United States
Environmental Protection
Agency
Geologic Sequestration
of Carbon Dioxide
Underground Injection
Control (UIC) Program
Class VI Financial
Responsibility Guidance
July 2011
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Office of Water (4606M)
EPA816-R-11-005
July 2011
http ://water. epa. gov/drink/
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Executive Summary
This document provides guidance to Underground Injection Control (UIC) Program Directors,
Geologic Sequestration (GS) well owners or operators, independent third party providers, and the
general public on the financial responsibility requirements of the "Federal Requirements under
the Underground Injection Control Program for Carbon Dioxide Geologic Sequestration Wells"
Rule. The Federal Register Notice for this Rule is available at:
http://water.epa.gov/type/groundwater/uic/class6/gsregulations.cfm. Throughout this guidance
document the terms corrective action, injection well plugging, post injection site care and site
closure, and emergency and remedial response are collectively referred to as "financial
responsibility activities" or "required GS activities." Financial responsibility requirements are
designed to ensure that owners or operators have the resources to carry out required GS activities
related to closing and remediating GS sites if needed, during injection or after wells are plugged,
so that they do not endanger Underground Sources of Drinking Water (USDWs). Setting aside
financial resources (or the expectation that the owner or operator will continue to have sufficient
financial resources with self insurance) is intended to prevent the general public from bearing the
costs of abandoned GS projects. This guidance describes the following in detail:
• Financial instruments that owners or operators of Class VI wells can select to
demonstrate financial responsibility, as well as the relative strengths and weaknesses
associated with each instrument;
• Minimum specifications and conditions of financial coverage that owners or operators
must use to demonstrate compliance with the GS Rule requirements;
• Submission requirements for owners or operators demonstrating financial responsibility
and review requirements for the UIC Program Director; and
• Ongoing financial responsibilities of the owners or operators of Class VI wells and the
UIC Program Director.
Under the Rule, owners or operators select financial coverage options from a list of qualified
independent third-party instruments or self insurance to cover the estimated costs of GS projects.
Qualifying financial responsibility instruments offered by independent third party institutions
include trust funds, escrow accounts, surety bonds, letters of credit, and insurance. Self insurance
requires that the owner or operator demonstrate their financial condition. For all qualifying
financial responsibility demonstrations, it is expected that the demonstration, including cost
estimates, will be updated and verified over time to ensure that the project costs will fall within
the coverage provided by the financial responsibility instrument(s).
Based on a review of available information and input from stakeholders on the potential for
instrument failure and the resource implications for owners or operators and UIC Program
Directors, the financial responsibility instruments recommended for the following GS activities
include:
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• Corrective action: Trust funds, letters of credit, surety bonds, escrow accounts, and
financial tests and corporate guarantees
• Injection well plugging: Trust funds, letters of credit, surety bonds, insurance, and
financial tests and corporate guarantees
• Post-injection site care and site closure: Trust funds, insurance, and financial tests and
corporate guarantees
• Emergency and remedial response: Insurance, letters of credit (during operation), surety
bonds (during operation), and financial tests and corporate guarantees
This list is not exhaustive of all options available for each GS activity. Under 40 CFR 146.85,
owners or operators can use other qualifying instruments that are satisfactory to the UIC Program
Director or use a combination of qualifying instruments to demonstrate financial responsibility
for a specific phase of the GS project.
The guidance provided in this document is based on United States Environmental Protection
Agency's (EPA's) current understanding of the best approach to regulating financial
responsibility for GS. As such, it is important to note that EPA is pursuing an adaptive
rulemaking approach to regulating GS; additional requirements or other changes to this guidance
might be needed in the future to protect underground sources of drinking water and provide
useful information on financial responsibility.
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Purpose and Disclaimer
The category of Underground Injection Control (UIC) Class VI injection well was established by
the "Federal Requirements under the Underground Injection Control Program for Carbon
Dioxide Geologic Sequestration Wells." The Federal Register Notice for this Rule is available at:
http ://water. epa. gov/type/groundwater/uic/class6/gsregulations. cfm.
The Safe Drinking Water Act (SDWA) provisions and EPA regulations cited in this document
contain legally-binding requirements. This document does not substitute for those provisions or
regulations, nor is it a regulation itself. Thus, it does not impose legally-binding requirements on
EPA, states, or the regulated community, and may not apply to a particular situation based upon
the circumstances. EPA and authorized state decision makers retain the discretion to adopt
approaches on a case-by-case basis that differ from this guidance where appropriate. Any
decisions regarding a particular facility or site will be made based on the applicable statutes and
regulations. Therefore, interested parties are free to raise questions and objections about the
appropriateness of the application of this guidance to a particular situation, and EPA will
consider whether the recommendations or interpretations in the guidance are appropriate in that
situation. EPA may change this guidance in the future. Mention of trade names or commercial
products does not constitute endorsement or recommendation for use.
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, legally binding requirements take precedence.
Several chapters of this guidance document make suggestions and offer alternatives that go
beyond the minimum requirements indicated by the Rule. This is done to provide information
and suggestions that could be helpful for implementation efforts. Such suggestions are prefaced
by "may" or "should" and are to be considered advisory. They are not required elements of the
Rule.
EPA is subject to the Miscellaneous Receipts Act, 31 U.S.C. 3302, which requires EPA to
deposit money it receives into the U.S. Treasury unless a federal statute authorizes EPA to retain
the funds. Additionally, EPA must have statutory authorization to be the beneficiary of a trust or
insurance policy. Because the SDWA does not authorize EPA to retain funds or be the
beneficiary of a trust or insurance policy, this guidance provides that financial assurance will not
provide funds to EPA or name EPA as the beneficiary of a trust or insurance policy.
EPA is taking an adaptive rulemaking approach to regulating Geologic Sequestration (GS), and
EPA will continue to evaluate ongoing research and demonstration projects and gather other
relevant information as needed to refine the Rule. Consequently, this guidance is likely to change
in the future. This is a living document and may be revised periodically without public notice.
UIC Program Class VI Financial Responsibility Guidance Hi
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For additional information contact: Joe Tiago, UIC Program, Drinking Water Protection
Division, Office of Ground Water and Drinking Water (4606M), U.S. Environmental Protection
Agency, 1200 Pennsylvania Avenue NW, Washington, D.C., 20460, Telephone: (202) 564-0340,
Fax: (202) 564-3756, Email: tiago.joseph@epa.gov.
UIC Program Class VI Financial Responsibility Guidance
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Table of Contents
Executive Summary i
Purpose and Disclaimer iii
Table of Contents v
List of Figures viii
List of Tables viii
Acronyms and Abbreviations ix
Definitions x
1. Introduction 1
2. Financial Responsibility Demonstrations 5
3. Introduction to Qualifying Financial Responsibility Instruments 8
A. Qualifying financial instruments specified in the Rule 9
B. Other qualifying financial instruments 17
C. Availability and affordability of financial responsibility instruments 17
4. Matching Financial Instruments to Meet the Specific Needs of a GS Proj ect 19
A. Minimizing costs 19
B. Maximizing instrument benefits 19
5. Conditions of Coverage and Specifications for Financial Responsibility Demonstrations.. 24
A. Trust fund 25
1. Required specifications 25
2. Recommended specifications 26
B. Surety bond guaranteeing payment into a trust fund 27
1. Required specifications 27
2. Recommended specifications 28
C. Surety bond guaranteeing performance of injection well plugging and abandonment. 29
1. Required specifications 29
2. Recommended specifications 29
D. Letter of credit 30
1. Required specifications 30
2. Recommended specifications 30
E. Insurance 32
1. Required specifications 32
2. Recommended specifications 32
F. Escrow account 34
UIC Program Class VI Financial Responsibility Guidance v
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1. Required specifications 34
2. Recommended specifications 34
G. Financial test and corporate guarantee 36
1. Required specifications 36
2. Recommended specifications 36
H. Use of multiple financial instruments 38
I. Use of a financial instrument for multiple facilities 39
J. Release of the owner or operator from the requirements of 40 CFR 146.85 39
6. Submission Requirements 40
A. Cost estimate 40
B. Documented proof of an independent third-party instrument or self insurance 41
1. Submissions using independent third-party instrument 41
2. Submissions using self insurance 41
7. UIC Program Director's Review 43
A. Determining the completeness and accuracy of the demonstration 43
B. Financial stability of the independent third party 44
C. Additional considerations for understanding/approving the demonstration 45
D. Requesting additional information from the owner or operator 47
E. UIC Program Director's evaluation and approval 47
F. Evaluating the demonstration's success 48
G. Importance of stakeholder involvement 48
8. Ongoing Responsibilities 49
A. Owner or operator responsibilities 49
B. UIC Program Director responsibilities 51
C. Independent third party responsibilities 51
List of Appendices 54
Appendix A: Regulatory Language for Financial Responsibility for Class VI Wells A-l
Appendix B: Recommended Financial Responsibility Instrument Language for Class VI Wells
(Forms/Templates) B-l
I. Trust Agreement B-2
II. Financial Guarantee Surety Bond B-9
III. Performance Surety Bond B-12
IV. Irrevocable Standby Letter of Credit B-16
V. Certificate of Insurance B-l7
VI. Letter from CFO B-19
VII. Corporate Guarantee B-22
VIII. Escrow Account B-24
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Appendix C: Methodology for Estimating Costs for Financial Responsibility Demonstrations
for Class VI Wells C-l
I. Introduction C-l
II. Estimating Costs to Support GS Financial Responsibility Demonstrations C-3
Appendix D: Injection Well Plugging and Abandonment Checklist for Financial
Responsibility Cost Determination D-l
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List of Figures
Figure 1: GS Project Activities 2
Figure 2: GS Financial Responsibility Timeline 5
Figure 3: Qualifying Financial Responsibility Instruments Specified in the Rule 9
List of Tables
Table 1: Owner or operator submission requirements and Director responsibilities as specified by
40 CFR 146.85 6
Table 2: Definitions of financial coverage criteria 15
Table 3: List of financial ratios and thresholds specified at 40 CFR 146.85(a)(6)(v) 16
Table 4: Recommended financial responsibility instruments for GS activities (relative ranking)21
Table 5: Regulatory risk and oversight and enforcement needed 45
Table 6: Timeline for owner or operator actions 50
Table 7: Submission requirements at 40 CFR 146.85 for owners or operators and review
requirements for UIC Program Directors 53
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Acronyms and Abbreviations
AoR Area of Revi ew
CE Current Cost Estimate
CFO Chief Financial Officer
CFR Code of Federal Regulations
CV Current Value (of trust fund or escrow account)
EPA U.S. Environmental Protection Agency
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles
GS Geologic Sequestration
NRSRO Nationally Recognized Statistical Rating Organization
NWC Net Working Capital
RCRA Resource Conservation and Recovery Act
SDWA Safe Drinking Water Act
SEC Securities and Exchange Commission
TNW Tangible Net Worth
UIC Underground Injection Control
USDWs Underground Sources of Drinking Water
Y Number of Years
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Definitions
Key to definition sources:
1: Class VI Rule Preamble.
2:40CFR144.3.
3: This definition was drafted for the purposes of this document.
Director refers to the person responsible for permitting, implementation, and compliance of the
UIC Program. For UIC Programs administered by EPA, the UIC Program Director is the EPA
Regional Administrator or his/her delegatee; for UIC Programs in primacy states, the UIC
Program Director is the person responsible for permitting, implementation, and compliance of
the state, territorial, or tribal UIC Program.1
Owner or operator means the owner or operator of any "facility or activity" subject to
regulation under the UIC program.
Independent third party providers refer to a party who is not a parent, sibling, subsidiary, or
any other company related to the owner or operator (i.e., no substantial business relationship
with the owner or operator). In many cases, demonstrations of financial responsibility by an
owner or operator will use an independent third party who holds funds or backs a liability.
Independent third parties entering into a contractual relationship with an owner or operator have
an interest in understanding the broader context within which the financial instrument is being
used. Owners or operators will have to demonstrate that they have a contract with a qualified
independent third party provider and obtain the UIC Program Director's approval.3
General public refers to all individuals in the United States and its territories. The goal of
requiring demonstrations of financial responsibility is to ensure that the costs of abandoned GS
projects are not borne by the general public.3
Independent third-party instrument(s) means independent third-party financial instruments
that are agreements that rely on an independent third party's guarantee to hold funds, or directly
fund or perform the financial responsibility activities. Banks, insurance companies, and surety
companies are examples of independent third party institutions that offer "cash holding"
financial instruments such as trust funds and escrow accounts, as well as "risk management"
financial instruments including surety bonds, insurance policies, and letters of credit. These
instruments can be used by the owner or operator to demonstrate financial responsibility.3
Self insurance allows the owner or operator to submit financial statements and other information
to prove that they are likely to remain in operation, based on indicators of the economic health of
the organization, and that they will be able to complete all required GS activities. Self insurance
is only available if the owner or operator meets specified criteria, including either a financial
ratio or bond rating test. An owner or operator may demonstrate financial responsibility utilizing
self insurance.3
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1. Introduction
This guidance describes some of the types of financial instruments that owners or operators of
Underground Injection Control (UIC) Class VI Geologic Sequestration (GS) wells can choose to
demonstrate compliance with the financial responsibility requirements of the Rule. The intended
audience of this guidance is UIC Program Directors, Class VI well owners or operators,
independent third party providers, and the general public.
The U.S. Environmental Protection Agency (EPA) published federal regulations for Class VI
wells that inject carbon dioxide underground for the purpose of GS, referred to in this document
as the Class VI Rule, in December 2010. The Federal Register Notice for this Rule is available
at: http://water.epa.gov/type/groundwater/uic/class6/gsregulations.cfm. Pursuant to 40 CFR
146.85(a), owners or operators of Class VI wells must demonstrate and maintain financial
responsibility for corrective action on wells in the Area of Review (AoR), injection well
plugging, post-injection site care and site closure, and emergency and remedial response phases.
Financial responsibility requirements are designed to ensure that owners or operators have the
resources to carry out activities related to closing and remediating GS sites if needed during
injection or after wells are plugged, so that they do not endanger Underground Sources of
Drinking Water (USDWs). The requirements will also help ensure that the costs of abandoned
GS projects are not borne by the general public. Throughout this guidance document corrective
action, injection well plugging, post injection site care and site closure, and emergency and
remedial response are collectively referred to as "financial responsibility activities" or "required
GS activities."
In the course of developing financial responsibility requirements and this guidance, EPA
conducted research and analysis to inform the decision-making process. This information is
published as "Research and Analysis in Support of UIC Class VI Program Financial
Responsibility Requirements and Guidance." Topics covered in the supporting document
include: the information shared on financial instruments, additional research, analysis, and the
rationale for selecting acceptable instruments for financial responsibility demonstrations; an
analysis of options for the UIC Program Director's examination of third party stability; rationale
for the selection of self insurance requirements; and an evaluation of the appropriate minimum
tangible net worth for owners or operators.
Because of differences in the structure of the Class VI regulations, financial responsibility is
required for more phases or activities than in other well classes of the UIC program. One
additional activity is the financial responsibility required for post-injection site care. The Rule
describes specific conditions for financial responsibility while leaving final decisions up to the
UIC Program Director's evaluation and approval. The UIC Program Director is expected to
make binding decisions and can also specify additional requirements not included in this
guidance to protect USDWs from being endangered.
The figure below shows the phases and major activities of a GS project. The activities for which
financial responsibility must be demonstrated, under 40 CFR 146.85(a), are shown in bold. To
comply with 40 CFR 146.85, owners or operators will need to demonstrate financial
responsibility coverage for each of these activities at the time of permit application.
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Figure 1: GS Project Activities
Area of
Review and
Corrective
Action
Injection/
Operation/
Monitoring
Well
Constructs AoRReeval
and
Injection Well
Plugging
Post-
Injection Site
Care
And Site
Closure
Long-Term
Care
Siting
Action
Corrective Action
and Phased
Corrective Action
Emergency And Remedial Response
*Please note that the timeframes in this exhibit are not to scale. Activities for which financial responsibility must be demonstrated
are shown in bold. Financial responsibility demonstrations will coincide with permitting (or revisions made after permitting), therefore
Area of Review and Corrective Action prior to permitting (i. e., prior to well construction) are not activities for which financial
responsibility must be demonstrated.
