United States
Environmental Protection
Agency
Solid Waste and
Emergency Response
(5305W)
EPA530-K-02-018I
October 2001
&EPA
RCRA, Superfund & EPCRA
Call Center Training Module
Introduction to:
RCRA Financial Assurance
(40 CFR Parts 264/265, Subpart H)
Updated October 2001
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DISCLAIMER
This document was developed by Booz Allen Hamilton Inc. under contract 68-W-01-020 to EPA.
It is intended to be used as a training tool for Call Center specialists and does not represent a
statement of EPA policy.
The information in this document is not by any means a complete representation of EPA s
regulations or policies. This document is used only in the capacity of the Call Center training and
is not used as a reference tool on Call Center calls. The Call Center revises and updates this
document as regulatory program areas change.
The information in this document may not necessarily reflect the current position of the Agency.
This document is not intended and cannot be relied upon to create any rights, substantive or
procedural, enforceable by any party in litigation with the United States.
RCRA, Superfund & EPCRA Call Center Phone Numbers:
National toll-free (outside of DC area) (800) 424-9346
Local number (within DC area) (703) 412-9810
National toll-free for the hearing impaired (TDD) (800) 553-7672
The Call Center is open from 9 am to 5 pm Eastern Time,
Monday through Friday, except for federal holidays.
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RCRA FINANCIAL ASSURANCE
CONTENTS
1. Introduction 1
2. Regulatory Summary 2
2.1 Applicability 2
2.2 Closure/Post-Closure Care 3
2.3 Closure/Post-Closure Financial Assurance Mechanisms 4
2.4 Liability Requirements 9
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Financial Assurance - 1
1. INTRODUCTION
Owning and operating a hazardous waste treatment, storage, and disposal facility
(TSDF) is a costly venture that requires financial stability from the beginning of the
permitting process through the cessation of the post-closure period. Mainly, an
owner and operator must demonstrate that funds will be available to properly close
the facility and provide post-closure care. A TSDF owner and operator must also
have the financial resources to compensate third parties for any injury or accidents
that might result from facility operations. The requirements for such financial
assurance appear in Part 264/265, Subpart H.
In order to demonstrate that they have the financial resources to operate a
hazardous waste facility, an owner and operator must use one or more of a set of
financial assurance mechanisms designated by EPA. This training module addresses
the financial assurance standards, explaining first the allowable financial assurance
mechanisms and then the extent of financial coverage required. This module may
introduce some unfamiliar legal and financial concepts.
After completing this module, you will be able to explain the financial assurance
requirements for closure and post-closure care. Specifically, you will be able to:
• Identify the types of facilities subject to the financial assurance requirements
for closure and post-closure
• Calculate cost estimates
• Describe the allowable mechanisms for financial assurance, including which
mechanisms can be used together and under what conditions.
Additionally, you will be able to explain the financial assurance requirements for
accident liability coverage. Specifically, you will be able to:
• Discuss the applicability of sudden and nonsudden liability provisions
• Specify the amount of liability coverage required for single facilities and
multiple facilities
• List allowable mechanisms and combinations of mechanisms that can be used
to satisfy financial assurance liability requirements.
Use this list of objectives to check your knowledge of this topic after you complete
the training session.
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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2 - Financial Assurance
2. REGULATORY SUMMARY
EPA established specific closure and post-closure care requirements to minimize
long-term environmental and health threats posed by hazardous waste TSDFs.
These requirements alone, however, do not guarantee that owners and operators of
TSDFs will have sufficient funds to properly close and maintain the site. EPA
promulgated the financial assurance requirements to ensure that owners and
operators could not default to federal funds because they were unable or unwilling
to cover significant closure and post-closure costs. Part 264/265, Subpart H, outlines
the mechanisms an owner and operator may use to prove that funds will be
available as well as the amounts that must be provided. Subpart H also establishes
minimum amounts of liability coverage for accidents during the active life of the
facility. Together, these requirements comprise the RCRA provisions known as
financial assurance.
2.1 APPLICABILITY
According to §§2647265.140(a), the requirements of Subpart H apply to owners and
operators of all hazardous waste TSDFs. The requirements of this subpart are not,
however, applicable to state and federally owned or operated facilities
(§§264/265.140(c)).
