ENVIRONMENTAL FINANCIAL ADVISORY BOARD
Members
Bradley Abelow, Chair
Scott Anderson
John Boland
William Cobb
Donald Correll
Rachel Deming
Eric Draper
Mary Francoeur
James Gebhardt
Ann Grodnik
Scott Haskins
Jennifer Hernandez
Keith Hinds
Philip Johnson
Thomas Liu
Deborah Llvesay
Mathilde McLean
Greg Mason
Karen Massey
Lindene Ration
Sharon Dixon Peay
Cherie Rice
Andrew Sawyers
Doug Scott
Jay Specter
Greg Swartz
Leanne Tobias
Steve Thompson
Chiara Trabucchi
Justin Wilson
Michael Shapiro
Designated
Federal Officer
DEC 16 2010
Honorable Mathy Stanislaus
Assistant Administrator
Office of Solid Waste & Emergency Response
U.S. Environmental Protection Agency
Washington, D.C. 20460-0001
Dear Mr. Stanislaus:
The Environmental Financial Advisory Board (EFAB) was asked by the Office of
Solid Waste and Emergency Response to examine a series of important questions
concerning financial assurance requirements for programs operating under the
Resource Conservation and Recovery Act (RCRA). Previous EFAB reports have
addressed the use of important individual financial assurance instruments ~ the
financial test/corporate guaranty, captive insurance, and commercial insurance.
These earlier reports can be accessed at www.epa.gov/efinange/efabpub.htm.
This latest report (enclosed) examines cost estimation practices and provides
recommendations for improving the cost estimates that underpin the use of all
financial assurance instruments.
EPA's charge to the Board regarding cost estimation first expresses a
concern and then provides a specific direction:
Cost estimates can cover a variety of activities with different time frames.
Estimates can also change substantially as a result of additional information,
such as new data on the extent of contamination at a site. Because the cost of a
mechanism can depend upon the cost estimate, there may be an incentive to
underestimate costs.
EPA and its state government partners seek guidance on what can be done to
improve the accuracy of cost estimates.
To respond to this charge, EFAB worked closely with EPA, state officials, and
private sector parties to analyze the protocols, implementation practices, and
regulatory contexts associated with conducting cost estimates under RCRA
programs. The Board wishes to particularly note the invaluable assistance
provided during this effort by EPA's financial assurance and cost estimation staff
experts and the members of the Association of State and Territorial Solid Waste
Management Officials.
Providing Advice on "How to Pay" for Environmental Protection
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The conclusions and recommendations contained in the enclosed report are the result of a
process encompassing more than a year of intensive series of meetings, discussions, and
deliberations. This process has only served to strengthen EFAB's opinion regarding the critical
importance of good cost estimates. The Board shares the view expressed by many that the best
financial assurance instrument is only as good the accuracy of the cost estimate that it secures.
EFAB's most important conclusion is that the cost estimates for actions and activities
under RCRA and Superfund programs are not uniformly accurate and up-to-date. To begin to
address this concerns, the Board believes that EPA and its public and private partners need to
improve cost estimation expertise and work by developing more standardized cost estimates;
providing more education on best practices; and expanding existing coordinating mechanisms in
cost-effective ways.
Some of the specific actions that the Board believes that EPA should take include:
> Creating standard checklist templates that clarify definitions, ensure completeness, and
streamline reviews;
> Creating a web-based platform to disclose and improve the state of knowledge regarding
good cost estimation;
> Developing within EPA and the states a body of experts who know how to use these
tools; and
5* Committing Agency resources to translating information into best practices and providing
improved ongoing training to regulators.
EFAB recognizes the importance of your Office's financial assurance responsibilities and
appreciates the continuing opportunity to provide financial advice to you. We hope that you find
our advice constructive and useful.