Corrective action on wells in the AoR presents some uncertainty in terms of when it will occur
and how much it will cost because it will depend on ongoing and subsequent AoR reevaluations.
EPA anticipates that corrective action will most likely occur within a 20- to 30-year period.
Injection well plugging occurs later in a GS project's lifecycle, and EPA anticipates that it will
take place over a period of weeks, not years. Post-injection site care and closure occurs last in the
GS project's lifecycle, lasting for at least 50 years unless an alternative timeframe has been
approved by the UIC Program Director, and site closure will occur at the UIC Program
Director's approval. Emergency and remedial response events are uncertain in terms of if and
when these events will occur, but they have the potential to occur over the entire course of the
GS project's lifecycle.
Although financial responsibility is
required for and occurs in different
GS project activities over time, the
owner or operator's initial financial
responsibility demonstration must
cover all GS activities required by
the rule. These activities are
represented in the GS Project
Activities timeline above in bold.
After the completion of specific
activities, the owner or operator can
request to be released from related
aspects of financial coverage, but
the owner or operator must retain
coverage for all remaining
activities. For additional
information on project activities see
"Geologic Sequestration of Carbon
Dioxide: Underground Injection
Control (UIC) Class VI Well Area
of Review Evaluation and
GS Financial Responsibility Requirements in Context
Under the Safe Drinking Water Act (SDWA), the Underground
Injection Control (UIC) Program requires the demonstration of
"financial responsibility and resources to close, plug, and
abandon the UIC operation" for all well classes as described at
40 CFR 144.28(d) and 144.52(a)(7)). To provide information
and guidance on this general requirement for financial
responsibility, EPA published in 1990 financial responsibility
demonstration guidance for the owners or operators for Class
II oil and gas wells.
Class I hazardous waste wells are uniquely regulated by both
SDWA and the Resource Conservation and Recovery Act
(RCRA). In contrast to the other UIC well classes, the
information about options and the detailed requirements for
owners or operators using those options are described in 40
CFR 144.63 and 146.73.
The financial responsibility Class VI Rule requirements for
Class VI wells are more detailed than the general
demonstration for well Classes II-V but less detailed than the
Class I hazardous waste well requirements. This guidance
compliments the Class VI Rule requirements by providing
general information on financial responsibility and
recommendations from EPA.
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Corrective Action Guidance for Owners and Operators."
It is important to note that EPA is pursuing an adaptive rulemaking approach to regulating GS.
EPA plans to collect and review all project data on early GS projects, including financial
responsibility instruments, to determine whether the appropriate amount and types of information
and appropriate documentation were collected. Based on a review of the data, EPA plans to
publish a determination on whether additional requirements or guidance are needed to protect
USDWs. This document provides guidance based on EPA's current understanding of the best
approach.
This guidance document:
• Presents options for demonstrating financial responsibility;
• Provides an overview of coverage options, including the types of independent third-party
instruments and self insurance;
• Describes the different financial responsibility instruments that qualify under the Rule;
• Advises how to best match financial instruments to the specific GS project activities;
• Assists in explaining the submission requirements and procedures for the owner or
operator; and
• Explains the ongoing finance-related responsibilities of the UIC Program Director, the
owner or operator, and the third parties involved in the GS project.
The appendices include:
• Regulatory Language for Financial Responsibility for Class VI Wells;
• Recommended Financial Responsibility Language for Class VI Wells;
• Methodology for Estimating Costs for Financial Responsibility Determinations for Class
VI Wells; and
• Injection Well Plugging and Abandonment Checklist for Financial Responsibility Cost
Determination.
Finally, the Safe Drinking Water Act (SDWA) provisions and EPA regulations cited in this
document contain legally-binding requirements. This document does not substitute for those
provisions or regulations and does not impose legally-binding requirements on EPA, states, or
the regulated community. EPA and authorized UIC Program Directors retain the discretion to
adopt approaches on a case-by-case basis that differ from this guidance where appropriate. The
Class VI Rule states, at 40 CFR 146.82(a), that the UIC Program Director shall consider, among
other things, the financial responsibility demonstration and any other information requested by
UIC Program Class VI Financial Responsibility Guidance 3
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the UIC Program Director before issuing a Class VI permit. Additionally, it states that the
financial responsibility demonstration must be satisfactory to the UIC Program Director.
The Scope of the GS Financial Responsibility Requirements
Under 40 CFR 146.85(a), owners or operators must demonstrate and maintain financial responsibility for
the following GS activities: performing corrective action on wells in the Area of Review, injection well
plugging, post-injection site care and site closure, and emergency and remedial response.
These activities are a subset of all potential activities that are likely to take place for a geologic
sequestration (GS) project. The purpose of the financial responsibility requirements is to ensure that
owners or operators have the resources to carry out activities related to closing and remediating GS sites
if needed during injection or after wells are plugged so that they do not endanger underground sources of
drinking water (USDWs). The four GS activities requiring financial responsibility are the minimum
activities EPA considered necessary to achieve this goal.
Although the owners or operators are not required to demonstrate financial responsibility after the post-
injection site care period has ended, owners or operators are still financially liable for the site. Safe
Drinking Water Act (SDWA) does not provide EPA with the authority to indefinitely release owners or
operators from long-term responsibility for potential impacts to USDWs after the post-injection site care
period has ended (e.g., for unanticipated migration that endangers a USDW). Under current SDWA
provisions EPA does not have the authority to transfer liability from one entity to another.
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2. Financial Responsibility Demonstrations
This chapter describes the methods owners or operators can elect to make financial responsibility
demonstrations for Class VI wells. Under 40 CFR 146.85, the owner or operator must
demonstrate that they have met the stated financial responsibility requirements before the UIC
Program Director can approve a permit for a Class VI well. 40 CFR 146.85(a) states that owners
or operators must use a qualifying instrument sufficient to cover the cost of corrective action,
injection well plugging, post-injection site care and site closure, and emergency and remedial
response. See Figure 2 for a general GS financial responsibility timeline and Table 1 (next page)
for the regulatory requirements as of December 10, 2010.
Figure 2: GS Financial Responsibility Timeline
Injection/
Operation/
Area of Monitoring Post-
Review and Well Injection Well Injection Site
Sitin2 Corrective Construction AoR Revaluation p| ; Care
Action ™d A1"1Slte
Corrective Action Closure
and Phased
Corrective Action
-H
Initial
FR
Emergency And Remedial Response
Coverage Coverage)
Demonstration\ Begins Ends
Required for
Permitting
FINANCIAL RESPONSIBILITY ACTIVITIES Annua| Updates
(In eluding Cost Estimates)
*Please note that the timeframes in this exhibit are not to scale. Activities for which financial responsibility must be demonstrated
are shown in bold. Financial responsibility demonstrations will coincide with permitting (or revisions made after permitting), therefore
Area of Review and Corrective Action prior to permitting (I. e., prior to well construction) are not activities for which financial
responsibility must be demonstrated.
EPA recommends that the owner or operator consider the financial responsibility demonstration
at the onset of the project - during site characterization and AoR evaluation. Concurrently, the
owner or operator should consider estimating the costs of corrective action, injection well
plugging, post-injection site care and site closure, and emergency and remedial response. The
Rule requires, at 40 CFR 146.85(c), that the owner or operator have a detailed written estimate,
in current dollars, of the cost of performing corrective action on wells in the area of review,
plugging the injection well(s), post-injection site care and site closure, and emergency and
remedial response. More detailed information regarding cost estimation requirements can be
found in Appendix C. The UIC Program Director can set additional requirements for the
financial responsibility demonstration under 40 CFR 146.85. For example, the UIC Program
Director might require more stringent requirements for third party providers or owners or
operators utilizing self insurance. See Chapter 3 "Introduction to Qualifying Financial
Responsibility Instruments" and Chapter 5 "Conditions of Coverage and Specifications for
Financial Responsibility Demonstrations" for additional details.
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If the UIC Program Director approves the initial financial responsibility demonstration, pursuant
to 40 CFR 146.85(c)(2), the owner or operator must provide an annually updated cost estimate to
the UIC Program Director for an annual review of the adequacy of demonstration. This is not
considered re-permitting. The UIC Program Director has the authority to revoke the permit on an
annual basis, as a result of the annual review, if the existing documentation is inadequate or the
owner or operator cannot subsequently provide adequate demonstration. EPA recommends that
financial responsibility demonstrations be updated with revised cost estimates over time to verify
that project costs will fall within the coverage provided by the financial responsibility
instruments. Under 40 CFR 144.85(b) the owner or operator must maintain coverage during the
life of the project until the UIC Program Director receives and approves the final Post-Injection
Site Care and Site Closure Plan and determines that the site has reached the end of the post-
injection site care period. See Chapter 8 "Ongoing Responsibilities" for additional details.
Table 1: Owner or operator submission requirements and Director responsibilities as specified by
40 CFR 146.85
Key: • = Submission or review requirement
**Note that requirements and responsibilities are
paraphrased for the purposes of this table**
(a) The owner or operator must demonstrate and
maintain financial responsibility
(a) (1) Financial responsibility instrument(s) must be
from the list of qualifying instruments
(a) (2) The qualifying instrument(s) must be sufficient to
cover required activity costs
(a) (3) The financial responsibility instrument(s) must
be sufficient to address endangerment of USDWs
(a) (4) The qualifying financial instrument(s) must
comprise protective conditions of coverage
(a) (5) The qualifying financial responsibility
instrument(s) must be approved by the UIC Program
Director
(a) (5) (i) The UIC Program Director must consider and
approve the financial responsibility demonstration for all
phases
(a) (5) (ii) The UIC Program Director must evaluate the
financial responsibility demonstration annually to
confirm that the instrument(s) used remain adequate
for use
(a) (5) (iii) The UIC Program Director may disapprove a
financial instrument if it is not sufficient to fulfill
obligations
(a) (6) The owner or operator may use one or multiple
qualifying financial instrument for specific project
phases
Owner or Operator Submission
Requirements
and
Director Review Responsibilities
Initial Demonstration
for Permitting
(See Ch. 6)
•
•
•
•
•
•
•
•
•
Ongoing to Maintain
Permit or for Site
Closure (See Ch. 8)
•
•
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Key: • = Submission or review requirement
**Note that requirements and responsibilities are
paraphrased for the purposes of this table**
(a) (6) (i) Instruments based on performance cannot be
combined
(a) (6) (ii) Third party providers must meet minimum
requirements
(a) (6) (iii) Standby trust funds must be established for
select third-party instruments
(a) (6) (v) An owner or operator may use self insurance
if it meets minimum requirements
(a) (6) (vi) A corporate parent may guarantee financial
responsibility on behalf of the owner or operator
(b) (1) The owner or operator must maintain financial
responsibility and resources
(b) (2) The owner or operator may be released from a
financial instrument in specific circumstances
(c) The owner or operator must have a detailed written
estimate, in current dollars
(c) (1) The cost estimate must be performed for each
phase separately and must be based on the costs to
the owner or operator of hiring a third party
(c) (2) During the active life of the GS project, the
owner or operator must adjust the cost estimate for
inflation
(c) (3) The DIG Program Director must approve any
decrease or increase to the initial cost estimate
(c) (4) Whenever the current cost estimate increases
the owner or operator must either increase the face
amount or obtain other financial responsibility
instruments
(d) The owner or operator must notify the DIG Program
Director by certified mail of adverse financial conditions
(e) The owner or operator must provide an adjustment
of the cost estimate to the DIG Program Director within
60 days of notification by the DIG Program Director
(f) The DIG Program Director must approve the use
and length of pay-in periods
Owner or Operator Submission
Requirements
and
Director Review Responsibilities
Initial Demonstration
for Permitting
(See Ch. 6)
•
•
•
•
•
•
•
•
Ongoing to Maintain
Permit or for Site
Closure (See Ch. 8)
•
•
•
•
•
•
•
•
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3. Introduction to Qualifying Financial Responsibility Instruments
It is recommended that an owner or operator first determine which financial coverage options
they qualify for in order to make a financial responsibility demonstration. This chapter provides
an overview of financial responsibility instruments that can be used as qualifying financial
responsibility demonstrations for GS activities (see Figure 3). The intent of the instrument
overviews is to provide general information on the functionality and defining characteristics of
each instrument. Additional detailed information relating to each financial responsibility
instrument is described in subsequent chapters. Specifically, standards for GS financial
responsibility demonstrations using each instrument are described in Chapter 5 "Conditions of
Coverage and Specifications for Financial Responsibility Demonstrations."
There are two broad categories of financial responsibility instruments: independent third-party
instruments (i.e., financial instruments) and self insurance (i.e., financial statements used to
document financial ratios or bond ratings), as described below. Owners and operators can choose
from various coverage options from the third-party instruments or elect to use self insurance.
However, some financial responsibility options might not be available or appropriate depending
on the individual project.
• Independent third-party instruments). Using a financial instrument to demonstrate
financial responsibility is the simplest way to ensure that funds sufficient to cover the
cost estimates for the GS activities are available. Financial instruments are agreements
that rely on an independent third party institution's guarantee to hold funds, or directly
fund or perform the financial responsibility activities. Banks, insurance companies, and
surety companies are examples of independent third party institutions that offer "cash
holding" financial instruments such as trust funds and escrow accounts, as well as "risk
management" financial instruments including surety bonds, insurance policies, and letters
of credit. Insurance policies may be established both for certain activities (e.g., life
insurance) and uncertain activities (e.g., automobile insurance). If the owner or operator
submits an acceptable independent third-party financial instrument that meets or exceeds
the cost estimate and receives the UIC Program Director's approval, then the owner or
operator has adequately demonstrated financial responsibility coverage.
• Self insurance. A second option, using self insurance, is only available if the owner or
operator meets specified criteria, including either a financial ratio or bond rating test.
This financial responsibility demonstration generally allows the owner or operator to
submit financial statements and other information to prove they are likely to remain in
operation, based on indicators of the economic health of the organization, and they will
be able to complete all required GS activities. Owners or operators can expect to provide
documents such as annual financial statements that show profits and losses for the year,
and statements verifying total net worth and net working capital. This information will be
confirmed by an independent auditor, who will look for consistency between a letter from
the Chief Financial Officer (CFO), annual reports and Security Exchange Commission
(SEC) reports, irregularities in annual income from one year to the next, and the values
for ratios of profit and loss. Financial documents of the owner or operator that have
already been audited can be used to supplement a financial test, including the SEC Form
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10-K and the Federal Energy Regulatory Commission (FERC) Form 2. The UIC Program
Director must determine whether the information submitted for one of these tests is
sufficient to make a determination regarding the owner's or operator's financial stability.
The UIC Program Director may require the owner or operator to pass an additional
financial test if the original demonstration is not satisfactory.
Under 40 CFR 146.85(a) the owner or operator must submit the information necessary to
demonstrate financial responsibility and receive and maintain a permit. Pursuant to 40 CFR
146.85(b) the owner or operator must also submit information to be released from financial
responsibility requirements. For third-party instruments, if the owner or operator fails to
complete the required activities and the UIC Program Director subsequently calls on the
instrument to cover the environmental liability, the instrument may be retired after the activity
has been completed. In the case of owner or operator failure when self insurance has been used,
the UIC Program Director does not have the option to draw upon a third-party instrument, thus
resulting in instrument failure.
