both the owner or operator and the
Regional Administrator of a notice of
cancellation of the bond from the sur-
ety
(5) Under the terms of the bond, the
surety will become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond
(6) The penal sum of the bond must
be in an amount at least equal to the
current post-closure cost estimate, ex-
cept as provided in § 265 145(f)
(7) Whenever the current post-closure
cost estimate increases to an amount
greater than the penal sum, the owner
or operator, within 60 days after the in-
crease, must either cause the penal
sum to be increased to an amount at
491

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§265.145
40 CFR Ch. I (7—1—02 Edition)
least equal to the current post-closure
cost estimate and submit evidence of
such increase to the Regional Adminis-
trator, or obtain other financial assur-
ance as specified in this section to
cover the increase Whenever the
current post-closure cost estimate de-
creases, the penal sum may be reduced
to the amount of the current post-
closure cost estimate following written
approval by the Regional
Administrator
(8) Under the terms of the bond, the
surety may cancel the bond by sending
notice of cancellation by certified mail
to the owner or operator and to the Re-
gional Administrator Cancellation
may not occur however, during the 120
days beginning on the date of receipt of
the notice of cancellation by both the
owner or operator and the Regional Ad-
ministrator, as evidenced by the return
receipts
(9) The owner or operator may cancel
the bond if the Regional Administrator
has given prior written consent based
on his receipt of evidence of alternate
financial assurance as specified in this
section
(c) Post-closure letter of credit (I) An
owner or operator may satisfy the re-
quirements of this section by obtaining
an irrevocable standby letter of credit
which conforms to the requirements of
this paragraph and submitting the let-
ter to the Regional Administrator The
issuing institution must be an entity
which has the authority to issue letters
of credit and whose letter-of-credit op-
erations are regulated and examined by
a Federal or State agency
(2) The wording of the letter of credit
must be identical to the wording speci-
fied in §264 151(d)
(3) An owner or operator who uses a
letter of credit to satisfy the require-
ments of this section must also estab-
lish a standby trust fund Under the
terms of the letter of credit, all
amounts paid pursuant to a draft by
the Regional Administrator will be de-
posited by the issuing institution di-
rectly into the standby trust fund-in
accordance with instructions from the
Regional Administrator This standby
trust fund must meet the requirements
of the trust fund specified in
§ 265 145(a), except that
(i) An originally signed duplicate of
the trust agreement must be submitted
to the Regional Administrator with the
letter of credit, and
(ii) Unless the standby trust fund is
funded pursuant to the requirements of
this section, the following are not re-
quired by these regulations
(A) Payments into the trust fund as
specified in §265 145(a).
(B) Updating of Schedule A of the
trust agreement (see §264 151(a)) to
show current post-closure cost
estimates,
(C) Annual valuations as required by
the trust agreement, and
(D) Notices of nonpayment as re-
quired by the trust agreement
(4) The letter of credit must be ac-
companied by a letter from the owner
or operator referring to the letter of
credit by number, issuing institution.
and date, and providing the following
information’ The EPA Identification
Number, name, and address of the facil-
ity, and the amount of funds assured
for post-closure care of the facility by
the letter of credit
(5) The letter of credit must be irrev-
ocable and issued for a period of at
least 1 year The letter of credit must
provide that the expiration date will be
automatically extended for a period of
at least 1 year unless, at least 120 days
before the current expiration date, the
issuing institution notifies both the
owner or operator and the Regional Ad-
ministrator by certified mail of a deci-
sion not to extend the expiration date
Under the terms of the letter of credit,
the 120 days will begin on the date
when both the owner or operator and
the Regional Administrator have re-
ceived the notice, as evidenced by the
return receipts
(6) The letter of credit must be issued
in an amount at least equal to the cur-
rent post-closure cost estimate, except
as provided in §265 145(f)
(7 Whenever the current post-closure
cost estimate increases to an amount
greater than the amount of the credit
during the operating life of the facil-
it’.’ the owner or operator, within 60
days after the increase, must either
cause the amount of the credit to be in-
creased so that it at least equals the
current post-closure cost estimate and
submit evidence of such increase to the
492

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Environmental Protection Agency
Regional Administrator, or obtain
other financial assurance as specified
in this section to cover the increase
Whenever the current post-closure cost
estimate decreases during the oper-
ating life of the facility, the amount of
the credit may be reduced to the
amount of the current post-closure
cost estimate following written ap-
proval by the Regional Administrator
(8) During the period of post-closure
care, the Regional Administrator may
approve a decrease in the amount of
the letter of credit if the owner or op-
erator demonstrates to the Regional
Administrator that the amount ex-
ceeds the remaining cost of post-clo-
sure care
(9) Following a final administrative
determination pursuant to section 3008
of RCRA that the owner or operator
has failed to perform post-closure care
in accordance with the approved post-
closure plan and other permit require-
ments, the Regional Administrator
may draw on the letter of credit
(10) If the owner or operator does not
establish alternate financial assurance
as specified In this section and obtain
written approval of such alternate as-
surance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice from
the issuing institution that it has de-
cided not to extend the letter of credit
beyond the current expiration date, the
Regional Administrator will draw on
the letter of credit The Regional Ad-
ministrator may delay the drawing if
the issuing institution grants an exten-
sion of the term of the credit During
the last 30 days of any such extension
the Regional Administrator will draw
on the letter of credit if the owner or
operator has failed to provide alternate
financial assurance as specified in this
section and obtain written approval of
such assurance from the Regional
Administrator
(11) The Regional Administrator will
return the letter of credit to the
issuing institution for termination
when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
(ii) The Regional Administrator re-
leases the owner or operator from the
§ 265.145
requirements of this section in accord-
ance with § 265 145(h)
(d) Post-closure insurance (1) An
owner or operator may satisfy the re-
quirements of this section by obtaining
post-closure insurance which conforms
to the requirements of this paragraph
and submitting a certificate of such in-
surance to the Regional Administrator
By the effective date of these regula-
tions the owner or operator must sub-
mit to the Regional Administrator a
letter from an insurer stating that the
insurer is considering issuance of post-
closure insurance conforming to the re-
quirements of this paragraph to the
owner or operator Within 90 days after
the effective date of these regulations,
the owner or operator must submit the
certificate of insurance to the Regional
Administrator or establish other finan-
cial assurance as specified in this sec-
tion At a minimum, the insurer must
be licensed to transact the business of
insurance, or eligible to provide insur-
ance as an excess or surplus lines in-
surer, in one or more States
(2) The wording of the certificate of
insurance must be identical to the
wording specified in §264 151(e)
(3) The post-closure insurance policy
must be issued for a face amount at
least equal to the current post-closure
cost estimate, except as provided in
§265 145(i ) The term “face amount”
means the total amount the insurer is
obligated to pay under the policy Ac-
tual payments by the insurer will not
change the face amount, although the
insurer’s future liability will be low-
ered by the amount of the payments.