CLOSURE
All TSDFs, except those exempted in §§264/265.1, must fulfill certain closure
requirements. As specified in §§264/265.142 and 264/265.143, these TSDFs must
demonstrate financial assurance for closure. The closure requirements in Part
264/265, Subpart G, detail steps for safely and permanently ceasing operations at
active TSDFs. According to these requirements, owners and operators must submit
a closure plan that details the steps necessary to close or partially close the facility. In
addition to the general facility closure obligations of Subpart G, owners and
operators must also comply with closure and post-closure requirements for specific
hazardous waste management and disposal units (e.g., surface impoundments and
landfills) in Parts 264 and 265. Even those surface impoundments and waste piles
that the owner and operator intends to clean close by removing hazardous waste at
closure are required to have contingent closure plans (§§264.228(c)(l)(i) and
264.258(c)(l)(i)).
POST-CLOSURE
Post-closure care for inactive facilities entails long-term maintenance, monitoring,
and recordkeeping to ensure continuing protection of human health and the
environment after a TSDF has ceased operation. The financial requirements for
post-closure care in §§264/265.144 and 264/265.145 apply to all owners and operators
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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Financial Assurance - 3
of disposal facilities as defined in §§264/265.140(b). Disposal facilities subject to these
requirements include not only landfills, but waste piles, surface impoundments,
and tanks that cannot be clean-closed, and therefore must be closed as landfills.
These units are then subject to full post-closure care. As part of the post-closure care
requirements, owners and operators must submit a post-closure plan that details the
operation and maintenance measures needed to ensure that no hazardous waste
will migrate off-site. Financial assurance for post-closure care is not required for
units that will be clean-closed (see §264.197 for tank systems, §264.228 for surface
impoundments, and §264.258 for waste piles). On the other hand, most owners and
operators will be required to prepare a contingent post-closure plan to ensure that
funds will be available to monitor any migration of waste left on-site in the
unforeseen event that a tank system, surface impoundment, or waste pile cannot be
clean-closed.
2.2 CLOSURE/POST-CLOSURE CARE
After an owner and operator completes the written closure and post-closure plans
for a facility, they must determine the implementation cost for both plans by
preparing cost estimates based on the cost of a third-party contractor performing
closure activities. These estimates provide the base figure for the amount of
financial assurance a facility will need to demonstrate.
COST ESTIMATES
According to §§264/265.142 and 264/265.144, cost estimates must reflect the cost of
hiring a third party to conduct all activities outlined in the closure and post-closure
plans. If a contingent closure or post-closure plan is required for a permitted surface
impoundment or waste pile, the cost of its implementation must be calculated into
the final cost estimate for the facility. Closure cost estimates are based on the point
in the facility's operating life when closure would be the most expensive. Post-
closure cost estimates are based on projected costs for a post-closure period of 30
years, which can only be reduced or extended by the Regional Administrator or state
director.
COST ADJUSTMENTS
Closure and post-closure cost estimates are adjusted annually for inflation until
closure is completed. Since a dollar this year is not worth as much as a dollar last
year, stating that a facility will cost one hundred dollars to close raises the question,
"which dollar should we use to make cost estimates?" There are two ways owners
and operators may address this issue. The more obvious and more cumbersome
method would be to recalculate the cost estimates completely each year. To save
time, however, a simpler method may be used. The Department of Commerce,
Bureau of Economic Analysis (BEA), publishes an official figure, called the Implicit
Price Deflator (IPD), which summarizes what a certain group of goods and services
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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4 - Financial Assurance
costs during that year. An owner and operator can then use the IPD to determine
how much prices "went up" (the inflation factor) and make a percentage adjustment
to the previous year's closure and post-closure cost estimates. For example, the 1998
IPD is 112.64 and the 1997 IPD is 111.52. By dividing the 1998 IPD by the 1997 IPD, the
inflation factor is determined, in this case 1.01. An owner and operator who
estimated closure/post-closure costs at $100 in 1995 dollars would multiply $100 by
the inflation factor of 1.01 to find an updated estimate of $101 in 1998 dollars. (Note
that some states require the use of the most current quarterly IPD to calculate the
inflation factor while others require use of the annual figure. In addition, all IPD
values are subject to change by the BEA.)
This calculation is illustrated by the following equations:
IPD current year . „ .