A. Qualifying financial instruments specified in the Rule
Under 40 CFR 146.85(a)(l), specific qualifying independent third-party and self insurance
instruments are listed for use in financial responsibility demonstrations. Qualifying independent
third-party instruments listed include trust funds, surety bonds, letters of credit, insurance, and
escrow accounts. Qualifying self insurance instruments include self insurance and corporate
guarantees that meet the specified financial test criteria. This list of instruments is neither
exhaustive nor absolute; therefore, an owner or operator may use any other financial instruments
that the UIC Program Director finds satisfactory. Correspondingly, the UIC Program Director
may find one or more of instruments listed in the Rule does not meet the requirements of the rule
and is thus unallowable for financial responsibility demonstrations. See 146.85(a)(5)(iii). For
example, the UIC Program Director may find that an owner cannot demonstrate sufficient
Tangible Net Worth and not allow self insurance.
Figure 3: Qualifying Financial Responsibility Instruments Specified in the Rule
Instruments
Independent
Third-party Instruments
Self Insurance
Corporate
Guarantee
Trust Fund
Surety Bond
Letter of
Credit
1
_L
Insurance
(Third-party)
Escrow
Account
Financial
Test
Standby Trust* }••'••
*Not a stand-alone instrument. Dotted connection to standby trust from surety bond, letter of credit, and escrow account represents
the need for a standby trust when EPA is the UIC Program Director. If authorized by applicable law, a standby trust might not be
needed when a state or tribe is the UIC Program Director and is named as the beneficiary.
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Trust fund
To demonstrate financial responsibility, owners or operators can establish an irrevocable trust
fund. Trust funds serve as a repository for money set aside for a specific purpose. A trust fund is
established at a bank or other financial institution that is a "neutral party" and is regularly
examined and regulated by a federal or state entity. The Rule established the minimum federal
financial responsibility requirements for GS activities and specifically listed trust funds as one
option for a financial responsibility demonstration. The trust is administered and, if necessary,
managed by a trustee who is designated by the owner or operator establishing the trust. EPA
recommends that the UIC Program Director confirm that the independent third party institution
administering the trust has a proven track record of effectively managing trusts, using
information provided during the demonstration review (e.g., list of past trusts managed of a
similar size, revenue threshold, time in business). The trustee's financial stability must be
demonstrated to the UIC Program Director by the owner or operator pursuant to 40 CFR 146.85.
In the financial responsibility demonstration, the owner or operator is required to deposit the
required amount of money into the trust prior to permitting or may have the option to exercise a
"pay-in period" specified by the UIC Program Director.
EPA recommends that the trust fund agreements established by owners or operators describe the
acceptable ways that the trustee can invest the fund and applicable legal principles, show proof
that the trust was established at the direction of the owner or operator's board of directors or
principal owners, and identify the conditions under which the UIC Program Director can
authorize payments to complete a required activity under the Class VI Rule. EPA recommends
that the agreements include the timeframe in which the trustee will submit statements of the
value of the trust (at least annually) to the UIC Program Director and the process of how to
accept additional deposits or release funds with the UIC Program Director's concurrence.
Subject to investment restrictions1 set forth in the trust agreement, trust funds will likely yield
interest over time. This accrued interest can be reinvested to cover increases in the cost of
materials and labor for GS activities due to inflation. If interest is earned and the revised cost
estimate (including adjustments for inflation) shows that the amount held in the trust exceeds the
most recently estimated cost (assuming management fees due to the trustee have been paid), the
owner or operator may request the UIC Program Director's approval for release of the excess
funds. If the value of the trust falls below the cost estimate, the owner or operator will be
required to deposit additional funds into the instrument or establish an additional instrument.
Generally, the funds held in the trust can be released to the owner or operator when the owner or
operator meets its financial obligations related to the GS activities or when the owner or operator
submits an alternative financial responsibility demonstration that is approved by the UIC
Program Director. See Chapter 5 for "Conditions of Coverage and Specifications for Financial
Responsibility Demonstrations."
1 Investment restrictions may include floors or caps on cash or the purchase of bonds or certain categories of stocks.
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Standby trust fund
A standby trust fund is not a stand-alone financial instrument that can be used by an owner or
operator to demonstrate financial responsibility. A standby trust is different from a trust fund
because the trust is unfunded (or in standby) until another financial instrument pays into it. When
EPA acts as the UIC Program Director, standby trust funds must be established when an owner
or operator establishes a surety bond, letter of credit, or escrow account as part of a financial
responsibility demonstration. EPA does not have express authority under SDWA to accept and
use funds for financial assurance. Consequently, standby trust agreements cannot name EPA as a
recipient of funds or a beneficiary. Therefore, EPA recommends that the standby trust
agreements be written such that EPA, as the UIC Program Director, has authority to notify the
trustee of the need for payments from the fund to cover the costs of GS project activities covered
under the agreement. However, when a state or tribe is the UIC Program Director, financial
responsibility instruments can name a state, tribal or local government as a recipient of funds or a
beneficiary, if authorized by applicable law.
As a financial responsibility instrument, the standby trust allows the UIC Program Director to
request the use of funds guaranteed by other instruments. For example, when funds are collected
from letters of credit and surety bonds, they are moved to the standby trust, where they can be
withdrawn and allocated to an independent third party to cover the costs associated with financial
responsibility activities. In the standby trust, "Schedule A" will specify the cost estimate for each
permitted well or facility and "Schedule B" will define the initial property or money establishing
the fund. See Chapter 5 for "Conditions of Coverage and Specifications for Financial
Responsibility Demonstrations."
Surety bond
A surety bond is a guarantee by a surety or insurance company that includes specific obligations.
There are two types of surety bonds: performance and financial guarantee. A performance bond
guarantees the performance of the financial responsibility activities. For example, a performance
bond might give the surety three options to guarantee and finance the completion of a project:
completing the project itself, hiring a contractor to complete the project, or paying the amount of
funds guaranteed by the bond. On the other hand, a financial guarantee bond, also commonly
referred to as a payment bond, ensures that the surety company will pay the amount of funds
guaranteed by the bond. Both types of surety bonds require the establishment of a standby trust2
to receive, on behalf of the UIC Program Director, any money that the surety company is
required to pay to an independent third party to cover the cost of financial responsibility
activities.
In practice, if the owner or operator fails to meet its financial responsibility activities, the surety
company will pay the amount of the surety bond into a standby trust, or perform the required
activities. In turn, the trustee in charge of the standby trust will pay an independent third party to
finalize the environmental obligations as instructed by the UIC Program Director.
When a state or tribe is the UIC Program Director the surety bond may name a state, tribal, or local government as
a recipient of funds or a beneficiary, if authorized by applicable law. In this case a standby trust is not needed.
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EPA recommends that surety bond agreements meet certain conditions. For example, the surety
company should be tested and approved under the U.S. Department of the Treasury Circular 570.
The surety's financial stability must be demonstrated to the UIC Program Director by the owner
or operator. The UIC Program Director may require that the bond specifies which well(s) it
covers. If the owner or operator drills or acquires new wells, it should post a new bond or amend
the existing demonstrations. Furthermore, the bond agreement should require that the bondholder
provide the owner or operator and the UIC Program Director with notice prior to cancelling the
bond. EPA recommends that the agreement also include a provision that the surety company will
pay the bond's face value if the owner or operator does not provide a substitute demonstration of
financial responsibility to the UIC Program Director in addition to paying the face value for the
owner or operator's failure to perform.
Depending on the permit's scope, a surety bond can be secured for either a single well (i.e.,
single well bonding) or a multi-well facility (i.e., multiple well bonding). In the case of multiple
wells, EPA recommends that the face value of the bond reflect the sum of the costs of all the
wells. In the financial responsibility demonstration, the owner or operator might establish a
surety bond to be used for the duration of the GS activities that it covers. The owner or operator
should submit proof of the bond to the UIC Program Director. Typically, the cost of the surety
bond depends on the cost estimate for the activity (e.g., one well or multiple wells, varied GS
phases) as well as the associated risk and the type of surety bond (performance or financial
guarantee). The owner or operator must increase or decrease in the required value of the surety
bond or establish an additional instrument, based on changes in cost estimates that are approved
by the UIC Program Director [40 CFR 146.85(c)(3)]. See Chapter 5 for "Conditions of Coverage
and Specifications for Financial Responsibility Demonstrations."
Letter of credit
A letter of credit guarantees that funds, up to a specified limit, will be available to a designated
party under certain conditions. Generally, a letter of credit used as a GS financial responsibility
instrument is issued by a bank or other financial institution to the owner or operator of a GS
facility to cover the costs of the financial responsibility activities. The instrument is established
for the life of the covered GS activity. If the owner or operator fails to fulfill financial
responsibility activities backed by the letter of credit, the bank or financial institution must pay to
meet the obligation. When an EPA Region is the UIC Program Director, the instrument must use
a standby trust3 to facilitate the transfer of funds to complete the activity.
EPA recommends that if an owner or operator chooses to use a letter of credit to demonstrate
financial responsibility under 40 CFR 146.85, the letter of credit should be issued by a bank or
other institution whose operations are regulated and examined by a federal or state agency. The
issuing institution's financial stability must be demonstrated to the UIC Program Director by the
owner or operator. Additionally, EPA recommends that the letter of credit require the issuing
institution to provide the owner or operator and the UIC Program Director with notice if it does
not plan to reissue the letter of credit. If the owner or operator fails to provide a substitute
financial responsibility instrument the beneficiary can draw on the letter of credit. EPA
3 When a state or tribe is the UIC Program Director the letter of credit may name a state, tribal, or local government
as a recipient of funds or a beneficiary, if authorized by applicable law. In this case a standby trust is not needed.
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recommends that the letter of credit include a provision for its automatic renewal; specifically,
the agreement should specify that the letter of credit be cancelled only if the UIC Program
Director has consented in writing.
The overhead cost of a letter of credit depends on the cost estimate for an activity (e.g., one well
or multiple wells, varied GS activities) and the associated risk. Upon approval of updates to the
cost estimate by the UIC Program Director the owner or operator must increase or decrease the
required value of the letter of credit or establish an additional instrument to reflect changes in
cost estimates [40 CFR 146.85(c)(3)]. See Chapter 5 for "Conditions of Coverage and
Specifications for Financial Responsibility Demonstrations."
Independent third-party insurance
As a GS financial responsibility instrument, independent third-party insurance is a contract
between the insurer (typically an insurance company) and the insured (the Class VI well owner
or operator) written in the form of an insurance policy (either for certain activities or risk
management for uncertain activities) to cover specified events for the duration of the covered
activity. Independent third-party insurance demonstrations generally require that there is no
ownership relation between the insurance company and the insured party. However, EPA
considers mutual insurance companies, for the purpose of financial responsibility
demonstrations, to be third party providers. A mutual insurance company is formed and owned
entirely by its policyholders, to cover specific events or risks. Pursuant to 40 CFR 146.85 the
third party insurer's financial stability must be demonstrated to the UIC Program Director by the
owner or operator.
To make the financial demonstration, the owner or operator secures an insurance policy with a
face value equal to the cost estimate for the GS activity and pays the premium annually, monthly,
or, in some instances, entirely up front before coverage begins. The owner or operator might be
required by the UIC Program Director to submit a certificate of insurance that identifies
information about the policy including the name of the insured, the insurer, the facility covered,
as well as a statement that says the insurer is providing financial assurance for the insured. EPA
recommends that the policy state that it conforms in all respects with the requirements for the
fulfillment of financial responsibility activities described in the Rule. Generally, if a covered
incident occurs, the insurance company directly pays the expenses related to the financial
responsibility activities or reimburses the insured party for those expenses, as requested by the
UIC Program Director.
The cost of an insurance policy will vary depending on the insurance company's evaluation of
the risks involved with the operations. The terms of the insurance policy can vary among, and
even within, states. EPA cannot be the beneficiary of the insurance policy. See Chapter 5 for
"Conditions of Coverage and Specifications for Financial Responsibility Demonstrations."
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Captive Insurance
Captive insurance is an insurance policy underwritten by a subsidiary to insure its own parent company or
a client of a parent company in a financial responsibility demonstration. The arrangement allows an owner
or operator to retain greater control over the details of the insurance policy at a lower cost than using an
outside insurance company. If satisfactory to the DIG Program Director, an owner or operator may use
captive insurance as an "other" qualifying financial instrument.
Escrow account
An escrow account sets aside funds to be used for an explicit purpose and can be used to deliver
funds from one party to another. An owner or operator can establish an escrow account in a
financial responsibility demonstration to cover the cost estimate for financial responsibility
activities. Although escrow accounts have not been used in the federal UIC program, they are
functionally equivalent to a trust fund, and may be more accessible and have a lower overhead
cost; however, they tend to yield lower interest as highly liquid instruments.
In a financial responsibility demonstration under 40 CFR 146.85, the owner or operator deposits
the required amount of funds into the escrow account prior to the issuance of the permit or
during the "pay-in-period." It is recommended that the escrow agreement describe the acceptable
ways that the escrow agent can invest the fund, show proof that the account was established at
the direction of the owner or operator's board of directors or principal owners, and identify the
conditions under which the escrow agent will release funds to fulfill required GS activities. EPA
recommends that the agreement also stipulate that the escrow agent submit statements with the
value of the escrow account (at least annually) to the UIC Program Director, invest the trust
according to the guidance provided in the agreement and applicable legal principles, and accept
additional deposits or release funds with the concurrence of the UIC Program Director. Pursuant
to 40 CFR 146.85 the escrow agent's financial stability must be demonstrated to the UIC
Program Director by the owner or operator.
Once the required GS activities are complete, the funds held in escrow can be returned to the
owner or operator. If the obligations are not met, the funds will be paid to a standby trust for an
independent third party to fulfill the obligations, as requested by the UIC Program Director.
Escrow accounts may yield some (minimal) interest over time. The accrued interest can be
reinvested to cover increases in the cost of materials and labor for GS activities resulting from
inflation. If interest is earned and the revised cost estimate (including adjustments for inflation)
shows that the amount held in the instrument exceeds the most recently estimated cost (assuming
management fees due to the trustee have been paid), the owner or operator may request the UIC
Program Director's approval for release of the excess funds. If the value of the account falls
below the cost estimate, the owner or operator will be required to deposit additional funds. The
funds held in escrow can be released to the owner or operator if the owner or operator completes
required GS activities or submits an alternative financial responsibility demonstration that is
approved by the UIC Program Director. It is recommended that there be no restrictions placed on
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the time of withdrawal. See Chapter 5 for "Conditions of Coverage and Specifications for
Financial Responsibility Demonstrations."
Self insurance
Unlike independent third-party instruments, financial responsibility demonstrations with self
insurance involve only the owner or operator (and their parent company, in the case of a
corporate guarantee). A two-step process for demonstrating financial responsibility with self
insurance is required. First, the owner or operator provides the pre-specified "financial coverage
criteria" to qualify for the test. Then, the owner or operator passes one of two financial tests. The
information for these two steps may typically be submitted at the same time, but the UIC
Program Director will evaluate them in a step-wise process. The UIC Program Director may
require the owner or operator to pass an additional financial test in cases where the original
demonstration is not satisfactory. See Chapter 5 for "Conditions of Coverage and Specifications
for Financial Responsibility Demonstrations."
Financial coverage criteria
To qualify for the financial test, minimum financial coverage criteria must be met, pursuant to 40
CFR 146.85. The required thresholds for Net Working Capital (NWC) and Total Assets and the
recommended threshold for Tangible Net Worth (TNW) are presented in the table below.
Table 2: Definitions of financial coverage criteria
Financial Indicators
Description
Requirement at 40 CFR
146.85(a)(6)(v)
Net Working Capital (NWC)
Measures short-term financial
health. Defined as current assets
minus current liabilities.
NWC must be at least six times the
sum of the current cost estimates
for all required GS activities.
Total Assets
Combined value of economic
resources and all items of
monetary value owned by a firm.
Assets in the United States must
either:
a) amount to at least 90 percent of
total assets,
or
b) amount to at least six times the
sum of the current cost estimates
for all required GS activities.
Recommended Threshold
Tangible Net Worth (TNW)
Measures the value of a company
that is liquefiable, i.e., total assets
(not including intangible assets)
minus liabilities.
Although the Rule doesn't require a
minimum TNW amount for GS
projects, based on recent evaluation
EPA recommends a TNW of at least
$100 million,
and
at least six times the sum of the
current cost estimates for all
required GS activities.