(4) The post-closure insurance policy
must guarantee that funds will be
available to provide post-closure care
of the facility whenever the post-clo-
sure period begins The policy must
also guarantee that once post-closure
care begins the insurer will be respon-
sible for paying out funds, up to an
amount equal to the face amount of
the policy, upon the direction of the
Regional Administrator, to such party
or parties as the Regional Adminis-
trator specifies
(5) An owner or operator or any other
person authorized to perform post-do-
sure care may request reimbursement
for post-closure care expenditures by
493

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§265.145
40 CFR Ch. I (7—1 —02 Edition)
submitting itemized bills to the Re-
giona] Administrator Within 60 days
after receiving bills for post-closure
care activities, the Regional Adminis-
trator will Instruct the insurer to
make reimbursements in those
amounts as the Regional Adminis-
trator specifies in writing, if the Re-
gional Administrator determines that
the post-closure expenditures are in ac-
cordance with the approved post-clo-
sure plan or otherwise justified If the
Regional Administrator does not in-
struct the insurer to make such reim-
bursements, he will provide a detailed
written statement of reasons
(6) The owner or operator must main-
tain the policy in flill force and effect
until the Regional Administrator con-
sents to termination of the policy by
the owner or operator as specified in
paragraph (d)(11) of this section Fail-
ure to pay the premium, without sub-
stitution of alternate financial assur-
ance as specified in the section, will
constitute a significant violation of
these regulations, warranting such
remedy as the Regional Administrator
deems necessary Such violation will
be deemed to begin upon receipt by the
Regional Administrator of a notice of
future cancellation, termination, or
failure to renew due to nonpayment of
the premium, rather than upon the
date of expiration
(7) Each policy most contain a provi-
mon allowing assignment of the policy
to a successor owner or operator Such
assignment may be conditional upon
consent of the insurer, provided such
consent is not unreasonably refused
(8) The policy must provide that the
insurer may not cancel, terminate, or
fail to renew the policy except for fail-
ure to pay the premium The auto-
matic renewal of the policy must, at a
minimum, provide the insured with the
option of renewal at the face amount of
the expiring policy If there is a failure
to pay the premium, the insurer may
elect to cancel, terminate, or fail to
renew the policy by sending notice by
certified mail to the owner or operator
and the Regional Administrator Can-
cellation, termination, or failure to
renew may not occur, however, during
the 120 days beginning with the date of
receipt of the notice by both the Re-
gional Administrator and the owner or
operator, as evidenced by the return re-
ceipts Cancellation, termination, or
failure to renew may not occur and the
policy will remain in full force and ef-
fect in the event that on or before the
date of expiration
0) The Regional Administrator
deems the facility abandoned; or
(ii) Interim status is terminated or
revoked; or
(iii) Closure is ordered by the Re-
gional Administrator or a U.S. district
court or other court of competent ju-
risdiction, or
(iv) The owner or operator is named
as debtor in a voluntary or involuntary
proceeding under Title 11 (Bank-
ruptcy), U.S Code, or
(v) The premium due is paid
(9) Whenever the current post-closure
cost estimate increases to an amount
greater than the face amount of the
policy during the operating life of the
facility, the owner or operator, within
60 days after the increase, must either
cause the face amount to be increased
to an amount at least equal to the cur-
rent post-closure cost estimate and
submit evidence of such increase to the
Regional Administrator, or obtain
other financial assurance as specified
in this section to cover the increase
Whenever the current post-closure cost
estimate decreases during the oper-
ating life of the facility, the face
amount may be reduced to the amount
of the current post-closure cost esti-
mate following written approval by the
Regional Administrator
(10) Commencing on the date that li-
ability to make payments pursuant to
the policy accrues, the insurer will
thereafter annually increase the face
amount of the policy Such increase
must be equivalent to the face amounts
of the policy, less any payments made,
multiplied by an amount equivalent to
85 percent of the most recent invest-
ment rate or of the equivalent coupon-
issue yield announced by the U.S
Treasury for 26-week Treasury
securities
(11) The Regional Administrator will
give written consent to the owner or
operator that he may terminate the in-
surance policy when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section, or
494

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Environmental Protection Agency
§ 265.145
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section in accord-
ance with §265 145(h)
(e) Financial test and corporate guar-
antee for post-closure care (1) An owner
or operator may satisfy the require-
ments of this section by demonstrating
that he passes a financial test as speci-
fied in this paragraph To pass this test
the owner or operator must meet the
criteria either of paragraph (e)(1)ü) or
(ii) of this section
(i) The owner or operator must have
(A) Two of the following three ratios
a ratio of total liabilities to net worth
less than 2 0, a ratio of the sum of net
income plus depreciation, depletion,
and amortization to total liabilities
greater than 0 1, and a ratio of current
assets to current liabilities greater
than 1 5, and
(B) Net working capital and tangible
net worth each at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates, and
(C) Tangible net worth of at least $10
million, and
(D) Assets in the United States
amounting to at least 90 percent of his
total assets or at least six times the
sum of the current closure and post-
closure cost estimates and the current
plugging and abandonment cost esti-
mates
(ii) The owner or operator must have
(A) A current rating for his most re-
cent bond issuance of AAA. AA. A. or
BUB as issued by Standard and Poor’s
or Aaa, Aa, A. or Baa as issued by
Moody’s, and
(B) Tangible net worth at least six
times the sum of the current closure
and post-closure cost estimates and the
current plugging and abandonment
cost estimates, and
(C) Tangible net worth of at least $10
million, and
(D) Assets located in the United
States amounting to at least 90 percent
of his total assets or at least six times
the sum of the current closure and
post-closure cost estimates and the
current plugging and abandonment
cost estimates
(2) The phrase ‘current closure and
post-closure cost estimates” as used in
paragraph (e)(1) of this section refers to
the cost estimates required to be
shown in paragraphs 1-4 of the letter
from the owner’s or operator’s chief fi-
nancial officer ( 264 151(f)) The phrase
“current plugging and abandonment
cost estimates” as used in paragraph
(e)(1) of this section refers to the cost
estimates required to be shown in para-
graphs 1—4 of the letter from the own-
er’s or operator’s chief financial officer
( 144 70(f) of this title)
(3) To demonstrate that he meets
this test, the owner or operator must
submit the following items to the Re-
gional Administrator