= inrlationractor
IPD previous year
(inflation factor) x (old estimate) = new estimate
Inserting the figures given:
112.64/111.52 = 1.01 = inflation factor
(1.01) x ($100) = $101 = new cost estimate
Historically, the Department of Commerce emphasized the use of the IPD derived
from the Gross National Product (GNP), but since December 1991 the Department of
Commerce has focused on the use of the Gross Domestic Product (GDP) to derive
the IPD. There is only a slight difference between the numbers, and owners and
operators may use either to derive the IPD as long as they are consistent in their use
of GNP or GDP. If an owner or operator switches from using GNP to GDP, then
previous cost estimates must be adjusted accordingly.
Owners and operators must adjust cost estimates following any changes to their
closure or post-closure plan that would raise the costs involved. For example,
expansion of a surface impoundment might increase the amount of contaminated
soil to be removed at closure. The closure and post-closure estimates must be
recalculated to reflect the additional expenses.
2.3 CLOSURE/POST-CLOSURE FINANCIAL ASSURANCE
MECHANISMS
An owner and operator must use one or more of the specified financial assurance
mechanisms to demonstrate that funds are available to pay for closure and post-
closure care of a facility.
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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Financial Assurance - 5
MECHANISMS
An owner and operator may demonstrate financial assurance for closure and post-
closure by choosing from the following financial assurance mechanisms:
• Trust Fund • Letter of Credit
• Surety Bonds (two types) • Insurance
Payment Bonds • Financial Test
Performance Bonds • Corporate Guarantee.
The wording of each mechanism, or instrument, must be identical to the examples
in §264.151. The criteria for using each of these mechanisms are discussed below.
Trust Fund
A trust fund serves as a way to set aside monies specifically earmarked for closure
and post-closure costs. Owners and operators pay money into the trust fund during
a specified period. By the time a facility closes, the money accumulated in the fund
should be adequate to cover the necessary closure costs. The pay-in period for
interim status facilities is 20 years from the effective date of the regulations (July 6,
1982), or the remaining operating life of the facility, whichever period is shorter.
For permitted facilities, the owner and operator must make payments into the trust
fund for the term of the initial permit or the remaining operating life of the entire
facility (as estimated in the closure plan), whichever period is shorter.
The annual payment for the duration of the pay-in period may be calculated using
the following equation, where the annual payment (AP) equals the current cost
estimate (CE) minus the current value of the trust fund (CV) divided by the number
of years remaining in the pay-in period (Y):
AP = (CE - CV)/Y
Surety Bonds
A surety bond is a guarantee by a surety company that certain specified obligations
will be fulfilled. If the owner and operator fail to pay the closure or post-closure
costs specified in a bond, the surety company is liable for the costs. The owner and
operator must also establish a standby trust fund into which any payments made by
the surety company will be deposited. EPA then uses the trust fund to cover closure
costs. There are two types of surety bonds:
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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6 - Financial Assurance
Payment Bond
A payment bond will, in the event an owner and operator fails to pay, fund a
standby trust fund in an amount equal to the value (penal sum) of the bond.
Performance Bond
A performance bond guarantees that the owner and operator will perform the
final closure in accordance with the requirements of the facility's permit.
Performance bonds may be paid into a standby trust fund. Interim status
facilities can not use performance bonds.
Surety bonds only pay when the owner and operator fails to either pay for or
perform closure and post-closure activities. An owner and operator is generally
obligated to repay the surety company.
Letter of Credit
To use a letter of credit assuring financial coverage for closure and post-closure care,
the facility owner and operator must satisfy the following requirements:
• The owner and operator must obtain a letter of credit that is irrevocable
and equals the amount of the cost estimate
• The owner and operator must increase the letter of credit within 60 days
whenever the current cost estimate increases
• The owner and operator must establish a standby trust fund into which
any payments made by the issuing institution will be deposited
• If the owner and operator fails to fulfill closure or post-closure
requirements, the Regional Administrator is entitled to direct the issuing
institution to deposit funds into the owner and operator's standby trust
fund.