4 The UIC program's decision to recommend a $100 million TNW threshold is intended to assure that the risk of
instrument failure when self insurance is used is no greater than the riskiest scenario when third-party instruments
are used.
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If the UIC Program Director approves the financial coverage criteria submitted by the owner or
operator, the UIC Program Director will then evaluate the self insurance demonstration based on
a corporate financial test. As discussed below, EPA suggests two types of corporate financial
tests: bond rating and financial ratio. In principle, this process confirms that the company
presents a low risk because it is profitable, not overly leveraged, and has sufficient liquidity.
EPA recommends that the materials for a financial test be submitted by a trusted authority (e.g.,
an independent auditor). The financial test should be accompanied by a letter from the owner or
operator's CFO, a full auditor's opinion from an independent certified public accountant (CPA),
and an independently audited financial statement. The auditor's opinion should state that the data
submitted is of the most recent year and that the auditor followed Generally Accepted
Accounting Principles (GAAP).
Tangible Net Worth (TNW) as a Coverage Criterion
TNW is an indicator of the owner or operator's size. Generally, larger well-capitalized firms tend to fail
(i.e., enter bankruptcy) at a lower rate than smaller firms. In the case of owner or operator failure when
self insurance has been used, the UIC Program Director does not have the option to draw upon a third-
party instrument, resulting in instrument failure. In contrast, third-party financial responsibility
demonstrations fail only when both the owner or operator and the third party fail. To minimize the risk of
self insurance failure, EPA recommends that TNW be at least $100 million and at least six times the sum
of the current cost estimate for all secured financial responsibility activities. The recommendation of $100
million is estimated to be the minimum TNW required to make self insurance no more likely to fail than a
demonstration utilizing a third party and a high-risk owner or operator. This recommendation is based on
an analysis of the failure rates of firms likely to participate in GS and firms likely to act as third parties.
Financial ratio test
Based on the UIC Program Director's approval of the financial coverage criteria, an owner or
operator can submit financial information, including data on the company's assets, liabilities,
cash return and depletion, worth, and profit to demonstrate financial responsibility. Pursuant to
40 CFR 146.85 for the financial ratio test, the financial indicators must be compared and ratios
calculated, as presented in the table below.
Table 3: List of financial ratios and thresholds specified at 40 CFR 146.85(a)(6)(v)
Type of Ratio
Debt-Equity
Assets-Liabilities
Cash Return
on Liabilities
Liquidity
Net Profit
Financial Ratios
Total Liabilities
Net Worth
Current Assets
Current Liabilities
(Net Income + Depreciation + Depletion + Amortization)
Total Liabilities
(Current Assets - Current Liabilities)
Total Assets
Net Profit
Threshold
<2.0
> 1.5
>0.10
>-0.10
>0
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The ratios must exceed the minimum thresholds presented in the table. For additional details, see
Chapter 5 "Conditions of Coverage and Specifications for Financial Responsibility
Demonstrations."
Bond rating test
Based on the UIC Program Director's approval of the financial coverage criteria, an owner or
operator can submit the most recent investment grade rating of bonds used to raise capital for the
initial demonstration of financial responsibility, as well as any information on downgrades of the
bonds following the initial demonstration. Pursuant to 40 CFR 146.85 the rating submitted must
be issued by one or both of the nationally recognized bond rating agencies: Standard & Poor's
and Moody's. For an owner or operator to pass the financial test the bond's rating must be one of
the four highest categories: AAA, AA, A, or BBB for Standard & Poor's; or Aaa, Aa, A, or Baa
for Moody's. The owner or operator should also submit an annual report of its bond rating.
Corporate guarantee
In a corporate guarantee financial responsibility demonstration, the financial test is generally met
by the owner's or operator's parent company. If necessary, a corporate subsidiary can submit its
parent company's financial statement if the parent offers a corporate guarantee to pay for the
subsidiary's financial responsibility activities. The UIC Program Director can allow the
corporate guarantee if it is issued by a parent corporation that owns at least 50 percent of the
subsidiary's voting stock, and has been in business for at least 5 years. For the financial
responsibility demonstration, EPA expects the parent company to provide a specific written
guarantee made by a corporate officer authorized to legally bind the parent company that meets
the self insurance requirements. The written guarantee should explicitly state that the corporation
will continue to honor the guarantee regardless of any ownership restructuring (e.g., sale of the
owner or operator as an independent company). Beside the parent company, EPA recommends
that any other company with a substantial business interest in the owner or operator firm should
not provide a corporate guarantee. EPA recommends that if a joint-ownership venture is formed
among multiple firms or owners or operators, the financial responsibility demonstration and
financial guarantee should be made by one party as the primary parent.
B. Other qualifying financial instruments
The UIC Program Director may approve the use of financial instruments other than those
specifically described in the Rule. Following the UIC Program Director's determination that the
instrument is satisfactory, an owner or operator can use these other qualifying instruments to
demonstrate financial responsibility. For example, a Director may approve the use of captive
insurance as a qualifying instrument without requiring the respective owner or operator to pass
the self insurance financial test criteria.
C. Availability and affordability of financial responsibility instruments
The availability and affordability of qualifying financial responsibility instruments is likely to
change over time based on industry and market conditions. Along with the general market
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conditions, two main factors may influence the current availability and affordability of financial
instruments. The first is the number of buyers (i.e., demand from owners or operators) for these
instruments. If there are relatively few buyers in the market, then the industry can only support a
limited number of sellers (i.e., firms offering financial instruments). The second is the relative
amount of data on GS activities. For example, insurance underwriters use these data to calculate
expected costs of insuring GS activities and for determining the appropriate amount of the
insurance premium. With limited data, insurance companies may require larger premiums or may
not offer policies for specific projects.
While the relative availability and affordability of financial instrument will change overtime, all
specific qualifying instruments listed under 40 CFR 146.85 have been successfully used for other
well classes. However, some instruments may not be available for all phases of GS activities. In
particular, the long-term nature of GS activities may restrict the availability of certain financial
instruments. For example, insurance companies may not be willing to underwrite policies for the
entire life of a GS project that must be covered by a demonstration since this period will last for
a minimum of 50 years. In many cases, insurance companies underwrite policies with maximum
terms of five to ten years that then can be renewed. Financial institutions may also be hesitant to
issue a surety bond for an owner or operator over longer time periods due to uncertainty over the
firm's long-term financial stability. Restrictions on the availability of certain financial
instruments, however, may lessen as the GS industry grows.
The market for GS financial responsibility instruments, like all markets, will change over time.
Due to the nature and scope of GS, including infrastructure and geographic needs, it is likely that
this market will never be as competitive or robust as, for example, the market for car insurance.
At the level of owner or operator, however, the availability and affordability of financial
instruments depends on project- and site- specific risks. If reputable and financially sound
operators undertake projects at appropriate sites, financial responsibility instruments are likely to
be both available and affordable. At less appropriate sites, insurance might be more expensive or
unavailable, which is evidence of a price signal promoting economic efficiency.
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4. Matching Financial Instruments to Meet the Specific Needs of a GS Project
This chapter describes the strengths and weaknesses of various financial instruments, including
recommendations for using the instruments to demonstrate financial responsibility for various
GS activities. The information provided in this chapter is informed by: the perspectives and
recommendations of the EPA Office of Inspector General,5 the U.S. Government Accountability
Office,6 and the Environmental Financial Advisory Board;7 comments to the proposed Rule;
public financial responsibility webcasts held in spring 2009;8 and publicly available literature,
including peer-reviewed journal articles and government and non-government reports.
A. Minimizing costs
The costs that owners or operators will incur to obtain financial assurance will vary by
instrument type. All independent third-party instruments should require the owner or operator to
fully pay all up-front costs needed to secure the instrument (e.g., funding the trust, providing
collateral, etc.). Independent third-party instruments might also require additional periodic
payments or fees to maintain the instruments. These overhead costs, including legal, opportunity,
and liability costs, are likely to vary by institution, by amount of coverage, and by the level of
investment activity for instruments such as trust funds and escrow accounts. The total cost of
trust funds and escrow accounts will also include the total cost estimate of the GS activity.9
Letters of credit can require cash or hard asset collateral in addition to the premium.
The overhead costs of securing and maintaining self insurance will generally be less than the
overhead costs of independent third-party instruments. Overhead costs for self insurance include
the expenses incurred for submitting documentation for financial tests or corporate guarantees
and for demonstrating continued financial health over time. However, the voluntary use of risk
management instruments (e.g., captive insurance) by self insurers to manage the financial risk
associated with financial responsibility activities can increase total overhead costs. Because the
use of risk management instruments is not required for self insurers, it is possible that some self
insurers will forgo the use of risk management instruments for part or all of the costs estimated
for financial responsibility activities.
B. Maximizing instrument benefits
The appropriateness of various financial instruments depends on the characteristics of the
instruments and the covered GS project activities. Some instruments are better suited for certain
5 EPA DIG. 2005. Continued EPA Leadership Will Support State Needs for Information and Guidance of RCRA
Financial Assurance (http://www.epa.gov/oig/reports/2005/20050926-2005-P-00026.pdf).
6 U.S. GAO. 2005. Environmental Liabilities (http://www.gao.gov/new.items/d05658.pdf).
7 Report on Financial Assurance. EFAB. March 2010. (http://www.epa.gov/efmpage/efabpub.htm).
8 EPA. 2009. Webcasts on Financial Responsibility Instruments for Geologic Sequestration (GS) Wells. EPA 815-
D-09-001. (http://water.epa.gov/tvpe/groundwater/uic/class6/gsregulations.cfm').
9 Because the costs of the activity are directly paid for by trust funds and escrow accounts, or the owner or operator
is reimbursed, estimated costs are paid (i.e., set aside) up front. However, when demonstrations are made with surety
bonds and letters of credit, the owner or operator pays the activity costs in addition to overhead costs, and the
secured financial responsibility instrument is only used in the event that the owner or operator cannot complete the
activity.
UIC Program Class VI Financial Responsibility Guidance 19
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GS activities than others. Therefore, benefits of the instruments can be maximized by effectively
matching them with specific GS project activities. In general, the GS activities requiring
financial responsibility demonstrations can be characterized as either relatively well-defined in
terms of when they will occur and how much they will cost, or uncertain in terms of when (and
if) they will occur and how much they will cost. The following descriptions characterize GS
activities in terms of certainty and sequencing.
• Corrective action on wells in the AoR, described at 40 CFR 146.84, presents some
uncertainty in terms of when it will occur and how much it will cost. It is anticipated that
if phased corrective action is employed, this corrective action might occur over a period
of decades. For additional information on AoR, see the guidance document "Geologic
Sequestration of Carbon Dioxide: Underground Injection Control (UIC) Class VI Well
Area of Review Evaluation and Corrective Action Guidance for Owners and Operators."
• Injection well plugging, described at 40 CFR 146.92, is relatively well defined in terms of
when it will occur and how much it will cost. It is anticipated that injection well plugging
will take place over a period of weeks, not years.
• Post-injection site care and site closure, described at 40 CFR 146.93, is relatively well
defined in terms of when it will occur and how much it will cost. It is anticipated that
post-injection site care will occur over a period of decades and site closure will occur at
the UIC Program Director's approval.
• Emergency and remedial response activities, described at 40 CFR 146.94, are relatively
uncertain in terms of when (and if) they will occur and how much they will cost. In
addition, the period during which emergency and remedial response can occur is the
longest.
In addition, owners and operators should recognize that high quality site selection and clear
identification and analysis of the AoR can improve the quality of GS projects, lower the
estimated costs for specific GS activities, and help owners or operators identify the most suitable
financial responsibility instruments specific to the site and activities. For additional information
on site characterization and on evaluation of the AoR, respectively, see the guidance documents
"Geologic Sequestration of Carbon Dioxide: Underground Injection Control (UIC) Class VI
Well Site Characterization Guidance for Owners and Operators" and "Geologic Sequestration of
Carbon Dioxide: Underground Injection Control (UIC) Class VI Well Area of Review
Evaluation and Corrective Action Guidance for Owners and Operators."
The table below identifies the instruments EPA recommends for GS activities requiring financial
responsibility demonstrations based on the potential for instrument success or failure, and
resource implications for owners or operators and UIC Program Directors. These instruments are
relatively ranked for each GS activity from generally most appropriate to generally least
appropriate, and the ultimate suitability should take into account factors such as the site
characteristics and the availability and affordability of the instrument options.
UIC Program Class VI Financial Responsibility Guidance 20
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Table 4: Recommended financial responsibility instruments for GS activities (relative ranking)
10
Corrective Action
1 . Trust Fund
2. Letter of Credit
3. Surety Bond
4. Escrow Account
5. Financial Test and
Corporate
Guarantee*
6. Insurance
Injection Well
Plugging
1. Trust Fund
2. Letter of Credit
3. Surety Bond
4. Insurance
5. Financial Test and
Corporate
Guarantee*
6. Escrow Account
Post-injection Site
Care and Site Closure
1. Trust Fund
2. Insurance
3. Financial Test and
Corporate
Guarantee*
4. Surety Bond
5. Escrow Account
6. Letter of Credit
Emergency and
Remedial Response
1. Insurance
2. Letter of Credit**
3. Surety Bond**
4. Financial Test and
Corporate
Guarantee*
5. Trust Fund
6. Escrow Account
'Financial tests and corporate guarantees present the lowest direct costs to owners or operators, but the highest risk to the public.
"Letters of credit and surety bonds are likely most appropriate for emergency and remedial response during operation phases.
The relative strengths and weaknesses associated with each instrument are as follows.
• Trust Funds. Trust funds are best suited for corrective action, injection well plugging, and
post-injection site care and site closure demonstrations because these activities are
relatively certain in terms of occurrence and cost. A fully funded independent third-party
trust represents the lowest risk to the public of paying for these activities. Although the
cost of the instrument is essentially the full cost of the activity, generally the owner or
operator recovers this cost (in the form of reimbursement) following the completion of
the activity. For activities of uncertain frequency and cost, such as emergency and
remedial responses, the trust will likely not have the right amount of funds—too little is a
partial failure of the instrument and too much represents an inefficient use of funds that
unnecessarily raises GS costs.
• Letters of Credit. Letters of credit are best suited for corrective action and injection well
plugging demonstrations because they generally perform equally well for certain and
uncertain environmental activities, as long as the credit limits are not exceeded. The cost
to the owner or operator is a function of the credit limit, the financial health of the owner
or operator, and the risks faced by the owner or operator. For activities that continue over
the long term (i.e., post-injection site care, site closure, and emergency and remedial
responses), letters of credit might be unreliable because there are more opportunities for
the independent third party to cancel the line of credit. Moreover, they have likely been
used on a limited basis over longer time periods (i.e., greater than 20 years), making their
long-term reliability uncertain. Therefore, letters of credit might not be effective for post-
injection site care and site closure.
• Surety Bonds. Surety bonds are best suited for injection well plugging and are good for
corrective action demonstrations because they generally perform equally well for certain
and uncertain environmental activities—as long as the limits of the bond are not
exceeded. Surety providers might not underwrite bonds over longer time periods where
there is considerable uncertainty. Hence, surety bonds might not be available for
Relative rankings and recommendations are based on "Research and Analysis in Support of UIC Class VI
Program Financial Responsibility Requirements and Guidance."
UIC Program Class VI Financial Responsibility Guidance
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activities that continue over the long term (i.e., post-injection site care and site closure,
and emergency and remedial responses).
Insurance. Insurance policies are best suited for diversifying environmental risk.
Insurance is the ideal instrument for handling the numerous possible scenarios associated
with uncertain events such as emergency and remedial response demonstrations.
However, policies may also be useful for certain events such as injection well plugging,
post-injection site care and site closure. For these certain activities, effective policies may
take the form of an annuity, an assurance contract, or may require up-front payment of
premiums. Policies for certain events may also retain a risk-based factor. For example,
even though injection well plugging costs are expected, there is some risk as to when
these costs are expected to occur. For well-defined activities, insurance might be less
attractive to insurers because there is less diversifiable environmental risk.