Sincerely,
Bf&dley Abefew Michael Shapiro
Chairman Designated Federal Officer
Enclosure
cc: Lisa P. Jackson, Administrator
Bob Perciasepe, Deputy Administrator
Barbara J. Bennett, Chief Financial Officer
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Environmental Financial Advisory Board
EFAB
Michael Shapiro
Designated Federal
Officer
Members
Bradley Abelow, Chair
Scott Anderson
John Boland
William Cobb
Donald Cornell
Rachel Deming
Eric Draper
Mary Francoeur
James Gebhardt
Ann Jennifer Grodnik
Scott Haskins
Jennifer Hernandez
Keith Hinds
Philip Johnson
Thomas Liu
Deborah Livesay
Gregory Mason
Karen Massey
Mathilde McLean
Linden Patton
Sharon Dixon-Peay
Cherie Rice
Andrew Sawyers
Doug Scott
Jay Specter
Greg Swartz
Steve Thompson
Leanne Tobias
Chiara Trabucchi
Justin Wilson
Improving Cost Estimation as a
Financial Assurance Tool
This report has not been reviewed for approval by the U.S. Environmental
Protection Agency; and hence, the views and opinions expressed in the
report do not necessarily represent those of the Agency or any other
agencies in the Federal Government.
December 2010
Printed on Recycled Paper
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Improving Cost Estimation as a Financial Assurance Tool
I. The Charge
The U.S. Environmental Protection Agency (EPA or Agency) has asked the
Environmental Financial Advisory Board (Board) to examine a series of questions
concerning the financial assurance requirements of the Resource Conservation and
Recovery Act (RCRA). These requirements are also considered within the context of the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or
Superfund).l Thus far, the Board has answered questions regarding use of the financial
test and insurance (both commercial and captive) as mechanisms to satisfy RCRA
financial assurance obligations. This report provides recommendations for improving the
cost estimates that underlie use of financial assurance instruments. While it is important
to secure financial assurance of closure, post-closure, corrective action and remedial
obligations through reliable financial instruments; the best financial instrument is only as
good as the accuracy of the cost estimate it secures.
EPA's charge to the Board expresses a concern and then identifies the charge:
Cost estimates can cover a variety of activities with different time frames.
Estimates can also change substantially as a result of additional information, such
as new data on the extent of contamination at a site. Because the cost of a
mechanism can depend upon the cost estimate, there may be an incentive to
underestimate costs.
EPA and its state government partners seek guidance on what can be done to
improve the accuracy of cost estimates.
The charge put to the Board is straightforward, but our efforts to develop workable
approaches to improve cost estimates have been complex. The Board has deliberated for
nearly two years, and has met several times with state regulators expert in cost estimating
protocols, regulatory oversight, and implementation of cost estimation in the permitting
and remedial project contexts. Some members of the Board are familiar with the cost
estimating process as regulated parties or their insurers. EPA provided invaluable
assistance in providing relevant literature on cost estimation and hands-on experience
with the challenges posed in various regulatory contexts. The Board's series of meetings
with members of the Association of State and Territorial Solid Waste Management
1 Since the charge to the Board relates to environmental regulations, this report discusses cost estimation
within the environmental programs designated above. Cost estimation of environmental liabilities is also
an important component of other regulatory regimes, such as those governing financial reporting. While
this report may be informative for those other programs, we note that different regulatory regimes produce
different results and therefore emphasize that the conclusions in this report may not apply to other
regulatory reporting programs.
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Officials (ASTSWMO) proved to be particularly helpful as consensus positions on the
difficulties of cost estimation and the path to improving accuracy began to emerge.
II. The Challenges in Cost Estimation
The Board identified both substantive and procedural causes for potential inaccuracy in
cost estimates, whether performed to estimate costs of closure, post-closure care, or
corrective action at RCRA facilities and response costs at Superfund sites. The following
summary reflects the Board's knowledge from member experience, discussions with
federal and state officials responsible for oversight of financial assurance obligations, and
review of pertinent literature.2
Substantive Factors
Variability Among Like Units: Experience3 has shown a high variability among cost
estimates for seemingly comparable facilities - clearly a red flag where the variability
remains after subtracting for factors such as size, differing types of unit, or physical
environment. There appear to be two main factors affecting reliability:
> Incomplete estimates: Upon scrutiny, the variability and resulting unreliability of
many cost estimates reflect failure to include all appropriate costs (e.g., failure to
include the cost of transportation to off-site disposal, the cost of certifying
closure, or the cost of treatment before discharge of liquids). See, e.g., PRC
Environmental Management, Revised Draft Report on Analysis of Cost Estimates
for Closure and Post-Closure Care (hereafter PRC Report) (October 15, 1996), p.