(i) A letter signed by the owner’s or
operator’s chief financial officer and
worded as specified in §264 151(f): and
(ii) A copy of the independent cer-
tified public accountant’s report on ex-
amination of the owner’s or operator’s
financial statements for the latest
completed fiscal year; and
(iii) A special report from the owner’s
or operator’s independent certified pub-
lic accountant to the owner or operator
stating that
(A) He has compared the data which
the letter from the chief financial offi-
cer specifies as having been derived
from the independently audited, year-
end financial statements for the latest
fiscal year with the amounts in such fi-
nancial statements, and
(B) In connection with that proce-
dure. no matters came to his attention
which caused him to believe that the
specified data should be adjusted
(4) The owner or operator may obtain
an exLension of the time allowed for
submission of the documents specified
in paragraph (e)(3) of this section if the
fiscal year of the owner or operator
ends during the 90 days prior to the ef-
fective date of these regulations and if
the year-end financial statements for
that fiscal year will be audited by an
independent certified public account-
ant The extension will end no later
than 90 days after the end of the own-
er’s or operator’s fiscal year To obtain
the extension, the owner’s or opera-
tor’s chief financial officer must send,
by the effective date of these regula-
tions, a letter to the Regional Adminis-
trator of each Region in which the
owner’s or operator’s facilities to be
495

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§265.145
40 CFR Ch. I (7—1—02 Edition)
covered by the financial test are lo-
cated This letter from the chief finan-
cial officer must.
(1) Request the extension,
(II) Certify that he has grounds to be-
have that the owner or operator meets
the criteria of the financial test,
(iii) Specify for each facility to be
covered by the test the EPA Identifica-
tion Number, name, address, and the
current closure and post-closure cost
estimates to be covered by the test,
(iv) Specify the date ending the own-
er’s or operator’s latest complete fiscal
year before the effective date of these
regulations,
(v) Specify the date, no later than 90
days after the end of such fiscal year,
when he will submit the documents
specified In paragraph (e)(3) of this sec-
tion, and
(vi) Certify that the year-end finan-
cial statements of the owner or oper-
ator for such fiscal year will be audited
by an independent certified public
accountant
(5) After the initial submission of
items specified in paragraph (e)(3) of
this section, the owner or operator
must send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year. This information must consist of
all three items specified in paragraph
(e)(3) of this section.
(6) If the owner or operator no longer
meets the requirements of paragraph
(e)(1) of this section, he must send no-
tice to the Regional Administrator of
intent to establish alternate financial
assurance as specified in this section
The notice must be sent by certified
mail within 90 days after the end of the
fiscal year for which the year-end fi-
nancial data show that the owner or
operator no longer meets the require-
ments. The owner or operator must
provide the alternate financial assur-
ance within 120 days after the end of
such fiscal year
(7) The Regional Administrator may,
based on a reasonable belief that the
owner or operator may no longer meet
the requirements of paragraph (e)(l) of
this section, require reports of finan-
cial condition at any time from the
owner or operator in addition to those
specified in paragraph (e)(3) of this sec-
tion If the Regional Administrator
finds, on the basis of such reports or
other information, that the owner or
operator no longer meets the require-
ments of paragraph (e)(1) of this sec-
tion, the owner or operator must pro-
vide alternate financial assurance as
specified in this section within 30 days
after notification of such a finding.
(B) The Regional Administrator may
disallow use of this test on the basis of
qualifications in the opinion expressed
by the independent certified public ac-
countant in his report on examination
of the owner’s or operator’s financial
statements (see paragraph (e)(3)(ii) of
this section) An adverse opinion or a
disclaimer of opinion will be cause for
disallowance. The Regional Admims-
trator will evaluate other qualifica-
tions on an individual basis The owner
or operator must provide alternate fi-
nancial assurance as specified in this
section within 30 days after notifica-
tion of the disallowance
(9) During the period of post-closure
care, the Regional Administrator may
approve a decrease in the current post-
closure cost estimate for which this
test demonstrates financial assurance
if the owner or operator demonstrates
to the Regional Administrator that the
amount of the cost estimate exceeds
the remaining cost of post-closure care
(10) The owner or operator is no
longer required to submit the items
specified in paragraph (e)(3) of this sec-
tion when
(i) An owner or operator substitutes
alternate financial assurance as speci-
fied in this section; or
(ii) The Regional Administrator re-
leases the owner or operator from the
requirements of this section In accord-
ance with §265 145(h)
(11) An owner or operator may meet
the requirements for this section by
obtaining a written guarantee The
guarantor must be the direct of higher-
tier parent corporation of the owner or
operator, a firm whose parent corpora-
tion is also the parent corporation of
the owner or operator, or a firm with a
“substantial business relationship”
with the owner or operator The guar-
antor must meet the requirements for
owners or operators in paragraphs (fl(1)
through (9) of this section and must
comply with the terms of the guar-
antee The wording of the guarantee
496

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Environmental Protection Agency
§265.145
must be identical to the wording speci-
fied in §264 151(h) A certified copy of
the guarantee must accompany the
items sent to the Regional Adminis-
trator as specified in paragraph (0(3) of
this section One of these items must
be the letter from the guarantor’s chief
financial officer. If the guarantor’s par-
ent corporation is also the parent cor-
poration of the owner or operator, the
letter must describe the value received
in consideration of the guarantee If
the guarantor is a firm with a “sub-
stantial business relationship” with
the owner or operator, this letter must
describe this “substantial business re-
lationship” and the value received in
consideration of the guarantee The
terms of the guarantee must provide
that
(i) If the owner or operator fails to
perform post-closure care of a facility
covered by the corporate guarantee in
accordance with the post-closure plan
and other interim status requirements
whenever required to do so, the guar-
antor will do so or establish a trust
fund as specified in §265 145(a) in the
name of the owner or operator
(ii) The corporate guarantee will re-
main in force unless the guarantor
sends notice of cancellation by cer-
tified mail to the owner or operator
and to the Regional Administrator
Cancellation may not occur, however,
during the 120 days beginning on the
date of receipt of the notice of can-
cellation by both the owner or operator
and the Regional Administrator, as
evidenced by the return receipts.