Escrow Account. Escrow accounts are best suited for corrective action demonstrations
because they generally have lower set-up costs than trust funds. Funds are kept in a
highly liquid form (a simple interest-bearing account such as a savings or money market
account at a bank), which limits risk and administrative costs, but causes escrow accounts
to generate minimal interest. In the case of GS, where the relative time horizon is
measured in decades, a trust fund's investment strategy is likely to outperform an escrow
account in terms of accrued interest. As a result, an escrow account can generate greater
costs associated with lost investment income, which suggests little benefit to using an
escrow account instead of a trust fund. Therefore, escrow accounts are likely to be best
utilized for the shortest term activities, such as corrective action, or for serving as a
temporary account.
Financial Tests and Corporate Guarantees. Financial tests and corporate guarantees are
useful for all activities. Self insurance is beneficial for owners or operators because it is
likely to have the lowest overhead cost, but it represents the highest financial risk to the
public. There is a greater risk of instrument failure for self insurance, particularly in the
post-injection site care period, because the injection well is no longer in operation and
profitable (i.e., the site represents an ongoing liability). However, the UIC Program
Director may consider the added risk to the public worthwhile to facilitate the realization
of broader anticipated public benefits from GS beyond those considered in the Class VI
Rule (i.e., climate change mitigation, economic development).
Combining Multiple Instruments. The Rule allows flexibility in selecting the instruments
that are best suited for each activity by allowing the combination of more than one
instrument to demonstrate financial responsibility. If a combination of instruments is
used, the sum of the amounts provided by these instruments must be at least equal to the
current cost estimate for the given GS phase. However, if an owner or operator chooses
to combine more than one instrument for a specific GS activity (e.g., injection well
plugging), at least one of these instruments must not be based on financial strength or
performance (e.g., self insurance or performance bond). EPA recommends that owners
and operators, as well as UIC Program Directors, thoughtfully evaluate which
UIC Program Class VI Financial Responsibility Guidance 22
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instruments should be combined for specific activities based on the individual
instruments' strengths and weaknesses.
Pay-in period
A fully funded trust fund or escrow account minimizes the risk of instrument failure. While longer pay-in
periods reduce the up-front financial burden for the owner or operator, longer pay-in periods also increase
the risk that the instrument will fail if the owner or operator cannot meet its obligations. Under 40 CFR
146.85(f) the DIG Program Director must approve the use and length of pay-in periods. Utilizing the UIC
Program Director's authority, the permit might be revoked if the owner or operator does not meet the pay-
in period schedule agreed upon.
To minimize risk of instrument failure EPA recommends the use of the shortest pay-in periods possible.
The UIC Program Director may also determine that a pay-in period is not desirable and that the trust fund
or escrow account be fully funded at its inception. Third party providers of other instruments may also
require up-front payment, foregoing pay-in periods for specific activities or GS projects. For example,
many insurance policies may require fully-funded premiums for activities such as emergency and
remedial response since these activities may have large one-time costs. Owners or operators can reduce
the financial burden of shorter pay-in periods or up-front payments by obtaining third party financing.
UIC Program Class VI Financial Responsibility Guidance 23
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5. Conditions of Coverage and Specifications for Financial Responsibility
Demonstrations
This chapter describes the minimum conditions assuring that financial responsibility
demonstrations will provide coverage for the complete duration of required GS activities. This
chapter also provides specifications that owners or operators can consider when choosing a
qualifying financial responsibility instrument. Both legal requirements and recommendations are
provided in this chapter. EPA recommends that these conditions of coverage and specifications
be discussed with the CFO of the owner or operator and with the various providers of financial
instruments such as banks and surety companies, as appropriate. Sub-headings of letters and
numbers are used to facilitate references within the chapter.
The owner or operator of each facility must establish financial assurance for each existing and
new Class VI well under 40 CFR 146.85. When a state or tribe is the UIC Program Director, if
authorized by applicable law, the surety bond, letter of credit, or escrow account can name a
state, tribal, or local government as a recipient of funds or a beneficiary and a standby trust is not
needed.
Required Coverage Conditions for Instruments
Under 40 CFR 146.85(a), the UIC Program Director must ensure that coverage satisfies Class VI
Rule requirements. The qualifying financial responsibility instrument(s) must comprise
conditions of coverage under 40 CFR 146.85(a)(4)(i). Conditions include, at a minimum:
cancellation provisions, renewal provisions, continuation provisions, specifications on when the
provider becomes liable following a notice of cancellation (if there is no renewal), and
requirements for the provider to meet a minimum rating, minimum capitalization, and ability to
pass the bond rating when applicable. The instruments must also specify when the provider
becomes liable following a notice of cancellation if there is a failure to renew with a new
qualifying financial instrument.
Cancellation coverage conditions are specified at 40 CFR 146.85(a)(4)(i)(A). To guarantee
financial responsibility instrument coverage, an owner or operator must provide that their
financial instrument may not cancel, terminate, or fail to renew except for failure to pay
instrument overhead costs. If there is a failure to pay the financial instrument, the third party
financial institution may elect to cancel, terminate, or fail to renew the instrument by sending
notice by certified mail to the owner or operator and the UIC Program Director. However, the
cancellation must not be final until 120 days after receipt of cancellation notice. Within the 120
days, the owner or operator must provide an alternate financial responsibility demonstration
within 60 days of notice of cancellation, and if an alternate financial responsibility demonstration
is not acceptable (or possible), any funds from the instrument being cancelled should be released
within 60 days of notification by the UIC Program Director to complete required GS activities.
Renewal requirements to ensure coverage are specified at 40 CFR 146.85(a)(4)(i)(B). To
guarantee financial responsibility instrument coverage, an owner or operator must renew all
financial instruments, if an instrument expires, for the entire term of the GS project. The
instrument may be automatically renewed as long as the owner or operator has the option of
UIC Program Class VI Financial Responsibility Guidance 24
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renewal at the face amount of the expiring instrument. Pursuant to 40 CFR 146.85(a)(4)(i)(B),
the automatic renewal of the instrument must, at a minimum, provide the holder with the option
of renewal at the face amount of the expiring financial instrument.
Other continuation provisions under 40 CFR 146.85(a)(4)(i)(C) specify that the financial
instrument(s) will remain in full force and effect so that required GS activities can be completed
in the event that on or before the date of expiration the following circumstances arise:
• The UIC Program Director deems the facility abandoned;
• The permit is terminated or revoked or a new permit is denied;
• Closure is ordered by the UIC Program Director or a U.S. district court or other court of
competent jurisdiction;
• The owner or operator is named as debtor in a voluntary or involuntary proceeding under
Title 11 (Bankruptcy) of the U.S. Code; or
• The amount due is paid.
Under 40 CFR 146.85(b)(l), the owner or operator must maintain financial responsibility and
resources until the UIC Program Director receives and approves the completed Post-Injection
Site Care and Site Closure Plan, and approves site closure. Prior to the approval of site closure,
the owner or operator may be released from a financial instrument, under 40 CFR
146.85(b)(2)(i), if the owner or operator has completed the phase of the GS project for which the
financial instrument was required and has fulfilled all its financial obligations as determined by
the UIC Program Director, including obtaining financial responsibility for the next phase of the
GS project, if required. As specified at 40 CFR 146.85(b)(2)(ii), the owner or operator can cancel
the financial instrument if the UIC Program Director has given prior written consent to substitute
alternate financial assurance.
Sections A through F of this chapter provide required or recommended specifications for
financial responsibility instruments available for owners or operators to choose from when
establishing financial assurance.
A. Trust fund
1. Required specifications
(1) Under 40 CFR 146.85(a)(6)(ii), the owner or operator must provide proof that the trustee
either:
(i) has passed financial strength requirements based on credit ratings, or
(ii) has met a minimum rating, minimum capitalization, and ability to pass the bond
rating when applicable.
UIC Program Class VI Financial Responsibility Guidance 25
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(2) Under 40 CFR 146.85(f), the UIC Program Director must approve the use and length of pay-
in-periods for trust funds.
2. Recommended specifications
(3) The owner or operator should submit an originally signed duplicate of the trust agreement to
the UIC Program Director. EPA recommends that the owner or operator of a Class VI well
submit the originally signed duplicate of the trust agreement to the UIC Program Director with
the permit application. The trustee should be 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.
(4) EPA recommends that the wording of the trust agreement conform to the wording provided
in Appendix B, and the trust agreement should be accompanied by a formal certification of
acknowledgment (for an example of a certification of acknowledgement, see Appendix B).
Schedule A of the trust agreement must be updated within 60 days after a change in the amount
of the current cost estimate covered by the agreement.
(5) EPA recommends that payments into the trust funds be made annually by the owner or
operator over a three-year period or over a period determined by the UIC Program Director; this
period is hereafter referred to as the "pay-in period." The payments into the trust fund could be
made as follows:
(i) For a new well, EPA requires that the first payment be made before the initial injection of
carbon dioxide. A receipt from the trustee for this payment should be submitted by the owner
or operator to the UIC Program Director before the initial injection of carbon dioxide. The
first payment should be at least equal to the current cost estimate unless a pay-in period has
been approved by the UIC Program Director, in which case the cost estimate should be
divided by the number of years in the pay-in period. Subsequent payments should be made
no later than 30 days after each anniversary date of the first payment. The amount of each
subsequent payment should be determined by this formula:
CE-CV
NextPayment =
where CE is the current cost estimate, 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 establishes a trust fund as specified in Section A: "Trust Fund" of
this chapter, and the value of that trust fund is less than the current cost estimate when a
permit is awarded for the injection well, the amount of the current cost estimate still to be
paid into the trust fund should be paid in full, or over the pay-in period approved by the UIC
Program Director. Payments should continue to be made no later than 30 days after each
anniversary date of the first payment. The amount of each payment should be determined by
this formula:
Ar n CE-CV
NextPayment =
where CE is the current cost estimate, CV is the current value of the trust fund, and Y is the
number of years remaining in the pay-in period.
UIC Program Class VI Financial Responsibility Guidance 26
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(6) The owner or operator can deposit the full amount of the current cost estimate at the time the
fund is established or, if a pay-in period is approved by the UIC Program Director, the owner or
operator can accelerate payments into the trust fund. However, EPA recommends that the owner
or operator 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)(5) of this Section.
(7) EPA recommends that if the owner or operator establishes a trust fund after having used one
or more alternate instruments specified in this chapter, the owner or operator's first payment
should be at least equal to the amount that the fund would contain if the trust fund were
established initially and annual payments had been made.
(8) EPA recommends that if an owner or operator substitutes other financial assurance as
specified in this Section for all or part of the trust fund, the owner or operator can submit a
written request to the UIC Program Director for release of the amount in excess of the current
cost estimate covered by the trust fund.
(9) EPA recommends that after completing required GS activities, an owner or operator or any
other person authorized to perform the activities can request reimbursement for expenditures by
submitting itemized bills to the UIC Program Director. Within 60 days after receiving bills for
activities, the UIC Program Director should determine whether the expenditures are in
accordance with the plan or otherwise justified, and if so, the UIC Program Director should
instruct the trustee to make reimbursement in the amounts that the UIC Program Director
specifies in writing. If the UIC Program Director determines that the cost of covered GS
activities will be significantly greater than the value of the trust fund, the UIC Program Director
can withhold reimbursement of such amounts as the UIC Program Director deems prudent until
the UIC Program Director determines (in accordance with Section J. "Release of the owner or
operator from the requirements of 40 CFR 146.85") that the owner or operator is no longer
required to maintain financial assurance for the GS activity(ies).
(10) The UIC Program Director can agree to termination of the trust when the UIC Program
Director releases the owner or operator from the recommendations in this Section in accordance
with Section J. "Release of the owner or operator from the requirements of 40 CFR 146.85."
B. Surety bond guaranteeing payment into a trust fund
1. Required specifications
(1) Under 40 CFR 146.85(a)(6)(ii), the owner or operator must provide proof that the surety
either:
(i) has passed financial strength requirements based on credit ratings, or
(ii) has met a minimum rating, minimum capitalization, and ability to pass the bond
rating when applicable.
(2) Under 40 CFR 146.85(a)(6)(iii), the owner or operator must establish a standby trust to
enable EPA to be party to the financial responsibility agreement without EPA being the
beneficiary of any funds.
UIC Program Class VI Financial Responsibility Guidance 27
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(3) As specified at 40 CFR 146.85(a)(2), the penal sum of the bond must be an amount at least
equal to the current cost estimate, except as provided in Section H. "Use of multiple financial
instruments."
2. Recommended specifications
(4) The owner or operator should submit the surety bond to the UIC Program Director with the
application for a permit. EPA recommends that the bond be effective before the initial injection
of carbon dioxide. The issuing surety company should be among those listed as acceptable
sureties on federal bonds in Circular 570 of the U.S. Department of the Treasury.
(5) EPA recommends that the wording of the surety bond conform to the wording provided in
Appendix B.
(6) EPA recommends that under the terms of the bond, all payments should be deposited by the
surety directly into the standby trust fund in accordance with instructions from the UIC Program
Director to fulfill corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response obligations. This standby trust fund could meet
the requirements specified in Section A: "Trust Fund", except that:
(i) An originally signed duplicate of the standby trust agreement should be submitted to the
UIC Program Director 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:
(A) Payments into the trust fund as specified in Section A. "Trust Fund";
(B) Updating of Schedule A of the trust agreement to show current cost estimates;
(C) Annual valuations as required by the trust agreement; and
(D) Notices of nonpayment as required by the trust agreement.
(7) EPA recommends that the bond guarantee that the owner or operator will fund the standby
trust fund in an amount equal to the penal sum within 15 days after an order to begin is issued by
the UIC Program Director or a U.S. district court or other court of competent jurisdiction.
(8) EPA recommends that under the terms of the bond, the surety becomes liable on the bond
obligation when the owner or operator fails to perform as guaranteed by the bond.
(9) EPA recommends that under the terms of the bond, the surety can cancel the bond by sending
notice of cancellation by certified mail to the owner or operator and to the UIC Program
Director. EPA requires that cancellation not become final for 120 days beginning on the date of
the receipt of the notice of cancellation by both owner or operator and the UIC Program Director
as evidenced by the returned receipts.
UIC Program Class VI Financial Responsibility Guidance 28
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C. Surety bond guaranteeing performance of injection well plugging and abandonment
1. Required specifications
(1) Under 40 CFR 146.85(a)(6)(ii), the owner or operator must provide proof that the surety
either:
(i) has passed financial strength requirements based on credit ratings, or
(ii) has met a minimum rating, minimum capitalization, and ability to pass the bond
rating when applicable.
(2) Under 40 CFR 146.85(a)(6)(iii), the owner or operator must establish a standby trust to
enable EPA to be party to the financial responsibility agreement without EPA being the
beneficiary of any funds.
(3) As specified at 40 CFR 146.85(a)(2), the penal sum of the bond must be in an amount at least
equal to the current cost estimate, except as provided in Section H. "Use of multiple financial
instruments."
2. Recommended specifications
(4) The owner or operator should submit the bond to the UIC Program Director. Under 40 CFR
146.85(a), an owner or operator of a new facility must submit the bond to the UIC Program
Director with the permit application and the bond should be effective before injection of carbon
dioxide is started. The surety company issuing the bond should be among those listed as
acceptable sureties on federal bonds in Circular 570 of the U.S. Department of the Treasury.
(5) EPA recommends that the wording of the surety bond conform to the wording specified in
Appendix B of this guidance.
(6) EPA recommends that under the terms of the bond, all payments will be deposited by the
surety directly into the standby trust fund in accordance with instructions from the UIC Program
Director to fulfill corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response obligations. The standby trust should meet the
requirements specified in Section A: "Trust Fund," except that:
(i) An original signed duplicate of the standby trust agreement should be submitted to the
UIC Program Director 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:
(A) Payments into the trust fund as specified in Section A. "Trust Fund";
(B) Updating of Schedule A of the trust agreement to show current cost estimates;
(C) Annual valuations as required by the trust agreement; and
(D) Notices of nonpayment as required by the trust agreement.