Insurance
In order for the owner and operator of a facility to use insurance as the financial
mechanism covering the cost of closure and post-closure care, the following
requirements must be satisfied:
• The owner and operator must obtain an insurance policy for a face
amount (the total money the insurer is obligated to pay under the policy)
at least equal to the cost estimate for closure or post-closure care
• The owner and operator must increase the face amount or obtain other
supplementary financial assurance if the cost estimate increases
• The policy must allow its assignment to a successor owner and operator
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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Financial Assurance - 7
• The owner and operator must send a copy of the policy to the head of the
hazardous waste program in the state, if the state is authorized to
administer the RCRA base program. In unauthorized states, a copy is sent
to the Regional Administrator
• If the owner and operator fails to pay the premium, the insurer may
cancel, terminate, or decide not to renew the policy
• The insurer must be licensed by a state, as off-shore insurers are not
acceptable.
Financial Test
The owner and operator may satisfy the requirements for financial assurance by
meeting the financial test criteria for either of the following alternatives.
Alternative I
• The owner and operator must meet each of the following criteria:
Net working capital equals 6 times current closure, post-closure,
plugging, and abandonment cost estimates
Tangible net worth is greater than $10 million
Ninety percent of total assets are located in the United States, or at least
6 times the current closure, post-closure, and plugging and
abandonment cost estimates
and
• The owner and operator must satisfy two of the following three ratios:
Liabilities to net worth ratio less than 2
Current assets to current liabilities ratio greater than 1.5
Net income (plus depreciation, depletion, and amortization) to
liabilities ratio greater than 0.1.
Alternative II
• The owner and operator must meet each of the following criteria:
- Tangible net worth at least 6 times current closure, post-closure,
plugging, and abandonment cost estimates
- Tangible net worth is greater than $10 million
Ninety percent of total assets are located in the United States, or at least
6 times the current closure, post-closure, and plugging and
abandonment cost estimates
- The current bond rating for the most recent bond issuance is AAA, AA,
A, or BBB as issued by Standard & Poor's, or Aaa, Aa, A, or Baa as
issued by Moody's.
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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8 - Financial Assurance
The owner and operator must pass one of the two financial tests specified in the
closure and post-closure financial assurance requirements. If the owner and
operator chooses to use a financial test to meet financial assurance requirements,
this must be documented in a letter to the Regional Administrator, signed by the
company's Chief Financial Officer, and attached to an independent Certified Public
Accountant report examining the owner and operator's annual report.
Corporate Guarantee
In order for the owner and operator of a facility to use a corporate guarantee to
ensure financial coverage for closure and post-closure care, the following
requirements must be satisfied:
• The guarantor must be a direct corporate parent (a corporation that directly
owns at least 50 percent of the voting stock of another corporation or
subsidiary), a corporate grandparent (a corporation that indirectly owns
over 50 percent of a company through a subsidiary), a sibling corporation
(a corporation that shares the same parent corporation), or a firm with a
substantial business relationship with the owner and operator
• The guarantor must meet the financial test requirements outlined above
• The guarantor must perform the required closure and post-closure care
activities or establish a trust fund to pay a third party to perform them if
the owner and operator fails to carry out final closure or post-closure care
in accordance with the approved plan.
COMBINATIONS
An owner and operator may combine certain financial assurance mechanisms to
cover the cost of closure and post-closure care for a facility. For example, an owner
and operator can combine trust funds, payment surety bonds, insurance policies,
and letters of credit may be combined to meet financial assurance requirements.
Performance surety bonds, financial tests, and corporate guarantees cannot be used
in combination to demonstrate assurance.
An owner and operator may also use a single financial assurance mechanism to
meet the cost of closure and post-closure care for more than one facility. The dollar
amount of the funds available through the mechanism must be no less than the
sum of funds that would be available if a separate assurance mechanism had been
established and maintained for each facility (§§264.143(h), 265.143(g), 264.145(h), and
265.145(g)).
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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Financial Assurance - 9
PERIOD OF COVERAGE
Within 60 days after an acceptable certification of final closure is received, the
Regional Administrator notifies the owner and operator that financial assurance for
final closure is no longer required. Within 60 days of receipt of acceptable
certification that the post-closure care period has been completed, the Regional
Administrator notifies the owner and operator that financial assurance for post-
closure care is no longer required (§§264.143(1), 265.143(h), 264.145(1), and 265.145(h)).