(iii) If the owner or operator fails to
provide alternate financial assurance
as specified in this section and obtain
the written approval of such alternate
assurance from the Regional Adminis-
trator within 90 days after receipt by
both the owner or operator and the Re-
gional Administrator of a notice of
cancellation of the corporate guar-
antee from the guarantor, the guar-
antor will provide such alternate finan-
cial assurance in the name of the
owner or operator
(1) Use of multiple financial mecha-
nisms An owner or operator may sat-
isfy the requirements of this section by
establishing more than one financial
mechanism per facility These mecha-
nisms are limited to trust funds, surety
bonds, letters of credit, and insurance.
The mechanisms must be as specified
in paragraphs (a) through (d), respec-
tively, of this section, except that it is
the combination of mechanisms, rather
than the single mechanism, which
must provide financial assurance for an
amount at least equal to the current
post-closure cost estimate If an owner
or operator uses a trust fund in com-
bination with a surety bond or a letter
of credit, he may use the trust fund as
the standby trust fund for the other
mechanisms A slngle standby trust
fund may be established for two or
more mechanisms The Regional Ad-
ministrator may use any or all of the
mechanisms to provide for post-closure
care of the facility
(g) Use of a financial mechanism for
multiple facilities An owner or operator
may use a financial assurance mecha-
nism specified in this section to meet
the requirements of this section for
more than one facility Evidence of fi-
nancial assurance submitted to the Re-
gional Administrator must include a
list showing, for each facility, the EPA
Identification Number, name, address,
and the amount of funds for post-clo-
sure care assured by the mechanism If
the facilities covered by the mecha-
nism are in more than one Region,
identical evidence of financial assur-
ance must be submitted to and main-
tained with the Regional Administra-
tors of all such Regions The amount of
funds available through the mechanism
must be no less than the sum of funds
that would be available if a separate
mechanism had been established and
maintained for each facility In direct-
ing funds available through the mecha-
nism for post-closure care of any of the
facilities covered by the mechanism,
the Regional Administrator may direct
only the amount of funds designated
for that facility, unless the owner or
operator agrees to the use of additional
funds available under the mechanism
(h) Release of the owner ci operator
from the requirements of this section
Within 60 days after receiving certifi-
cations from the owner or operator and
an independent registered professional
engineer that the post-closure care pe-
riod has been completed in accordance
with the approved post-closure plan,
the Regional Administrator will notifly
497

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§265.146
40 CFR Ch. I (7—1—02 Edition)
the owner or operator in writing that
he is no longer required by this section
to maintain financial assurance for
post-closure care of that unit, unless
the Regional Administrator has reason
tQ believe that post-closure care has
not been in accordance with the ap-
proved post-closure plan The Regional
Administrator will provide the owner
or operator a detailed written state-
ment of any such reason to believe that
post-closure care has not been in ac-
cordance with the approved post-clo-
sure plan
(47 FR 15064, Apr 7. 1982, as amended at 51
FR 16457, May 2, 1986, 57 FR 42843, Sept 16.
1992]
§ 265.146 (lee of a mechanism for fi-
nancial assurance of both closure
and post-closure care.
An owner or operator may satisfy the
requirements for financial assurance
for both closure and post-closure care
for one or more facilities by using a
trust fund, surety bond, letter of cred-
it, insurance, financial test, or cor-
porate guarantee that meets the speci-
fications for the mechanism in both
§t265 143 and 265.145 The amount of
funds available through the mechanism
must be no less than the sum of funds
that would be available if a separate
mechanism had been established and
maintained for financial assurance of
closure and of post-closure care
§ 265.147 Liability requirements.
(a) Coverage for sudden accidental oc-
currences An owner or operator of a
hazardous waste treatment, storage, or
disposal facility, or a group of such fa-
cilities, must demonstrate financial re-
sponsibility for bodily injury and prop-
erty damage to third parties caused by
sudden accidental occurrences arising
from operations of the facility or group
of facilities The owner or operator
must have and maintain liability cov-
erage for sudden accidental occur-
rences in the amount of at least $1 mil-
lion per occurrence with an annual ag-
gregate of at least $2 million, exclusive
of legal defense costs This liability
coverage may be demonstrated as spec-
ified in paragraphs (a) (1), (2), (3), (4),
(5), or (6) of this section
(1) An owner or operator may dem-
onstrate the required liability coverage
by having liability insurance as speci-
fied in this paragraph
(i) Each insurance policy must be
amended by attachment of the Haz-
ardous Waste Facility Liability En-
dorsement, or evidenced by a Certifi-
cate of Liability Insurance The word-
ing of the endorsement must be iden-
tical to the wording specified in
§ 264 151(i). The wording of the certifi-
cate of insurance must be identical to
the wording specified in §264 151(J) The
owner or operator must submit a
signed duplicate original of the en-
dorsement or the certificate of insur-
ance to the Regional Administrator, or
Regional Administrator if facilities are
located in more than one Region If re-
quested by a Regional Administrator,
the owner or operator must provide a
signed duplicate original of the insur-
ance policy
(ii) Each insurance policy must be
issued by an insurer which, at a min-
imum, is licensed to transact the busi-
ness of insurance, or eligible to provide
insurance as an excess or surplus lines
insurer, in one or more States
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraphs (f) and (g) of
this section
(3) An owner or operator may meet
the requirements of this section by ob-
taining a letter of credit for liability
coverage as specified in paragraph (h)
of this section.