(7) EPA recommends that the bond guarantees that the owner or operator will perform in
accordance with the plan and other requirements of the permit for the injection well whenever
required to do so.
UIC Program Class VI Financial Responsibility Guidance 29
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(8) EPA recommends that 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. Upon
notification by the UIC Program Director that the owner or operator has failed to perform as
guaranteed by the bond, the surety will either:
(i) perform corrective action, injection well plugging, post injection site care and site closure,
and/or emergency and remedial response as guaranteed by the bond, or
(ii) place funds in the amount guaranteed into the standby trust funds for the fulfillment of
corrective action, injection well plugging, post injection site care and site closure, and/or
emergency and remedial response obligations.
In circumstances where the UIC Program Director is a state or a tribe, the UIC Program Director
can be party to the bond and receive funds from the surety without a standby trust, if authorized
by applicable law.
(9) The UIC Program Director can release the owner or operator from the recommendations in
this Section in accordance with Section J. "Release of the owner or operator from the
requirements of 40 CFR 146.85."
(10) The surety will not be liable for deficiencies in the performance of the owner or operator
after the UIC Program Director releases the owner or operator from the recommendations in this
Section in accordance with Section J. "Release of the owner or operator from the requirements of
40 CFR 146.85."
D. Letter of credit
1. Required specifications
(1) Under 40 CFR 146.85(a)(6)(ii), the owner or operator must provide proof that the issuing
institution either:
(i) has passed financial strength requirements based on credit ratings, or
(ii) has met a minimum rating, minimum capitalization, and ability to pass the bond
rating when applicable.
(2) Under 40 CFR 146.85(a)(6)(iii), the owner or operator must establish a standby trust to
enable EPA to be party to the financial responsibility agreement without EPA being the
beneficiary of any funds.
(3) As specified at 40 CFR 146.85(a)(2), the letter of credit must be issued in an amount at least
equal to the current cost estimate, except as provided in Section H. "Use of multiple financial
instruments."
2. Recommended specifications
(4) The owner or operator should submit the letter of credit to the UIC Program Director. EPA
recommends that an owner or operator of an injection well submit the letter of credit to the UIC
Program Director during submission of the permit application. The letter of credit must be
UIC Program Class VI Financial Responsibility Guidance 30
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effective before initial injection of carbon dioxide. The issuing institution should 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.
(5) EPA recommends that the wording of the letter of credit conform to the wording specified in
Appendix B of this guidance.
(6) EPA recommends that under the terms of the letter of credit, all amounts paid pursuant to a
draft by the UIC Program Director should be deposited by the issuing institution directly into the
standby trust fund in accordance with instructions from the UIC Program Director to fulfill
corrective action, injection well plugging, post injection site care and site closure, and/or
emergency and remedial response obligations. This standby trust fund should meet the
requirements of the trust fund specified in Section A. "Trust Fund," except that:
(i) An originally signed duplicate of the trust agreement should be submitted to the UIC
Program Director with the letter of credit; and
(ii) Until the standby trust fund is funded pursuant to the requirements of this Section, the
following are not required:
(A) Payments into the trust fund as specified in Section A. "Trust Fund";
(B) Updating of Schedule A of the trust agreement to show current cost estimates;
(C) Annual valuations as required by the trust agreement; and
(D) Notices of nonpayment as required by the trust agreement.
(7) EPA recommends that the letter of credit be accompanied by a letter from the owner or
operator referring to the letter of credit by number, issuing institution, and date, and provides the
following information: the EPA Identification Number, name and address of the facility, and the
amount of funds assured for the well by the letter of credit.
(8) EPA recommends that the letter of credit be irrevocable and issued for a period of at least 1
year. The letter of credit could provide that the expiration date will automatically be extended for
a period of at least one year unless, at least 120 days before the current expiration date, the
issuing institution notifies both the owner or operator and the UIC Program Director 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 UIC Program Director
have received the notice, as evidenced by the return receipts.
(9) EPA recommends that upon notification by the UIC Program Director that the owner or
operator has failed to perform as guaranteed by the letter of credit, the issuing institution will
place funds up to the guaranteed amount into the standby trust funds for the fulfillment of
corrective action, injection well plugging, post injection site care and site closure, and/or
emergency and remedial response obligations. In circumstances where the UIC Program Director
is a state or a tribe, the UIC Program Director can draw on the letter of credit, if authorized by
applicable law.
(10) EPA recommends that 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 UIC Program Director within 60 days after receipt by both the owner or operator and
UIC Program Class VI Financial Responsibility Guidance 31
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the UIC Program Director of a notice from the issuing institution that it has decided not to extend
the letter of credit beyond the current expiration date, the UIC Program Director should draw on
the letter of credit. The UIC Program Director might 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
UIC Program Director can instruct that the letter of credit fund the standby trust 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 UIC Program Director.
(11) EPA recommends that the UIC Program Director return the letter of credit to the issuing
institution for termination when the UIC Program Director releases the owner or operator from
the recommendations in this Section in accordance with Section J. "Release of the owner or
operator from the requirements of 40 CFR 146.85."
E. Insurance
1. Required specifications
(1) Under 40 CFR 146.85(a)(6)(ii) the owner or operator must provide proof that the insurer
either:
(i) has passed financial strength requirements based on credit ratings, or
(ii) has met a minimum rating, minimum capitalization, and ability to pass the bond
rating when applicable.
(2) Under 40 CFR 146.85(a)(6)(vii) the owner or operator must demonstrate that the insurer
issuing the policy is a third party.
(3) As specified at 40 CFR 146.85(a)(2), the insurance policy must be issued for a face amount at
least equal to the current estimate, except as provided in Section H. "Use of multiple financial
instruments." The term "face amount" means the total amount the insurer is obligated to pay
under the policy. Actual payments by the insurer will not change the face amount, although the
insurer's future liability will be lowered by the amount of the payments.
2. Recommended specifications
(4) The owner or operator should submit a certificate of such insurance to the UIC Program
Director. EPA recommends that an owner or operator of a new injection well submit the
certificate of insurance to the UIC Program Director with the permit application for approval to
operate under the permit. The insurance should be effective before injection starts. At a
minimum, the insurer should 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.
(5) EPA recommends the wording of the certificate of insurance conform to the wording
specified in Appendix B.
(6) EPA recommends that the insurance policy guarantee that funds will be available whenever
final covered GS activities occur. The policy should also guarantee that once covered GS
UIC Program Class VI Financial Responsibility Guidance 32
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activities begin, the issuer will be responsible for paying out funds, up to an amount equal to the
face amount of the policy, upon the notification of the UIC Program Director that the obligations
have not been fulfilled, to such party or parties as the UIC Program Director specifies.
(7) EPA recommends that after beginning covered GS activities, an owner or operator or any
other person authorized to perform required GS activities can request reimbursement for
expenditures by submitting itemized bills to the UIC Program Director. Within 60 days after
receiving bills for activities, the UIC Program Director should determine whether the
expenditures are in accordance with the plan or otherwise justified, and, if so, the UIC Program
Director should instruct the insurer to make reimbursement in such amounts as the UIC Program
Director specifies in writing. If the UIC Program Director determines that the cost of covered GS
activities will be significantly greater than the face amount of the policy, the UIC Program
Director can withhold reimbursement of such amounts as the UIC Program Director deems
prudent until the UIC Program Director determines, in accordance with Section J. "Release of
the owner or operator from the requirements of 40 CFR 146.85," that the owner or operator is no
longer required to maintain financial assurance for the injection well.
(8) EPA recommends that the owner or operator maintain the policy in full force and effect until
the UIC Program Director consents to termination of the policy by the owner or operator as
specified in paragraph (E)(12) of this Section. Upon payment of the premium the owner or
operator should submit a confirmation of payment to the UIC Program Director on an agreed
upon schedule. Failure to pay the premium, without substitution of acceptable alternate financial
assurance as specified in this Section, will warrant such remedy as the UIC Program Director
deems necessary. Such violation will be deemed to begin upon receipt by the UIC Program
Director of a notice of future cancellation, termination, or failure to renew due to nonpayment of
the premium, rather than upon the date of expiration.
(9) EPA recommends that each policy contain provisions allowing assignment to a successor
owner or operator. Such assignment can be conditional upon consent of the insurer, provided
such consent is not unreasonably refused. Alternatively, if the third party insurance provider does
not allow the assignment of policies to a successor owner or operator, the policy may be
cancelled, in which case the successor should substitute it with a new insurance policy. The
original owner or operator is responsible until the new owner or operator has demonstrated
financial responsibility.
(10) EPA recommends, if there is a failure to pay the premium, that the insurer can elect to
cancel, terminate, or fail to renew the policy by sending notice by certified mail to the owner or
operator and the UIC Program Director.
(11) EPA recommends that the UIC Program Director give written consent to the owner or
operator that the UIC Program Director can terminate the insurance policy when the UIC
Program Director releases the owner or operator from the recommendations in this Section in
accordance with Section J. "Release of the owner or operator from the requirements of 40 CFR
146.85."
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F. Escrow account
1. Required specifications
(1) Under 40 CFR 146.85(a)(6)(iv), the owner or operator must ensure that the escrow account
segregates funds from other accounts and uses. Funds must be sufficient to cover estimated costs
for GS financial responsibility activities.
(2) Under 40 CFR 146.85(f), the UIC Program Director must approve the use and length of pay-
in-periods for trust funds or escrow accounts.
2. Recommended specifications
(3) The owner or operator should submit an originally signed duplicate of the escrow agreement
to the UIC Program Director. EPA recommends that an owner or operator of a Class VI well
submit the originally signed duplicate of the escrow agreement to the UIC Program Director with
the permit application. The escrow agent should be an entity which has the authority to act as an
escrow agent and whose trust operations are regulated and examined by a federal or state agency.
(4) EPA recommends that the wording of the escrow agreement conform to the wording
specified in Appendix B, and that the escrow agreement be accompanied by a formal
certification of acknowledgment. The required escrow amount must be updated within 60 days
after a change in the amount of the current cost estimate covered by the agreement.
(5) EPA recommends that payments into the escrow account be made over a three-year period or
over a period determined by the UIC Program Director; this period is hereafter referred to as the
"pay-in period." The payments into the escrow account should be made as follows:
(i) For a new well, the first payment is expected to be made before the initial injection of
carbon dioxide. A receipt from the escrow agent for this payment should be submitted by the
owner or operator to the UIC Program Director before this initial injection of carbon dioxide.
The first payment should be at least equal to the current cost estimate, divided by the number
of years in the pay-in period. Subsequent payments should be made no later than 30 days
after each anniversary date of the first payment. The amount of each subsequent payment
should be determined by this formula:
CE-CV
NextPayment =
where CE is the current cost estimate, CV is the current value of the escrow account, and Y is
the number of years remaining in the pay-in period.
(ii) If an owner or operator establishes an escrow account and the value of that escrow
account is less than the current cost estimate when a permit is awarded for the injection well,
the amount of the current cost estimate still to be paid into the escrow account should be paid
in over the pay-in period as defined in paragraph (F)(3) of this Section. Payments should
continue to be made no later than 30 days after each anniversary date of the first payment
made pursuant to this chapter. The amount of each payment should be determined by this
formula:
UIC Program Class VI Financial Responsibility Guidance 34
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Ar n CE-CV
NextPayment =
where CE is the current cost estimate, CV is the current value of the escrow account, and Y is
the number of years remaining in the pay-in period.
(6) EPA recommends that the owner or operator be authorized to accelerate payments into the
escrow account or the owner or operator can deposit the full amount of the current cost estimate
at the time the fund is established. However, the owner or operator should 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 (F)(3) of this Section.
(7) EPA recommends that if the owner or operator establishes an escrow account after having
used one or more alternate instruments specified in this chapter, the owner or operator's first
payment should be at least equal to the amount that the fund would contain if the escrow account
were established initially and annual payments made according to specifications of this
paragraph.
(8) EPA recommends that if an owner or operator substitutes other financial assurance as
specified in this Section for all or part of the escrow account, the owner or operator can submit a
written request to the UIC Program Director for release of the amount in excess of the current
cost estimate covered by the escrow account.
(9) After beginning required GS activities, the owner or operator or any other person authorized
to perform the activity can request reimbursement for expenditures by submitting itemized bills
to the UIC Program Director. EPA recommends that within 60 days after receiving bills for
activities, the UIC Program Director determine whether the expenditures are in accordance with
the plan or otherwise justified, and if so, the UIC Program Director should instruct the escrow
agent to make reimbursement in such amounts as the UIC Program Director specifies in writing.
If the UIC Program Director determines that the cost of covered GS activities will be
significantly greater than the value of the escrow account, the UIC Program Director can
withhold reimbursement of such amounts as the UIC Program Director deems prudent until the
UIC Program Director determines, in accordance with Section J. "Release of the owner or
operator from the requirements of 40 CFR 146.85," that the owner or operator is no longer
required to maintain financial assurance for the GS activity(ies).
(10) EPA recommends that the UIC Program Director agree to the termination of the escrow
account when the UIC Program Director releases the owner or operator from the
recommendations in this Section in accordance with Section J. "Release of the owner or operator
from the requirements of 40 CFR 146.85."
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G. Financial test and corporate guarantee
1. Required specifications
(1) As specified at 40 CFR 146.85(a)(6)(v), an owner or operator can demonstrate financial
responsibility by passing the financial test as specified in this paragraph. To qualify for this test
the owner or operator must have:
(i) Tangible net worth for an amount approved by the UIC Program Director; and
(ii) Net working capital and tangible net worth each at least six times the sum of the current
cost estimate for all financial responsibility activities; and
(iii) 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 cost estimate.
To pass a financial test, the owner or operator could meet the criteria of either paragraph
(G)(l)(iv) or (G)(l)(v) of this Section. The UIC Program Director also has the authority to
require the owner or operator to pass the criteria of both paragraphs. The UIC Program Director
may choose this requirement if the criteria from one paragraph do not provide a satisfactory
demonstration or if states with primacy set this as an additional requirement.
(iv) The owner or operator must have the following five 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; a ratio of current assets to current liabilities
greater than 1.5; a ratio of current assets net current liabilities to total assets greater than
-0.10; and net profit greater than 0.
(v) The owner or operator must have a current rating for its most recent bond issuance of
AAA, AA, A or BBB as issued by Standard & Poor's or Aaa, Aa, A, or Baa as issued by
Moody's.
(2) The owner or operator must submit a report of its bond rating and financial information
annually.
(3) As specified at 40 CFR 146.85(a)(6)(vi), when an owner or operator cannot meet financial
test criteria, the owner or operator may arrange a corporate guarantee by demonstrating that its
corporate parent meets the financial test requirements on its behalf. The parent must also
guarantee to fulfill the obligations for the owner or operator.
2. Recommended specifications
(4) EPA recommends that the owner or operator have tangible net worth of at least $100
million.11
(5) EPA recommends that the owner or operator submit the following items to the UIC Program
Director in order to demonstrate compliance with the financial test:
11 The UIC program's decision to recommend a $100 million TNW threshold is intended to assure that the risk of
instrument failure when self insurance is used is no greater than the riskiest scenario when third-party instruments
are used.
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(i) A letter signed by the CFO of the owner or operator and worded as specified in Appendix
B; and
(ii) A copy of the independent certified public accountant's report on examination 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 public accountant to
the owner or operator stating that:
(A) The certified public accountant has compared the data upon which the letter from the
chief financial officer specifies as having been derived from the independently audited,
year-end financial statements for the latest fiscal year, with the amounts in such financial
statements; and
(B) The certified public accountant followed Generally Accepted Accounting Principles
(GAAP).
(6) EPA recommends that an owner or operator of a new injection well submit the items
specified in paragraph (G)(5) of this Section to the UIC Program Director within 90 days after
the close of each preceding fiscal year. This information should consist of all three items
specified in paragraph (G)(4) of this Section.