13. Estimates may be incomplete because all elements of an anticipated action
may not be included, or because the scope of the future project has been too
narrowly defined. One study found what the authors believed to be
underestimation varied by type of unit, ranging from 72.58 percent for waste piles
to 16.14 percent for landfills. Ibid., p. 17. The same report also saw variability
according to whether a unit subject to an enforcement action incurred a penalty or
not, with facilities incurring penalties tending to project lower costs than facilities
where enforcement actions did not rise to the penalty phase. Ibid., p. 21.
> Financial motivation to understate costs: Some reports posited a consistent
motivation to low-ball cost estimates - both in terms of the completeness of the
estimate and a consistent underestimation of costs that are included. See, e.g.,
EPA Inspector General, Audit Report on RCRA Financial Assurance for Closure
and Post-Closure (hereafter IG Report) (2001-P-007, March 31, 2001), p. 45.
Reports reviewed included:
> PRC Environmental Management, Revised Draft Report on Analysis of Cost Estimates for
Closure and Post-Closure Care (October 15, 1996),
> EPA Inspector General, Audit Report on RCRA Financial Assurance for Closure and Post-Closure
(2001-P-007, March 31, 2001), and
> ASTSWMO Financial Assurance Review Paper (April 21, 2003).
Importantly, these somewhat dated reports were supplemented by current information provided in direct
discussions with state environmental division directors under the auspices of ASTSWMO.
3 See, e.g., the references in footnote 2 above.
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The reports assumed there would be a tendency to choose the lower end of a
range of potential costs as well as a tendency to "bundle" cost factors in a way
that disguises missing elements. States found this particularly common for parties
submitting their first estimate and small entities with relatively few facilities (and
thus little interaction with regulatory experts who could educate them on good
practices). One study found that estimates used to secure third-party funding
(e.g., letters of credit, state mechanisms, trust funds and insurance) tended to be
understated when compared to those of similar units using self assurance (e.g.,
surety bonds, the financial test and the corporate guarantee). PRC Report, p. 10-
12. (but see IG Report, p. 45, recounting concerns that facilities using the
financial test might find it easier if costs are underestimated).
Some states have attempted to improve the accuracy of cost estimates by requiring third-
party verification of the estimates, but the ASTSWMO members with whom we
conferred indicated third-party verification merely shifts the regulator's burden of
oversight from one entity to another. While the third party may have more experience to
draw upon, this will not necessarily cure the underlying variability and inaccuracy of the
cost estimate.
Reliability Over Time: Even estimates that originally reflect complete accounting of
necessary activities and accurate estimates of each cost can becomes less reliable as time
and circumstances at a site progress, or changes in science, technology or law overtake
original estimates. Rules regarding when an estimate must be updated for more than
inflation do not always exist, and where they do exist they may not be consistently
followed. Estimates for corrective and remedial action are particularly challenging.
Unlike RCRA closure/post-closure requirements, which are specific to individual units
and largely fixed by regulation, corrective and remedial actions tend to address the
impacts of activities that pre-dated prescriptive environmental standards. Corrective and
remedial action estimates can be highly variable according to facility type, substances
handled, availability of accurate records of disposal, knowledge of design and operating
features, and the specifics of the industry sector. Because of insufficient knowledge of
historic practices, cost estimates for corrective and remedial action tend to change over
time as phases in the response process proceed, the site is more fully characterized and
the extent of necessary cleanup becomes known. Estimates made during the remedial
investigation stage will not be as accurate as those that can be formulated when the
response action is in its design phase.