(4) An owner or operator may meet
the requirements of this section by ob-
taining a surety bond for liability cov-
erage as specified in paragraph (i) of
this section
(5) An owner or operator may meet
the requirements of this section by ob-
taining a trust fund for liability cov-
erage as specified in paragraph (j) of
this section
(6) An owner or operator may dem-
onstrate the required liability coverage
through the use of combinations of in-
surance, financial test, guarantee, let-
ter of credit, surety bond, and trust
fund, except that the owner or operator
may not combine a financial test cov-
ering part of the liability coverage re-
quirement with a guarantee unless the
498

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Environmental Protection Agency
§265.147
financial statement of the owner or op-
erator is not consolidated with the fi-
nancial statement of the guarantor.
The amounts of coverage demonstrated
must total at least the minimum
amounts required by this section If
the owner or operator demonstrates
the required coverage through the use
of a combination of financial assur-
ances under this paragraph, the owner
or operator shall specify at least one
such assurance as “primary” coverage
and shall specify other assurance as
excess” coverage
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever:
(i) A claim results in a reduction in
the amount of financial assurance for
liability coverage provided by a finan-
cial instrument authorized in para-
graphs (a)(1) through (a)(6) of this sec-
tion; or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden acci-
dental occurrence arising from the op-
eration of a hazardous waste treat-
ment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (a)(l)
through (a)(6) of this section; or
(iii) A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-sud-
den accidental occurrence arising from
the operation of a hazardous waste
treatment, storage, or disposal facility
is issued against the owner or operator
or an instrument that is providing fi-
nancial assurance for liability coverage
under paragraphs (a)(l) through (a)(6)
of this section.
(b) Coverage for nonsudden acczden al
occurrences An owner or operator of a
surface impoundment, landfill, or land
treatment facility which is used to
manage hazardous waste, or a group of
such facilities, must demonstrate fi-
nancial responsibility for bodily injury
and property damage to third parties
caused by nonsudden accidental occur-
rences arising from operations of the
facility or group of facilities The
owner or operator must have and main-
tain liability coverage for nonsudden
accidental occurrences in the amount
of at least $3 million per occurrence
with an annual aggregate of at least $6
million, exclusive of legal defense
costs An owner or operator who must
meet the requirements of this section
may combine the required per-occur-
rence coverage levels for sudden and
nonsudden accidental occurrences into
a single per-occurrence level, and com-
bine the required annual aggregate
coverage levels for sudden and nonsud-
den accidental occurrences into a sin-
gle annual aggregate level Owners or
operators who combine coverage level8
for sudden and nonsudden accidental
occurrences must maintain liability
coverage in the amount of at least $4
million per occurrence and $8 million
annual aggregate This liability cov-
erage may be demonstrated as specified
in paragraph (b) (1), (2), (3), (4), (5), or
(6) of this section
(1) An owner or operator may dem-
onstrate the required liability coverage
by having liability insurance as speci-
fied in this paragraph
(2) An owner or operator may meet
the requirements of this section by
passing a financial test or using the
guarantee for liability coverage as
specified in paragraphs (I) and (g) of
this section
(3) An owner or operator may meet
the requirements of this section by ob-
taining a letter of credit for liability
coverage as specified in paragraph (h)
of this section
(4) An owner or operator may meet
the requirements of this section by ob-
taining a surety bond for liability cov-
erage as specified in paragraph (I) of
this section
(5) An owner or operator may meet
the requirements of this section by ob-
taining a trust fund for liability cov-
erage as specified in paragraph (j) of
this section
(6) An owner or operator may dem-
onstrate the required liability coverage
through the use of combinations of in-
surance, financial test, guarantee, let-
ter of credit, surety bond, and trust
fund, except that the owner or operator
may not combine a financial test cov-
ering part of the liability coverage re-
quirement with a guarantee unless the
financial statement of the owner or op-
erator is not consolidated with the fi-
nancial statement of the guarantor.