(7) EPA recommends that after the initial submission of items specified in paragraph (G)(5) of
this Section, if there are significant changes in the owner or operator's financial condition,
updated information should be sent to the UIC Program Director within 90 days after it becomes
available. This information should consist of all three items specified in paragraph (G)(5) of this
Section.
(8) EPA recommends that if the owner or operator cannot meet the financial test, the owner or
operator should send notice to the UIC Program Director of intent to establish alternate financial
assurance as specified in this Section. Similar to the cancellation of third-party instruments, the
notice should be sent by certified mail within 10 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 requirements, or
within 10 days after becoming aware of no longer meeting the requirements. The owner or
operator should provide the alternate financial assurance within 60 days after the end of such
fiscal year, or 60 days after becoming aware of no longer meeting requirements.
(9) The UIC Program Director can, based on a reasonable belief that the owner or operator may
no longer meet the financial test, require reports of financial condition at any time from the
owner or operator in addition to those specified in paragraph (G)(5) of this Section. EPA
recommends that if the UIC Program Director finds, on the basis of such reports or other
information, that the owner or operator no longer meets the financial test, the owner or operator
should provide alternate financial assurance as specified in this Section within 30 days after
notification of such a finding.
(10) The UIC Program Director can disallow use of this test based on the findings of the
independent certified public accountant in his report on examination of the owner's or operator's
financial statements [see paragraph (G)(5)(ii) of this Section]. An adverse opinion or disclaimer
of opinion will be cause for disallowance. EPA recommends that the UIC Program Director
evaluate other qualifications on an individual basis. The owner or operator should provide
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alternate financial assurance as specified in this Section within 30 days after notification of the
disallowance.
(11) Generally, EPA requires that for an owner or operator utilizing a corporate guarantee, the
guarantor must meet the requirements for owners or operators in paragraphs (G)(l) through
(G)(3), and should meet the recommendations at (G)(4) through (G)(10) of this Section and
should comply with the terms of the corporate guarantee. The wording of the corporate guarantee
should be identical to the wording specified in Appendix B. The corporate guarantee and all
other items specified in paragraph (G)(5) of this Section should be submitted to the UIC Program
Director every year. EPA recommends that the terms of the corporate guarantee provide that:
(i) If the owner or operator fails to perform required GS activities covered by the corporate
guarantee in accordance with the plan and other permit requirements, the guarantor will
perform required GS activities or establish a trust fund as specified in Section A: "Trust
Fund" in the name of the owner or operator.
(ii) The corporate guarantee will remain in force unless the guarantor sends notice of
cancellation by certified mail to the owner or operator and the UIC Program Director, as
evidenced by the return receipts. Cancellation should 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 UIC Program Director, 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 UIC Program
Director within 90 days after receipt by both the owner or operator and the UIC Program
Director of a notice of cancellation of the corporate guarantee from the guarantor, the
guarantor will provide such alternative financial assurance in the name of the owner or
operator.
H. Use of multiple financial instruments
EPA recommends that, at the UIC Program Director's approval, an owner or operator can satisfy
the recommendations in this Section by establishing more than one financial instrument per
injection well. As described at 40 CFR 146.85(a)(6)(i), in the event that the owner or operator
combines more than one instrument for a specific GS phase (e.g., injection well plugging), such
combination must be limited to instruments that are not based on financial strength or
performance (i.e., self insurance or performance bond). Therefore, qualifying instruments
specified in the Preamble of the Rule are trust funds, surety bonds guaranteeing payment into a
trust fund, letters of credit, insurance, and escrow accounts. EPA recommends that the
instruments be as specified in Sections (A), (B), (D), (E) and (F), of this Section, except that it is
the combination of instruments, rather than the single instrument, which should provide financial
assurance for an amount at least equal to the adjusted cost. Because they guarantee performance
instead of payment, self insurance and performance surety bonds cannot be combined with other
instruments for the purposes of the financial responsibility demonstration. If an owner or
operator uses a trust fund in combination with a surety bond or letter of credit, the UIC Program
Director might use that trust fund as the standby trust fund for the other instruments. However, in
this case, the trust would have to specify that money can be passed through to complete the
activity covered by the surety bond or letter of credit. A single standby trust can be established
for two or more instruments. The UIC Program Director can invoke any or all of the instruments
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to provide for the completion of required GS activities. In this case, it is the combination of
instruments, rather than the single instrument, which must provide financial responsibility for an
amount at least equal to the current cost estimate.
An owner or operator can also satisfy the recommendations in this Section by establishing more
than one financial instrument per injection well by specifying the GS activity(ies) covered by the
instrument.
/. Use of a financial instrument for multiple facilities
Generally, an owner or operator can use a specified financial responsibility instrument for more
than one injection well. EPA recommends that evidence of financial responsibility submitted to
the UIC Program Director include a list showing, for each injection well, the EPA Identification
Number, name, address, and the amount of funds assured by the instrument. If the injection wells
covered by the instrument are in more than one state or EPA Region, EPA recommends that
identical evidence of financial responsibility be submitted to and maintained with the UIC
Program Directors of all such states or Regions. The amount of funds available through the
instrument should be no less than the sum of funds that would be available if a separate
instrument had been established and maintained for each injection well. In directing funds
available through the instrument for any of the injection wells covered by the instrument, the
UIC Program Director should direct only the amount of funds designated for that injection well,
and if the designated funds are insufficient, the UIC Program Director can request that the owner
or operator increase the amount of financial assurance.
J. Release of the owner or operator from the requirements of 40 CFR 146.85
As specified under 40 CFR 146.85(b)(l), the owner or operator must maintain financial
responsibility until the UIC Program Director approves the completed Post-Injection Site Care
and Site Closure Plan and approves site closure. The owner or operator must submit
certifications to the UIC Program Director that all GS activities have been completed in
accordance with the Post-Injection Site Care and Site Closure Plan. The owner or operator may
request to be released from a financial instrument after the UIC Program Director approves a
replacement instrument or after completion of the specific phase of the GS project for which the
instrument was required. The UIC Program Director may release the owner or operator from a
financial instrument for a completed phase of the GS project only after the owner or operator
fulfills all its financial obligations as determined by the UIC Program Director. The UIC
Program Director must determine whether the GS activities have been completed in accordance
with applicable regulations. This determination may be supported by a professional engineer's
report. Upon making this determination and within 60 days after receiving the necessary
certifications, EPA recommends that the UIC Program Director notify the owner or operator that
the instrument is no longer required for the completed phase of the GS project or for the closed
injection well.
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6. Submission Requirements
This chapter describes methods of submission that owners and operators can use at the time of
the initial financial responsibility demonstration, when the owner or operator, under 40 CFR
146.85, must submit (1) a cost estimate and (2) documented proof of an independent third-party
instrument or of self insurance.
A. Cost estimate
To demonstrate financial responsibility according to 40 CFR 146.85, the owner or operator must
submit a detailed written estimate, at the time of permit application and in current dollars, of the
cost of performing corrective action on wells in the area of review, plugging the injection
well(s), post-injection site care and site closure, and emergency and remedial response. The cost
estimate determines the submission requirements for the financial responsibility instrument(s).
The cost estimate represents the total approved likely liability for GS activities. The cost estimate
for required GS activities is based on the actual costs of contracting an independent third party to
conduct the activities and all related costs. Instructions on how to determine total injection well
plugging liability are in Appendix C "Methodology for Estimating Costs for Financial
Responsibility Determinations for Class VI Wells."12
The Rule requires (at 40 CFR 146.85(a)(2)) that the qualifying financial responsibility
instrument(s) be sufficient to cover the cost of:
• Corrective action (that meets the requirements of 40 CFR 146.84);
• Injection well plugging (that meets the requirements of 40 CFR 146.92);
• Post-injection site care and site closure (that meets the requirements of 40 CFR 146.93);
and
• Emergency and remedial response (that meets the requirements of 40 CFR 146.94).
The Rule also requires (at 40 CFR 146.85(a)(3)) that the financial responsibility instrument(s) be
sufficient to address endangerment of USDWs; thus, the cost estimate must include costs
associated with remediation activities.
Specifically, at 40 CFR 146.85(c)(l) the Rule requires that the cost estimate must be based on
the cost of hiring an independent third party who is neither a parent nor a subsidiary of the owner
or operator to perform the required activities. The UIC Program Director may evaluate whether
the cost estimation should come from an independent third party or from the owner or operator.
12 Sources used in the development of the cost estimation methodology include government reports, peer-reviewed
literature, industry reports, and the best professional judgment of EPA and expert reviewers.
UIC Program Class VI Financial Responsibility Guidance 40
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B. Documented proof of an independent third-party instrument or self insurance
The Rule requires, at 40 CFR 146.85(a)(l), that the owner or operator demonstrate and maintain
financial responsibility. The qualifying instruments for this demonstration include, but are not
limited to, those introduced in Chapter 3 "Introduction to Qualifying Financial Responsibility
Instruments."
The Rule requires, at 40 CFR 146.85(a)(4), that the qualifying financial responsibility
instrument(s) comprise protective conditions of coverage. See Chapter 5 "Conditions of
Coverage and Specifications for Financial Responsibility Demonstrations" for additional details
on conditions of coverage for financial responsibility instruments.
Under 40 CFR 146.85(a), the choice of instrument(s) must be submitted to the UIC Program
Director for review. This submission can be made electronically using the forms in Appendix B
"Recommended Financial Responsibility Instrument Language for Class VI Wells
(Forms/Templates)." Original hard copies of finalized agreements must be delivered to the UIC
Program Director with the permit application.
1. Submissions using independent third-party instrument
For submissions using trust funds, standby trusts, surety bonds, letters of credit, insurance,
escrow accounts or other third-party instruments satisfactory to the UIC Program Director, EPA
recommends that a signed original copy of the agreement be delivered to the UIC Program
Director. For insurance, EPA recommends that, in addition to the certificate of insurance, the
insurance policy be submitted to the UIC Program Director.
Under 40 CFR 146.85(a)(6)(ii), EPA requires that the owner or operator submit proof of the third
party's financial strength. EPA recommends that the owner or operator submit the third party's
credit rating or, if the Director determines that the credit rating alone does not sufficiently meet
the financial strength requirement, submit the third party's credit rating plus its most recent bond
rating and calculated financial ratios. EPA recommends that owners or operators demonstrate
that third party providers have a credit rating in the top four categories from either Standard &
Poor's or Moody's (i.e., AAA, AA, A, or BBB for Standard & Poor's and Aaa, Aa, A, or Baa for
Moody's) or from any Nationally Recognized Statistical Rating Organization (NRSRO) as long
as the owner or operator can demonstrate the equivalency of this rating with the recommended
ratings. If required by the UIC Program Director, EPA recommends that the third party meet the
minimum capitalization criteria for all ratios presented in Table 3 (see Chapter 3 "Introduction to
Qualifying Financial Responsibility Instruments") and a bond rating in the top four categories
from either Standard & Poor's or Moody's (i.e., AAA, AA, A, or BBB for Standard & Poor's
and Aaa, Aa, A, or Baa for Moody's) or an equivalent rating from another NRSRO.
2. Submissions using self insurance
EPA recommends that, for submissions using self insurance, the owner or operator's CFO send
the UIC Program Director a letter that shows the owner or operator, or the company offering the
corporate guarantee, passes the financial test.
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EPA recommends that the owner or operator should ensure that the information in the CFO's
letter is accurate. This can be done by providing a full auditor's opinion from an independent
certified public accounting firm that attests to the accuracy of the financial data used in the letter.
Additional information that might be submitted includes:
• A copy of the 10-K report, which is submitted annually to the SEC, and
• A Federal Energy Regulatory Commission (FERC) Form 2 report.
SEC 10-K reports and FERC Form 2 reports are based on full-scale audits. Consequently, EPA
considers them equivalent to an auditor's opinion. EPA recommends that submitted statements
should be equivalent to these example statements.
Although there are many types of auditors' analyses of financial data, the UIC Program Director
will accept only an auditor's full opinion as confirmation of the accuracy of financial information
showing that a company passes this test and specifying any qualifications that the UIC Program
Director can use to determine the adequacy of the audit.
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7. UIC Program Director's Review
This chapter describes factors that EPA recommends as considerations for the UIC Program
Director when determining the completeness and adequacy of an owner's or operator's financial
responsibility demonstration.
The UIC Program Director has the authority under 40 CFR 146.85 to approve the use of
financial responsibility instruments that address the costs and risks (e.g., endangerment of
USDWs) associated with the GS activities. The UIC Program Director also has the authority to
reject financial instruments determined to be insufficient if they are:
• Not a qualifying instrument;
• Not sufficient to cover the required costs (e.g. properly plugging and monitoring wells);
• Not sufficient to address endangerment of USDWs; and
• Not sufficiently meeting the required conditions of coverage that facilitate enforceability
and prevent gaps in coverage through site closure.
This chapter also describes the minimum federal requirements for Class VI wells and focuses on
stages in the process where the UIC Program Director needs to make a decision or grant an
approval or where UIC Program Director's evaluation is authorized.
A. Determining the completeness and accuracy of the demonstration
The UIC Program Director is charged with assessing
and confirming the completeness and accuracy of the
owner's or operator's financial responsibility
demonstration. For details on what constitutes a
complete demonstration, see Chapter 6 "Submission
Requirements." Since financial conditions for
independent third party firms and GS owners or
operators are highly variable, it is important that the
UIC Program Director determine the completeness and
accuracy of the demonstration annually, as required by
the Rule at 40 CFR 146.85(a)(5)(i). When determining
whether the demonstration is complete and accurate, it
is recommended that the UIC Program Director
evaluate the financial instrument agreement; the
language of the agreement should conform to the example forms provided in Appendix B of this
guidance. If the UIC Program Director identifies differences between the examples provided, the
Rule at 40 CFR 146.85, and the owner's or operator's submission, it is recommended that the
UIC Program Director ensure that the owner or operator sufficiently explain the reasons for those
differences.
UIC Program Class VI Financial Responsibility Guidance 43
Note on Insurance Policies
When an owner or operator uses
insurance to demonstrate financial
responsibility, the UIC Program
Director should review the entire
insurance policy, not just the
Certificate of Insurance (included in
Appendix B). The policy should
contain a general statement that it
conforms in all respects with the
requirements for financial
responsibility specified at 40 CFR
146.85.
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B. Financial stability of the independent third party
The UIC Program Director's review must include an evaluation of the financial and operational
stability of the independent third party provider to minimize the risk on instrument failure. As
specified at 40 CFR 146.85(a)(6)(ii), when using a third party to demonstrate financial
responsibility, the owner or operator must provide proof that the third party provider either (1)
has passed financial strength requirements based on credit ratings, or (2) has met a minimum
rating, capitalization, and bond ratings when applicable.
In all cases, third party providers must meet the credit rating requirement at 40 CFR
146.85(a)(6)(ii). In many cases, this will be sufficient evidence of third party financial strength
for the UIC Program Director. However, if the UIC Program Director has concerns about the
third party provider or its credit rating, the UIC Program Director may request additional
information to satisfy the requirements of part (2) of 40 CFR 146.85(a)(6)(ii). EPA interprets the
minimum rating in part (2) to mean the minimum credit rating.
In the review of third party financial strength EPA recommends that the UIC Program Director
use the following financial metrics:
• Credit rating evaluation. EPA recommends that owners or operators demonstrate that
third party providers have a credit rating in the top four categories from either Standard &
Poor's or Moody's (i.e., AAA, AA, A, or BBB for Standard & Poor's and Aaa, Aa, A, or
Baa for Moody's), consistent with the bond requirement for self insurance. However,
EPA acknowledges that greater flexibility can be used for third party credit ratings.
Therefore, the owner or operator may alternately submit a comparable rating from any
NRSRO as long as the owner or operator can demonstrate the equivalency of this rating
with the recommended ratings to the UIC Program Director's request. Credit ratings for
financial service providers are reviewed regularly by a credit rating agency and are
typically available to the public. The UIC Program Director should be aware that the
rationale for the rating might not be readily or publicly available.