Procedural Factors:
Available Information: Although both EPA and the states oversee cost estimation of
closure/post-closure and corrective/remedial action, there is no centralized database
reflecting their experiences. Nor would there be an efficient way to search such a
database if EPA were to gather the relevant federal and state experience in one place
because the data are not arrayed in an accessible, standardized format. There is no
"checklist" assuring that all tasks are comparably defined and separately itemized. Some
states (Pennsylvania, for example) have detailed checklists to be filled out by regulated
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parties. Others ask for broader categories of information, and still others allow regulated
parties to develop ad hoc presentations of what they consider the relevant data. Without
standardized definitions and presentation, there are inconsistencies and lack of
transparency in treatment of discounting and use of contingency factors. These
inconsistencies create the opportunity for inadequate cost estimates.
Resources: Constrained resources have impeded development of standardized
approaches that could improve the body of knowledge on cost estimation. Standardized
tools like CostPro and RACER are proprietary and may be outside state budgeting
capacity. Moreover, tools like CostPro and RACER are just that - tools, not a substitute
for the professional judgment necessary to properly define the scope and essential
elements of a particular future closure, post-closure maintenance regime or corrective
action. These tools are not universally accurate, and in fact are embedded with
assumptions that may or may not be applicable in any given case.
The limitations of these standardized tools are exacerbated in States with budget
limitations, where resources may also be lacking to provide the kind of on-going training
needed to continually improve regulators' expertise in cost estimation best practices.
Moreover, where state budgets are limited, state regulators simply may not have the time
to enter into extended negotiations necessary to flesh out accurate facility estimates.
III. Recommendations
Several themes emerged in the Board's deliberations:
> The need for more standardized cost estimates;
> The need for education on best practices; and
> The desire to improve the system with the least cost and bureaucracy possible.
The Board initially considered recommending creation of a team of experts who could
research and identify best practices and procedures, and even serve in an advisory role on
particularly challenging projects. As discussions progressed, state representatives
identified an existing coordinating mechanism to serve as a practical substitute for an
independent advisory board. The Board, in consultation with state regulators, determined
that enhancing these informal consultations could improve the quality of cost estimates
more expeditiously, with the least cost and bureaucracy and the most flexibility.
The Board's recommendations to EPA therefore focus on expanding existing
coordinating mechanisms and taking advantage of web-based tools to improve cost
estimating practices. Although the Board is not recommending creation of a team of
experts, in part because of the cost involved, we cannot stress enough the need to develop
within the process we are recommending continually improving expertise on this issue.
The process we are recommending is intended to evolve the functional equivalent of a
team of experts with in-depth knowledge of estimating best practices and increasing
sophistication in recognizing the warning signs of insufficient cost projections.
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Initiating Enhanced Dialogue
ASTSWMO/EPA Coordination: ASTSWMO members currently conduct informal
information sessions to share best practices on cost estimation. In addition, there are
monthly calls between states and EPA regional staff discussing programmatic issues,
including trends in cost estimation. The Board recommends that EPA Headquarters
participate the Regional monthly calls and make cost estimation trends and best practices
part of the discussion. EPA Headquarters currently enjoys the benefit of longevity in
staff highly experienced in financial assurance management and oversight, and the goal
of the EPA/ASTSWMO coordination would be to transfer knowledge to new
practitioners. 4
Additional Coordination: To enhance EPA's usefulness to the states when participating
in monthly calls, the Agency should solicit input from private sector RCRA and
Superfund project owners and insurers. Those responsible for creating - and then
following budgets to match - facility-specific cost estimates will have valuable
information on best practices and data sources for cost information.
Creating Standardized Approaches to Documentation
Standardized template: All states with which the Board conferred expressed support
for EPA's creation of more standardized approaches to cost estimation for closure, post-
closure, corrective action and remedial action — in particular for corrective action and
remedial action where there are fewer prescriptive tasks than those set forth for RCRA
closure and post-closure care. EPA's standardized approach should take the form of a
template (or templates) to array the various components of a reliable cost estimate. It is
likely that EPA will be able to create standardized checklists for specific industry sectors
or regulated units (or groups of sectors with like characteristics).