The amounts of coverage demonstrated
499

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§265.147
40 CFR Ch. I (7—1—02 Edition)
must total at least the minimum
amounts required by this section If
the owner or operator demonstrates
the required coverage through the use
of a combination of financial assur-
ances under this paragraph, the owner
or operator shall specify at least one
such assurance as “primary” coverage
and shall specify other assurance as
“excess” coverage
(7) An owner or operator shall notify
the Regional Administrator in writing
within 30 days whenever
(i) A claim results in a reduction in
the amount of financial assurance for
liability coverage provided by a finan-
cial instrument authorized in para-
graphs (b)(1) through (b)(6) of this sec-
tion: or
(ii) A Certification of Valid Claim for
bodily injury or property damages
caused by a sudden or non-sudden acci-
dental occurrence arising from the op-
eration of a hazardous waste treat-
ment, storage, or disposal facility is
entered between the owner or operator
and third-party claimant for liability
coverage under paragraphs (b)(1)
through (b)(6) of this section; or
(iii) A final court order establishing a
judgment for bodily injury or property
damage caused by a sudden or non-sud-
den accidental occurrence arising from
the operation of a hazardous waste
treatment, storage, or disposal facility
is issued against the owner or operator
or an instrument that is providing fi-
nancial assurance for liability coverage
under paragraphs (b)(l) through (b)(6)
of this section
(c) Request for variance If an owner or
operator can demonstrate to the satis-
faction of the Regional Administrator
that the levels of financial responsi-
bility required by paragraph (a) or (b)
of this section are not consistent with
the degree and duration of risk associ-
ated with treatment, storage, or dis-
posal at the facility or group of facili-
ties, the owner or operator may obtain
a variance from the Regional Adminis-
trator The request for a variance must
be submitted in writing to the Re-
gional Administrator If granted, the
variance will take the form of an ad-
justed level of required liability cov-
erage, such level to be based on the Re-
gional Administrator’s assessment of
the degree and duration of risk associ-
ated with the ownership or operation of
the facility or group of facilities The
Regional Administrator may require
an owner or operator who requests a
variance to provide such technical and
engineering information as is deemed
necessary by the Regional Adnnnis-
trator to determine a level of financial
responsibility other than that required
by paragraph (a) or (b) of this section
The Regional Administrator will proc-
ess a variance request as if it were a
permit modification request under
§ 270 41(a)(5) of this chapter and subject
to the procedures of § 124.5 of this chap-
ter. Notwithstanding any other provi-
sion, the Regional Administrator may
hold a public hearing at his discretion
or whenever he finds, on the basis of re-
quests for a public hearing, a signifi-
cant degree of pubic interest in a ten-
tative decision to grant a variance
(d) Ad ustmengs by the Regional Admin-
istrator If the Regional Administrator
determines that the levels of financial
responsibility required by paragraph
(a) or (b) of this section are not con-
sistent with the degree and duration of
risk associated with treatment, stor-
age, or disposal at the facility or group
of facilities, the Regional Adminis-
trator may adjust the level of financial
responsibility required under para-
graph (a) or (b) of this section as may
be necessary to protect human health
and the environment This adjusted
level will be based on the Regional Ad-
ministrator’s assessment of the degree
and duration of risk associated with
the ownership or operation of the facil-
ity or group of facilities In addition, if
the Regional Administrator determines
that there is a significant risk to
human health and the environment
from nonsudden accidental occurrences
resulting from the operations of a fa-
cility that is not a surface impound-
ment, landfill, or land treatment facil-
ity, he may require that an owner or
operator of the facility comply with
paragraph (b) of this section. An owner
or operator must furnish to the Re-
gional Administrator, within a reason-
able time, any information which the
Regional Administrator requests to de-
termine whether cause exists for such
adjustments of level or type of cov-
erage The Regional Administrator will
process an adjustment of the level of
500

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Environmental Protection Agency
§265.147
required coverage as if it were a permit
modification under §270 41(a)(5) of this
chapter and subject to the procedures
of §124 5 of this chapter. NotwIth-
standing any other provision, the Re-
gi.onal Administrator may hold a pub-
lic hearing at his discretion or when-
ever he finds, on the basis of requests
for a public hearing, a significant de-
gree of public interest in a tentative
decision to adjust the level or type of
required coverage
(e) Period of coverage. Within 60 days
after receiving certifications from the
owner or operator and an Independent
registered professional engineer that
final closure has been completed in ac-
cordance with the approved closure
plan, the Regional Administrator will
notify the owner or operator in writing
that he is no longer required by this
section to maintain liability coverage
for that facility, unless the Regional
Administrator has reason to believe
that closure has not been in accordance
with the approved closure plan
(f) Financial test for liability coverage
(1) An owner or operator may satisfy
the requirements of this section by
demonstrating that he passes a finan-
cial test as specified in this paragraph.
To pass this test the owner or operator
must meet the criteria of paragraph
(fl(1) (1) or (ii) of this section
(I) The owner or operator must have
(A) Net working capital and tangible
net worth each at least six times the
amount of liability coverage to be dem-
onstrated by this test, and
(B) Tangible net worth of at least $10
million; and
(C) Assets in the United States
amounting to either (I) At least 90 per-
cent of his total assets, or (2) at least
six times the amount of liability cov-
erage to be demonstrated by this test
(ii) The owner or operator must have.
(A) A current rating for his most re-
cent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor’s.
or Aaa, Aa, A, or Baa as issued by
Moody’s; and
(B) Tangible net worth of at least $10
million, and
(C) Tangible net worth at least six
times the amount of liability coverage
to be demonstrated by this teat, and
(D) Assets in the United States
amounting to either (1) At least 90 per-
cent of his total assets; or (2) at least
six times the amount of liability cov-
erage to be demonstrated by this test
(2) The phrase “amount of liability
coverage” as used in paragraph (f)(1) of
this section refers to the annual aggre-
gate amounts for which coverage is re-
quired under paragraphs (a) and (b) of
this section
(3) To demonstrate that he meets
this test, the owner or operator must
submit the following three items to the
Regional Administrator
(i) A letter signed by the owner’s or
operator’s chief financial officer and
worded as specified in § 264 151(g) If an
owner or operator is using the financial
test to demonstrate both assurance for
closure or post-closure care, as speci-
fied by §t264 143(f), 264.145(f), 265 143(e),
and 265 145(e), and liability coverage,
he must submit the letter specified in
§264 151(g) to cover both forms of finan-
cial responsibility, a separate letter as
specified in § 264.151(f) is not required
(ii) A copy of the independent cer-
tified public accountant’s report on ex-
amination of the owner’s or operator’s
financial statements for the latest
completed fiscal year
(iii) A special report from the owner’s
or operator’s independent certified pub-
lic accountant to the owner or operator
stating that
(A) He has compared the data which
the letter from the chief financial offi-
cer specifies as having been derived
from the independently audited. year-
end financial statements for the latest
fiscal year with the amounts in such fi-
nancial statements, and
(B) in connection with that proce-
dure, no matters came to his attention
which caused him to believe that the
specified data should be adjusted
(4) The owner or operator may obtain
a one-time extension of the time al-
lowed for submission of the documents
specified in paragraph (f)(3) of this sec-
tion if the fiscal year of the owner or
operator ends during the 90 days prior
to the effective date of these regula-
tions and if the year-end financial.