2.4 LIABILITY REQUIREMENTS
The owner and operator are required to maintain accident liability coverage until
certification of final closure (§§264/265.147). This coverage ensures that, should an
accident resulting in a release of hazardous constituents occur, money will be
available to compensate third parties suffering bodily injury or property damage
resulting from the accident. Under §§264/265.147(c), an owner and operator may
receive a variance from the Regional Administrator if the owner and operator can
demonstrate that the levels of financial responsibility required by the regulations are
not consistent with the levels of risk associated with the facility's operation. For
permitted facilities, this would appear as a permit modification. Variances,
however, are seldom granted. Liability coverage is not required for state or federally
owned or operated facilities.
TSDFs may be required to demonstrate liability coverage for both sudden and
nonsudden accidental occurrences. The applicability of sudden and nonsudden
coverage and the differences between them are explained below. The owner and
operator may use a combination of mechanisms as long as the amount covered
equals the total of sudden and nonsudden liability minimum requirements.
SUDDEN ACCIDENTAL OCCURRENCES
A sudden accidental occurrence is an event that is not continuous or repeated.
Examples of sudden accidental occurrences are fires and explosions. All TSDFs that
are subject to financial assurance requirements must have coverage for sudden
accidental occurrences (§§264/265.147(a)).
The owner and operator must meet the minimum financial requirements for
liability coverage of sudden accidental occurrences by using one or more of the
following allowable mechanisms specified in §§264/265.147(a)(6): insurance,
financial test, corporate guarantee, letter of credit, surety bond, and trust fund. The
minimum financial requirements include at least $1 million per occurrence and an
annual aggregate of at least $2 million. While a per occurrence amount limits the
payment for any one event, such as a fire, an annual aggregate caps the total dollar
value of all claims in one year. These funds will suffice to cover all of the owner
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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10 - Financial Assurance
and operator's facilities. Table 1 demonstrates such a disbursement of sudden
liability funds over a one-year period.
Table 1
DISBURSEMENT OF SUDDEN LIABILITY FUNDS
Number of Accidents
1
3
6
Cost per Accident
$3 million
$1 million
$500,000
Amount Paid by Liability
Coverage
$1 million
first $2 million
$500,000 on first four
NONSUDDEN ACCIDENTAL OCCURRENCES
A nonsudden accidental occurrence is an event that takes place over time and
involves continuous or repeated exposure to hazardous waste. An example of a
nonsudden accidental occurrence is a leaking surface impoundment that
contaminates a drinking water source over time. The owner and operator of a
surface impoundment, landfill, land treatment facility, or miscellaneous disposal
unit must have financial assurance for nonsudden accidental occurrences
(§§264/265.147(b)).
The owner and operator must meet the minimum financial requirements for
liability coverage of nonsudden accidental occurrences by using one or more of the
following allowable mechanisms specified in §§264/265.147(a)(6): insurance,
financial test, corporate guarantee, letter of credit, surety bond, or trust fund. The
minimum financial requirements include at least $3 million per occurrence and an
annual aggregate of at least $6 million. These funds will satisfy the requirements for
all of the owner or operator's facilities.
Note that these liability minimums apply regardless of the number of facilities held
by an owner and operator. Therefore, someone owning multiple facilities only
needs one set of coverage for $3 million/$6 million. Table 2 demonstrates such a
disbursement of nonsudden liability funds over a one-year period.
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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Financial Assurance - 11
Table 2
DISBURSEMENT OF NONSUDDEN LIABILITY FUNDS
Number of Accidents
1
3
6
Cost per Accident
$4 million
$4 million
$2 million
Amount Paid by Liability
Coverage
$3 million
$3 million on first
$3 million on second
$2 million on first three
COMBINATION OF LIABILITY COVERAGE LEVELS
Owners and operators who combine coverage levels for sudden and nonsudden
accidental occurrences must maintain liability coverage in the amount of at least $4
million per occurrence ($1 million sudden plus $3 million nonsudden) and $8
million annual aggregate ($2 million sudden plus $6 million nonsudden)
(§§264/265.147(b)).
PERIOD OF COVERAGE
Within 60 days after an acceptable certification of final closure is received, the
Regional Administrator will notify the owner and operator that liability coverage is
no longer required (§§264/265.147(e)). Since final closure occurs before a facility
begins post-closure activities, liability coverage is not required during the post-
closure period. The Regional Administrator, however, may require liability
coverage if closure was not completed in accordance with the facility's closure plan.
The information in this document is not by any means a complete representation of EPA's regulations or policies,
but is an introduction to the topic used for Call Center training purposes.
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