The goal of a template is to improve consistency in the elements included as each facility
performs its cost-estimation exercise. A checklist is a very straightforward way to assure
that all potential costs are considered and accounted for with site-specific data. A
standard template has the additional virtue of formatting the relevant data in a way that is
predictable and thereby simplifies the review process. This kind of standard data array
also facilitates input into an estimating tool like CostPro or RACER, if the regulator so
chooses. The template is not CostPro or RACER methodology per se, but includes the
data elements they incorporate.
The resulting document should include all critical elements, encourage maximum use of
site-specific data, render any assumptions (as opposed to site-specific calculations)
transparent, and in the end much better assure an estimate that is neither too low nor too
high. The Board understands that some states already have projects underway to create
4 We note that coordination with ASTSWMO may not be sufficient to obtain information on a wide variety
of corrective action or remediation sites, including mining sites. Because ASTSWMO members may have
limited levels of expertise, EPA may need to seek broader coordination with state agencies or professional
organizations with that kind of specialized expertise.
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work sheets compatible with potential use of CostPro and RACER. EPA could build
upon that work, and then make the worksheets broadly available.
It will be important to understand the benefits - and the limitations — of these new
templates. A template will encourage accurate unit data reflecting local third-party
provider market conditions rather than mandate national assumptions (e.g., should
incorporate the cost of local soil for liners, or current transportation costs in the region).
Cost estimators must be aware, however, that these kinds of tools are necessary but not
sufficient to improve the quality of cost estimates. Tools like worksheets, CostPro and
RACER simply do not substitute for professional judgment. Estimations must properly
reflect the scope of the future action and then tailor each item in the worksheet to the
most accurate projection possible at the particular site in question. The worksheet will
only be as good as the expertise of those completing and reviewing them. This is
particularly the case with corrective action, where the variability in scope and potential
tasks is more dramatic than with the relatively circumscribed closure/post-closure care.
Developing an On-Going Cost-Estimation "Body of Knowledge"
Documentation of trends: In the monthly Regional/state coordinating calls and the
periodic discussions with RCRA and Superfund project owners and insurers, types of
facilities or sectors in need of priority should be flagged. The information gleaned from
both kinds of discussion should be documented in a publicly accessible web-based
platform.
The usefulness and accuracy of this information repository should be strengthened over
time by, for example, analyzing the accuracy of estimates vs. actual expenditures where
such information is available - for example, at federally funded sites, removal actions
and bankrupt sites where EPA gathers information on estimated vs. actual cost data. We
know that EPA's efforts to make Superfund "faster, fairer and more efficient" have
refined understanding of standard remedial approaches and their costs at some kinds of
sites, and the cost data compiled in the Superfund data base should be relatively current,
specific and helpful to regulators encountering those types of sites. To the degree that
these data can be accessed and searched in an efficient and meaningful way, they should
prove to be very useful to the cost estimation body of knowledge.
EPA also should review its database on a routine basis for short-fall situations in order to
isolate commonalities among types of facilities, sectors or ownership that could serve as a
red flag. The results of such analysis could flag within the universe of current estimates
those deserving extra scrutiny by federal or state regulators.
Formal training: EPA should incorporate the best practices and insights gained from its
web site and routine discussions into cost estimating training provided to state agency
personnel.
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Clarifying When Estimates Must Be Updated
EPA should issue guidance clarifying the circumstances under which estimates should be
adjusted to address factors other than inflation. Perhaps the best way to improve
accuracy would be to require regularly scheduled reviews tailored to site-specific
circumstances such as the nature of the risks posed (projects with higher risk might
warrant more frequent reviews), the progression from one kind of activity to another
different stage of response (upon completion of construction, it might be prudent to
affirm the scope of monitoring required), or an unanticipated event that is expected to
significantly modify the activities envisioned in the original estimate. Updates are
particularly important for corrective action/remedial estimates; estimates generally
become more reliable as time goes by and projects are refined. In no case should review
occur less than every five years.