statements for that fiscal year will be
audited by an independent certified
public accountant The extension will
end no later than 90 days after the end
of the owner’s or operator’s fiscal year
To obtain the extension, the owner’s or
501

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§265.147
40 CFR Ch. I (7—1-02 Edition)
operator’s chief financial officer must
send, by the effective date of these reg-
ulations, a letter to the Regional Ad-
ministrator of each Region in which
the owner’s or operator’s facilities to
be covered by the financial test are lo-
cated This letter from the chief finan-
cial officer must
(i) Request the extension,
(ii) Certify that he has grounds to be-
lieve that the owner or operator meets
the criteria of the financial test;
(lii) Specify for each facility to be
covered by the test the EPA Identifica-
tion Number, name, address, the
amount of liability coverage and, when
applicable, current closure and post-
closure cost estimates to be covered by
the test;
(iv) Specify the date ending the own-
er’s or operator’s last complete fiscal
year before the effective date of these
regulations,
(v) Specify the date, no later than 90
days after the end of such fiscal year,
when he will submit the documents
specified in paragraph (fl(3) of this sec-
tion; and
(vi) Certify that the year-end finan-
cial statements of the owner or oper-
ator for such fiscal year will be audited
by an independent certified public ac-
countant
(5) After the Initial submission of
items. specified in paragraph (0(3) of
this section, the owner or operator
must send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year. This information must consist of
all three items specified in paragraph
(0(3) of this section
(6) If the owner or operator no longer
meets the requirements of paragraph
(0(1) of this section. he must obtain in-
surance, a ’letter of credit, a surety
bond, a trust fund, or a guarantee for
the entire amount of required liability
coverage as.,speclfied in this section
Evidence of liability coverage must be
submitted to the Regional Adminis-
trator within 90 days after the end of
the fiscal. year for which the year-end
financial data show that the owner or
operator no longer meets the test re-
qu1rements? -
(7’) Tbe Regional Administrator may
disallow use .of this test on the basis of
qualifications in the opinion expressed
by the independent certified public ac-
countant in his report on examination
of the owner’s or operator’s financial
statements (see paragraph (f)(3)(ii) of
this section). An adverse opinion or a
disclaimer of opinion will be cause for
disallowance The Regional Adminis-
trator will evaluate other qualifica-
tions on an individual basis The owner
or operator must provide evidence of
insurance for the entire amount of re-
quired liability coverage as specified in
this section within 30 days after notifi-
cation of disallowance
(g) Guarantee for liability coverage (1)
Subject to paragraph (g)(2) of this sec-
tion, an owner or operator may meet
the requirements of this section by ob-
taining a written guarantee, herein-
after referred to as “guarantee “ The
guarantor must be the direct or higher-
tier parent corporation of the owner or
operator, a firm whose parent corpora-
tion is also the parent corporation of
the owner or operator, or a firm with a
“substantial business relationship”
with the owner or operator. The guar-
antor must meet the requirements for
owners or operators in paragraphs (fl(1)
through (0(6) of this section The word-
ing of the guarantee must be identical
to the wording specified in
§264 151(h)(2) of this chapter A cer-
tified copy of the guarantee must ac-
company the items sent to the Re-
gional Administrator as specified in
paragraph (0(3) of this section One of
these items must be the letter from the
guarantor’s chief financial officer If
the guarantor’s parent corporation is
also the parent corporation of the
owner or operator, this letter must de-
scribe the value received in consider-
ation of the guarantee If the guar-
antor is a firm with a “substantial
business relationship” with the owner
or operator, this letter must describe
this “substantial business relation-
ship” and the value received in consid-
eration of the guarantee
(i) If the owner or operator fails to
satisfy a judgment based on a deter-
mination of liability for bodily injury
or property damage to third parties
caused by sudden or nonsudden acci-
dental occurrences (or both as the case
may be), arising from the operation of
facilities covered by this corporate
guarantee, or fails to pay an amount
502

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Environmental Protection Agency
265:147
agreed to in settlement of claims aris-
ing from or alleged to arise from such
injury or damage, the guarantor will
do so up to the limits of coverage.
(ii) [ Reserved]
(2)(i) In the case of corporations in-
corporated in the United States, a
guarantee may be used to satisfy the
requirements of this section only if the
Attorneys General or Insurance Com-
missioners of (A) the State in which
the guarantor is incorporated, and (B)
each State in which a facility covered
by the guarantee is located have sub-
mitted a written statement to EPA
that a guarantee executed as described
in this section and §264 151(h)(2) is a le-
gally valid and enforceable obligation
in that State
(ii) In the case of corporations incor-
porated outside the United States, a
guarantee may be used to satisfy the
requirements of this section only if (A)
the non-U.S corporation has identified
a registered agent for service of process
in each State in which a facility cov-
ered by the guarantee is located and in
the State in which it has its principal
place of business, and if (B) the Attor-
ney Genera] or Insurance Commis-
sioner of each State in which a facility
covered by the guarantee is located and
the State in which the guarantor cor-
poration has its principal place of busi-
ness, has submitted a written state-
ment to EPA that a guarantee exe-
cuted as described in this section and
§264 151(h)(2) is a legally valid and en-
forceable obligation in that State
(h) Letter of credit for l abi1ity coverage
(1) An owner or operator may satisfy
the requirements of this section by ob-
taining an irrevocable standby letter of
credit that conforms to the require-
ments of this paragraph and submit-
ting a copy of the letter of credit to the
Regional Administrator
(2) The financial institution issuing
the letter of credit must be an entity
that has the authority to issue letters
of credit and whose letter of credit op-
erations are regulated and examined by
a Federal or State agency
(3) The wording of the letter of credit
must be identical to the wording speci-
fied in § 264.151(k) of this chapter
(4) An owner or operator who uses a
letter of credit to satisfy the require-
ments of this section may also estab-
lish a standby trust fund Under the
terms of such a letter of credit, all
amounts paid pursuant to a draft by
the trustee of the standby trust will be
deposited by the issuing institution
into the standby trust in accordance
with instructions from the trustee. The
trustee of the standby trust fund must
be an entity which has the authority to
act as a trustee and whose trust oper-
ations are regulated and examined by a
Federal or State agency
(5) The wording of the standby trust
fund must be identical to the wording
specified in §264 151(n).