Ideally, the cost-estimation process should incentivize good behavior, e.g., facilities with
good compliance and safety records or superior Environmental Management System
procedures may be expected to have more reliable estimates, with corresponding ability
to possibly narrow the scope of contingency factors. Because estimates for well-
managed facilities are less likely to have errors of omission, contingency factors can be
focused on specific elements known to have cyclical or other variability, such as the cost
of fuel or other commodities. The guidance may also consider the way a facility's
compliance record might factor into the frequency of estimate oversight.5 Well-managed
facilities may also require less frequent review because their procedures (for example,
use of ISO 14001 or other formal environmental management systems) are tailored to
assure compliance and thus less likely to trigger unanticipated corrective action
obligations.
IV. Conclusion
The Board shares the view expressed by EPA, the States interviewed, and the authors of
the studies reviewed that cost estimates for closure, post-closure, corrective action and
remedial action in the RCRA and Superfund programs are not uniformly accurate and up-
to-date. Financial assurance for the costs of future action is only as useful as its accuracy
and the adequacy of its scope. Underestimates put the taxpayer, communities and
potentially other businesses in jeopardy in the event of owner default. Overestimates
come at the cost of resources diverted from beneficial deployment to create jobs and
improve operations.
The Board is encouraged by the initiatives we have seen from the States to better
coordinate information and improve oversight of cost estimation accuracy. EPA can play
a critical role in broadening and accelerating this process by:
> Infusing the state efforts with pertinent data from the Agency's files;
5 See, for example, the observation in the PRC Report regarding the relationship between penalty
assessment and cost estimation accuracy. PRC Report, pp. 21, 26.
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> Creating standard templates for cost estimation that clarify definitions, provide a
checklist assuring complete coverage, and streamline the review process;
> Creating a web-based platform to disclose and perpetually improve the state of
knowledge of good cost estimating, particularly with regard to how to define the
proper scope of estimates;
> Developing within EPA and the states experts who know how to use these tools
with precision; and
> Using Agency knowledge and resources to provide and routinely improve the
training to translate this wealth of information into best practices the regulators
overseeing facility estimates can employ.
Finally, the Board reiterates its view that the best financial assurance mechanism
available is meaningless if the estimate of how much will be spent is wrong. The
importance of developing sound professional expertise in the cost estimation component
of the Agency's financial assurance program cannot be overstated.
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ENVIRONMENTAL FINANCIAL ADVISORY BOARD
Members
Bradley Abelow, Chair
Scott Anderson
John Boland
William Cobb
Donald Correll
Rachel Deming
Eric Draper
Mary Francoeur
James Gebhardt
Ann Grodnik
Scott Haskins
Jennifer Hernandez
Keith Hinds
Philip Johnson
Thomas Liu
Deborah Llvesay
Mathilda McLean
Greg Mason
Karen Massey
Lindene Ration
Sharon Dlxon Peay
Cherie Rice
Andrew Sawyers
Doug Scott
Jay Spector
Greg Swartz
Leanne Tobias
Steve Thompson
Chlara Trabucchi
Justin Wilson
Michael Shapiro
Designated
Federal Officer
DEC 16 2010
Honorable Mathy Stanislaus
Assistant Administrator
Office of Solid Waste and Emergency Response
U.S. Environmental Protection Agency
Washington, D.C. 20460-0001
Dear Mr. Stanislaus:
At the request of the U.S. Environmental Protection Agency (the Agency),
the Environmental Financial Advisory Board (the Board) was charged with
examining questions concerning the financial assurance requirements established
under the Resource Conservation and Recovery Act (RCRA). The financial
assurance requirements established under RCRA programs are complex and
multi-faceted. For this reason, in collaboration with the Agency, the Board
approached the charge by addressing discrete, manageable pieces of inquiry into
the various instruments available to satisfy the financial assurance requirements.
The Board provided its views on the financial test, captive insurance and
commercial insurance in reports to the Agency on January 11, 2006, March 20,
2007, and February 25,2010, respectively. These reports included
recommendations that the Agency consider the requirement of independent credit
ratings for various financial assurance instruments. For example, in the report on
commercial insurance, the Board stated:
The regulatory agencies . . . readily admitted that they lacked the capacity
to evaluate the financial strength of insurance carriers. The Board
believes that this function may be best served by a nationally recognized
statistical rating organization (NRSRO), such as AM Best, which
specializes in objective third-party analysis of financial viability.
The Board notes that all members agree that there should be minimum
requirements to evidence the financial strength of an insurer underwriting
insurance for environmental financial assurance. The Board also agrees
that a minimum acceptable rating from AM Best or a similar nationally
Providing Advice on "How to Pay" for Environmental Protection
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On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act). While the Dodd-Frank Act needs to be considered
in its entirety, we direct you to Section 939: Removal of Statutory References to Credit Ratings
and Section 939A: Review of Reliance on Ratings. We point out these provisions because they
may have implications for the financial assurance requirements currently in effect, as well as
implications for the recommendations made in the reports referenced above. We note that on
August 10, 2010, in response to the Dodd-Frank Act, the Department of the Treasury, the
Federal Reserve System and the Federal Deposit Insurance Corporation issued an advance notice
of public rulemaking regarding alternatives to the use of credit ratings in the risk-based capital
guidelines of the Federal banking agencies. We recommend that your Office work with the
Office of the General Counsel to review the Dodd-Frank Act and monitor the rulemaking process
to determine the application of Section 939 and 939A to the Agency's financial assurance
requirements.
The Board appreciates the opportunity to provide financial advisory assistance to the
Agency on issues of national importance. We hope that you find our recommendations
constructive and useful.
Sincerely,
BraMey Abeiow/ Michael Shapiro
Chairman Designated Federal Officer
Enclosure
cc: Lisa P. Jackson, Administrator
Bob Perciasepe, Deputy Administrator
Barbara J. Bennett, Chief Financial Officer
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\
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
APR 0 8 2011
OFFICE OF
SOLID WASTE AND
EMERGENCY RESPONSE
Mr, Bradley Abelow
Chair
Environmental Financial Advisory Board
U. S. Environmental Protection Agency
1200 Pennsylvania Avenue NW (2731R)
Washington, D.C. 20460-0001
Dear Mr. Abelow:
Thank you for the Environmental Financial Advisory's Board's (EFAB's) December 16,
2010, report on cost estimating, and its letter on the use of independent credit ratings for
financial assurance instruments. The report on cost estimating is the product of more than a year
of intensive meetings, discussions and deliberations. My staff and I want to thank the Board for
all the work done on this important topic, and recognize the Board's consultations with a broad
range of interested parties. EPA greatly appreciated the inclusion of the Association of State and
Territorial Solid Waste Management Officials (ASTSWMO) and state staff in many of your
discussions on this topic.
As noted in your transmittal letter, the cost estimating report is the last of four reports.
The previous three reports investigated the topics of the financial test/corporate guarantee,
captive insurance, and commercial insurance. In conjunction with the report's most important
conclusion that "cost estimates for actions and activities under RCRA and Superfund programs
are not uniformly accurate and up-to-date," the report makes several recommendations. EPA is
considering the recommendations, and will be sharing them with ASTSWMO at its April 20 and
21, 2001 mid-year meeting whose theme is financial assurance. EPA will be exploring with
ASTSMWO the best ways to implement these recommendations.
Your letter on the use of independent credit rating for financial assurance instruments
notes provisions of the recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act, P.L. 111-203. More specifically, you cited sections 939: Removal of Statutory
References to Credit Ratings and 93 9 A: Review of Reliance on Ratings. Your letter also
recommended that our office work with the Office of General Counsel to review the act and
monitor the ongoing rulemaking process of several other federal agencies to determine the
application of Sections 939 and 939A to the agency's financial assurance requirements. We are
currently working with the Office of General Counsel to determine the applicability of the Dodd-
Frank Act to agency financial assurance requirements.
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable • Printed with Vegetable Oil Based Inks on 100% Postconsumer, Process Chlorine Free Recycled Paper
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Again, thank you for providing the Board's findings and recommendations. EPA
appreciates the Board's expertise and experience. The agency values the insights the Board has
provided in answering our questions and concluding its work on our charge.
Sincerely,
Mathy
Assistandministrator
cc: Michael Shapiro, EFAB Designated Federal Officer
Vanessa Bowie, U. S. EPA, OCFO
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EPA-190-R-11-005
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