(i) Surety bond for habthty coverage. (1)
An owner or operator may satisfy the
requirements of this section by obtain-
ing a surety bond that conforms to the
requirements of this paragraph and
submitting a copy of the bond to the
Regional Administrator
(2) The surety company issuing the
bond must be among those listed as ac-
ceptable sureties on Federal bonds in
the most recent Circular 570 of the U S
Department of the Treasury
(3) The wording of the surety bond
must be identical to the wording speci-
fied in §264 151(1) of this chapter.
(4) A surety bond may be used to sat-
isfy the requirements of this section
only if the Attorneys General or Insur-
ance Commissioners of (i) the State in
which the surety is incorporated, and
(ii) each State in which a facility cov-
ered by the surety bond is located have
submitted a written statement to EPA
that a surety bond executed as de-
scribed in this section and §264 151(1) of
this chapter is a legally valid and en-
forceable obligation in that State
(j) Trust fund for liability coverage. (1)
An owner or operator may satisfy the
requirements of this section jby estab-
lishing a trust fund that conforms to
the requirements of this p 4 ai-igraph and
submitting an originally 1 sig1 ed dupli-
cate of the trust agreem&pt t8 the Re-
gional Administrator.
(2).The trustee must be an entity
which has the authority to act as a
trustee and whose trust oper t1ons are
regulated and examined by Fdderal or
State agency
(3) The trust fund for )iabi1 ity cov-
erage must be funded fbr the full
amount of the 1iabilLt 1idvetkge to be
provided by the trust ‘ftiMilcbefore it
503

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§ 265,148
40 CFR Ch. I (7—1—02 Edition)
may be relied upon to satisfy the re-
quirements of this section If at any
time after the trust fund is created the
amount of funds in the trust fund is re-
duced below the full amount of the li-
a ility coverage to be provided, the
owner or operator, by the anniversary
date of the establishment of the Fund,
must either add sufficient funds to the
trust fund to cause its value to equal
the full amount of liability coverage to
be provided, or obtain other financial
assurance as specified ni this section to
cover the difference Fdr purposes of
this paragraph, “the. full amount of the
liabi ity coverage, to be ‘provided”
means the amount of coverage for sud-
den andfor nonsudden occurrences re-
quired to be provided by the owner or
operator by this section, less the
amount of financial assurance for
liability coverage that is being pro-
vided by other financial assurance
mechanisms being used to demonstrate
finapcial assurance by the owner or
operator -
(4) The ‘wording of the trust fund
must be identical to the wording speci-
fied in §264 151(m) of this part
(k) Notwithstanding any other provi-
sion of this part an owner or operator
using liability insurance to satisfy the
requirements of this section may use,
un 1l October 16, 1982, a Hazardous
Wadte Facility Liability Endorsement
or ertificate of Liability Insurance
that does not certify that the insurer is
licensed to transact the business of in-
surance, or eligible as an excess or sur-
plus lines insurer, in one or more
,Statesa ’
(47 M I6558 ADr iS, 1982, as ahiended at. 47
FR 28627. July 1. 1982. 47,FR 30447. Juiy 13
982. 48 FR 30115, June 30, 1983, 51 FR 16458.
Ma ’2, 1986, 51 FR 25355. July 11, 1986. 52 FR
‘44321, Nov 18, i9B7, 53 F?. 33959, Sept i. 1988
56 PR3020 1 ,Juiy 1, 1991, 56 FR 47912, Sept 23,
1991. 57 FR 2843. Sept- 16, 1992)
* 265.148 Incapacity of owners or oper-
ators, guarantors, or financial insti-
tutions.
(a).An ‘owner or operator must notify
he , ,egional Administrator by cer-
i ied i ail of the commencement of a
voluntary or involuntary proceeding
under Title 11 (Bankruptc ’). U S Code.
nan ing the owner or operator as debt-
or, within 10 days after commencement
of t e proceeding A guarantor of a cor-
porate guarantee as specified in
§ 265 143(e) and 265 145(e) must make
such a notification if he is named as
debtor, as required under the terms of
the corporate guarantee (*264 151(h)).
(b) An owner or operator who fulfills
the requirements of §265 143, §265 145,
or §265 147 by obtaining a trust fund,
surety bond, letter of credit, or insur-
ance policy will be deemed to be with-
out the required financial assurance or
liability coverage in the event of bank-
ruptcy of the trustee or issuing institu-
tion, or a suspension or revocation of
the authority of the trustee institution
to act as trustee or of the institution
issuing the surety bond, letter of cred-
it, or insurance policy to issue such in-
struments The owner or operator must
establish other financial assurance or
liability coverage within 60 days after
such an event
§ 265.149 Use of State-required mecha-
nisms.
(a) For a facility located in a State
where EPA is administering the re-
quirements of this subpart but where
the State has hazardous waste regula-
tions that include requirements for fi-
nancial assurance of closure or post-
closure care or liability coverage, an
owner or operator may use State-re-
quired financial mechanisms to meet
the requirements of §265 143, §265 145,
or §265 147 if the Regional Adminis-
trator determines that the State mech-
anisms are at least equivalent to the fi-
nancial mechanisms specified in this
subpart The Regional Administrator
will evaluate the equivalency of the
mechanisms principally in terms of (1)
certainty of the availability of funds
for the required closure or post-closure
care activities or liability coverage and
12) the amount of funds that will be
made available The Regional Adminis-
trator may also consider other factors
as he deems appropriate The owner or
operator must submit to the Regional
Administrator evidence of the estab-
lishment of the mechanism together
with a letter requesting that the State-
required mechanism be considered ac-
ceptable for meeting the requirements
of this subpart The submission must
include the following information The
facility’s EPA Identification Number,
name, and address, and the amount of
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