• Minimum capitalization evaluation. EPA recommends that the owner or operator solicit
calculations of the Debt-Equity, Assets-Liabilities, Cash Return on Liabilities, Liquidity,
and Net Profit financial ratios presented in Table 3 (see Chapter 3 "Introduction to
Qualifying Financial Responsibility Instruments") from the third party and submit the
calculated thresholds to the UIC Program Director for review. The calculated thresholds
should exceed the thresholds presented in Table 3 to demonstrate minimum
capitalization.
UIC Program Class VI Financial Responsibility Guidance 44
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• Bond rating evaluation. EPA recommends that when bond ratings are available,13 owners
or operators demonstrate that third party providers have a bond rating in the top four
categories from either Standard & Poor's or Moody's, consistent with the requirement for
self insurance, or an equivalent rating from another NRSRO as proven by the owner or
operator.
The UIC Program Director may also consider financial evaluations conducted by a state or
federal regulator. For example, the U.S. Department of the Treasury's Department Circular No.
570 can be useful for evaluating the strength of surety bond providers. The Treasury Department
reviews the sureties and publishes the list of approved companies annually. Alternatively, an
independent third party's standing can be inferred by the number (and frequency) of enforcement
actions taken by a financial regulator.
C. Additional considerations for understanding/approving the demonstration
The purpose of the UIC Program Director's review of the financial responsibility demonstration
is to evaluate and determine the suitability of the specific financial responsibility instrument.
Some additional considerations for understanding and approving demonstrations include:
• Review and oversight time and risk. The review of financial responsibility demonstration
will take time, regardless of which instrument is used by the owner or operator. The UIC
Program Director might want to consider the long-term regulatory risk and oversight role
the selected instrument(s) imply, as shown in Table 5. If available, the owner or operator
can submit any independent third party evaluations of risk to the UIC Program Director,
especially if insurance is used.
Table 5: Regulatory risk and oversight and enforcement needed
Financial Instrument
Trust Fund
Letter of Credit
Surety Bond
Insurance
Financial Test and Corporate Guarantee
Escrow Account
Relative Financial Risk
to the Government*
Low
Low
Medium Low
Medium
High
Low
Oversight and Enforcement
Effort Needed*
Medium Low
Low
Medium Low
Medium
High
Medium Low
* Except for information on escrow accounts, relative rankings are based on U.S. Government Accountability Office. 2005.
Environmental Liabilities (http://www.aao.aov/new.items/d05658.pdf) and EPA Office of Inspector General. 2005. Continued EPA
Leadership Will Support State Needs for Information and Guidance of RCRA Financial Assurance
(http://www.epa.aov/oia/reports/2005/20050926-2005-P-00026.pdf).
13 EPA recognizes that third party providers may not issue bonds. However, when they are available they are
preferred to the third party's credit rating. EPA understands that a credit rating represents a rating agency's opinion
as to the relative creditworthiness of a company. The rating predicts the probability that a company will make
promised payments on its obligations, based on a credit analysis that takes into account various objective (e.g., the
company's historical default rate) and subjective (e.g., quality of management) factors. A company's "long term
rating" represents a rating agency's opinion of the company's general ability to repay its senior unsecured debt
obligations. When a company issues a more senior (e.g., senior secured) or junior (e.g., subordinated) class of bonds,
the "bond rating" on this particular class of bonds would be the result of notching up or down, as applicable, from its
long term (e.g., senior unsecured) rating and therefore provide a more up to date view of the third party's credit.
UIC Program Class VI Financial Responsibility Guidance 45
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Pay-in period risk. Under 40 CFR 146.85 the UIC Program Director must approve the
use and length of pay-in periods. Generally, it is recommended that the pay-in period for
a trust fund or escrow account be economically feasible for the owner or operator while
maintaining the lowest possible risk. Keeping this in mind, the UIC Program Director
should encourage the shortest pay-in period possible, noting that the owner or operator
may be able to obtain third party financing to reduce the financial burden of a shorter
pay-in period. In some cases, the UIC Program Director will find that a pay-in period is
not appropriate and require that the trust fund or escrow account be fully funded up front.
When determining the length of the pay-in period, the UIC Program Director may
consider, among other things, the risk that the owner or operator may incur financial
difficulty prior to fully funding the trust. Factors that the UIC Program Director may
consider include the owner or operator's recent financial stability, profitability, and non-
geologic sequestration business operations that can impact geologic sequestration
activities.
Risk from self insurance. Self insurance poses the highest risk to the public, and it is
recommended that the UIC Program Director thoroughly examine proposals that use a
financial test or corporate guarantee for self insurance. If an owner or operator selects self
insurance, EPA recommends that the UIC Program Director's review evaluate whether
the higher risk of instrument failure inherent with self insurance is in the public interest.
After an extensive review of the financial standing of an owner or operator, the UIC
Program Director might wish to consider other factors, including the owner's or
operator's history of fulfilling financial responsibility activities to determine whether self
insurance is appropriate as a financial responsibility instrument. The UIC Program
Director's evaluation of the level of acceptable financial risk can require a high level of
financial expertise. The UIC Program Director might choose to evaluate the stability of
the owner or operator and accept demonstrations only when the risk to the public of
owner or operator failure is sufficiently low. EPA recommends that the UIC Program
Director not accept self insurance as a financial responsibility instrument for post-
injection site care and closure because it generally cannot ensure that resources will be
available over the long term. There is a greater risk of instrument failure for self
insurance in the post-injection site care period because the injection well is no longer in
operation and profitable (i.e., the site represents an ongoing liability). While the
requirement for annual reviews of financial responsibility demonstrations mitigates some
risk of instrument failure, substituting a new instrument for a failed self insurance
demonstration during this period may be difficult or impossible.
Notification of adverse financial conditions. Under 40 CFR 146.85(d), the UIC Program
Director must ensure that the timeframe for notification of adverse financial conditions
(e.g., bankruptcy or the suspension or revocation of a trustee) specified in the financial
instrument meets the Class VI Rule requirements. Specifically, the Rule requires that the
owner or operator:
o In the event of bankruptcy, notify the UIC Program Director within 10 days after
commencement of the proceeding (40 CFR 146.85(d)(l)).
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o In cases where a guarantor of a corporate guarantee is named as debtor, make the
notification under the terms of the corporate guarantee (40 CFR 146.85(d)(2)).
o Establish other financial assurance or liability coverage within 60 days after such
an event (40 CFR 146.85(d)(3)).
Upon being notified of any adverse financial conditions or change in bond rating, EPA
expects the UIC Program Director to initiate discussions with the owner or operator to
resolve the problem or other type of discourse (e.g., by conducting another financial
demonstration).
D. Requesting additional information from the owner or operator
The Rule states, at 40 CFR 146.82(a), that the UIC Program Director shall consider, among other
things, the financial responsibility demonstration and any other information requested by the
UIC Program Director before issuing a Class VI permit.
Instances in which the UIC Program Director might request additional information from the
owner or operator include, but are not limited to, the following:
• When, during the annual evaluation of the qualifying financial responsibility instrument,
the UIC Program Director determines that the original demonstration is no longer
adequate to cover the cost of corrective action, injection well plugging, post-injection site
care and site closure, or emergency and remedial response,
• Clarification or proof is needed to ensure that the cost estimate reflects third party costs,
• The owner or operator declares bankruptcy,
• A revised cost estimate is greater than the face amount of a financial instrument currently
in use, or
• A revised cost estimate decreases the expected costs, and the owner or operator wishes to
withdraw funds or decrease the coverage in its policy.
EPA recommends that additional information be requested when the UIC Program Director
determines that an owner or operator has not provided sufficient information in its financial
responsibility demonstration to meet the requirements of the Rule (40 CFR 146.85(a)(5)).
E. UIC Program Director's evaluation and approval
All aspects of the financial responsibility demonstration required under 40 CFR 146.85 are
subject to the UIC Program Director's evaluation and approval. The Rule states, at 40 CFR
146.82(a), that the UIC Program Director shall consider, among other things, the financial
responsibility demonstration and any other information requested by the UIC Program Director
before issuing a Class VI permit. Additionally, it states that the financial responsibility
UIC Program Class VI Financial Responsibility Guidance 47
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demonstration must be satisfactory to the UIC Program Director. The UIC Program Director can
find that the financial responsibility demonstration is unsatisfactory for any reason, as long as
that reason is not arbitrary or capricious. EPA expects the UIC Program Director to exercise this
authority in particular to negotiate a satisfactory financial responsibility demonstration or to deny
a demonstration with regard to the pay-in periods or the financial tests.
F. Evaluating the demonstration's success
The UIC Program Director's goal in reviewing a financial responsibility demonstration is to
ensure adequacy of the instrument on protecting USDWs by minimizing the potential risk of
instrument failure and the potential costs to the public. A successful financial responsibility
demonstration will likely establish instruments that are aimed to protect USDWs and that
guarantee the owner or operator will pay if coverage is needed for financial responsibility
activities and ensure that no costs for GS projects will be passed on to the public.
G. Importance of stakeholder involvement
The Class VI Rule adopts the existing public participation requirements under the SOW A, at 40
CFR Part 25, and existing permitting procedures under the UIC Program, at 40 CFR Part 124.
These requirements discuss: 1) providing public notice to interested parties of pending actions
via newspaper advertisements, radio, mailings, or e-mails; 2) holding public hearings, soliciting
and responding to public comment; and 3) involving a broad range of stakeholders. The Rule
also requires, at 40 CFR 124.10(c)(l)(xi), that the UIC Program Director provide public notice of
Class VI permitting activities to state and local oil and gas regulatory agencies, state agencies
regulating mineral exploration and recovery, the UIC Program Director of the Public Water
System Supervision (PWSS) program in the state, and all other agencies that may have
jurisdiction over injection activities within the state.
While regulations only require the UIC Program Director to complete these activities after
issuing a draft permit, EPA recommends that the UIC Program Director begin stakeholder
outreach as early in the permitting process as possible, preferably beginning it shortly after
receiving the permit application. By beginning outreach before a draft permit has been issued,
both the UIC Program Director and the owner or operator have more flexibility to adapt and
change the prospective permit based on stakeholder concerns. Earlier stakeholder outreach,
including information about the proposed financial responsibility demonstration, gives
community members more time to work with their state and local governments and address
concerns that fall outside the scope of EPA permit decisions. Earlier stakeholder outreach has
been shown to better address stakeholder concerns, mitigate controversial issues, and avoid
litigation and project delays. Additionally, states with primacy may require earlier outreach and
may establish additional requirements for protecting public interest.14
14 Deep Injection Wells: EPA Needs to Involve Communities Earlier and Ensure That Financial Assurance
Requirements Are Adequate. United States General Accounting Office (GAO) report. June 2003.
http://www.gao.gov/new.items/d03761 .pdf
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8. Ongoing Responsibilities
This chapter describes the ongoing submission and review requirements under the Rule at 40
CFR 146.85 that GS owners or operators and UIC Program Directors are required to follow.
Subsequent to the initial financial responsibility demonstration, the UIC Program Director can
request the owner or operator to (1) submit revisions to the cost estimate, and (2) document the
use of an independent third-party instrument or self insurance. The financial instrument(s) used
to fulfill a financial demonstration might require adjustments based on any updates to the cost
estimate, including regular updates resulting from inflation. EPA recommends using indices or
inflation factors related to GS activities rather than those related to consumer goods or other
unrelated industries.
Under 40 CFR 146.85(b), the owner or operator must submit information to be released from
financial responsibility requirements. Only the UIC Program Director can release or retire the
owner or operator from their financial responsibility obligations. For third-party instruments, if
the owner or operator fails to complete the required activities and the UIC Program Director
subsequently calls on the instrument to cover the environmental liability, the instrument will be
retired after the activity has been completed. In the case of owner or operator failure when self
insurance has been used, the UIC Program Director does not have the option to draw upon a
third-party instrument, resulting in instrument failure.
A. Owner or operator responsibilities
As specified at 40 CFR 146.85(c), following the initial demonstration, owners or operators are
required to revisit their original cost estimate and revise their financial responsibility
demonstration to reflect the most up-to-date information for their financial instrument(s) or self
insurance demonstration. Under 40 CFR 146.85(c), cost estimates must be updated:
• On an annual basis for inflation, within 60 days of the anniversary of the financial
instrument's establishment, and
• Following any amendments to the Area of Review and Corrective Action Plan, the
Injection Well Plugging Plan, the Post-Injection Site Care and Site Closure Plan, or the
Emergency and Remedial Response Plan.
Under 40 CFR 146.85(c) the UIC Program Director must approve the revised cost estimate
subsequent to each revision. If the cost estimate decreases in value, the UIC Program Director
must approve any decreases in the value of the financial responsibility instrument(s). If the cost
estimate increases in value, the owner or operator must appropriately increase the face value of
the instrument(s).
Pursuant to 40 CFR 146.85(b), the owner or operator must maintain financial responsibility and
resources until the UIC Program Director receives and approves the completed Post-Injection
Site Care and Site Closure Plan, and approves site closure. To be released from a financial
instrument, the owner or operator must have completed all required GS activities for the specific
UIC Program Class VI Financial Responsibility Guidance 49
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phase or the entire life of the GS project and must have fulfilled all its financial obligations as
determined by the UIC Program Director. Otherwise, the owner or operator is required to submit
a replacement financial instrument and receive written approval from the UIC Program Director
that accepts the new financial instrument and releases the owner or operator from the previous
financial instrument. The Rule requires that owners or operators obtain financial instruments
with agreements that do not allow the financial institution to cancel, terminate or fail to renew
the instrument—unless the owner or operator fails to pay for the financial instrument.
The Rule also requires, at 40 CFR 146.85(d), that the owner or operator notify the UIC Program
Director in the event of financial distress that would prevent it from fulfilling its financial
responsibility activities and no later than 10 days after filing for bankruptcy. This requirement
helps mitigate instrument failure in the event of operator bankruptcy or well abandonment and
helps avoid a gap in coverage. This timeframe is consistent with the current U.S. Bankruptcy
Code. Additionally, EPA requires that the owner or operator provide notification to the UIC
Program Director of the cancellation or change of a qualifying instrument.
Table 6 provides a general timeline for owner or operator actions. EPA recommends that the
owner or operator contact their permitting Director for further information or clarification.
Table 6: Timeline for owner or operator actions
Event
10 Days
30 Days
60 Days
70 Days
90 Days
120 Days
Cancellation of
Instrument
Owner or operator must provide
alternative instrument within 60 days.
If alternate demonstration is not
acceptable or possible, Director must
draw on funds from the instrument
being cancelled within 60 days.
Change in Cost
Estimate:
Annual Review
Amendments to AoR
and Corrective Action
Plan, Injection Well
Plugging Plan, Post-
Injection Site Care and
Closure Plan, and
Emergency and
Remedial Response
Plan
Owner or operator must annually
provide an adjustment for inflation to
the UIC Program Director with in 60
days prior to the anniversary date of
the establishment of the instrument.
The owner or operator must provide
an adjustment within 60 days of any
amendments to the AoR and
Corrective Action Plan, Injection Well
Plugging Plan, Post-Injection Site
Care and Closure Plan, and
Emergency and Remedial Response
Plan.
If the current cost estimate increases
to an amount greater than the face
amount of the financial instrument in
use, the owner or operator must
submit evidence, within 60 days,
that:
The face amount of the
instrument was increased to at
least equal to the current cost
estimate, or
Another instrument was obtained
to cover the cost of the increase.
Bankruptcy of Owner or
Operator
Owner or operator must notify the UIC Program
Director within 10 days of a voluntary or
involuntary proceeding (for the owner or operator
or third party provider) under Title 11 (Bankruptcy),
U.S. Code.
If the third party provider files for bankruptcy, the
owner or operator must establish other financial
assurance or liability coverage within 60 days.
UIC Program Class VI Financial Responsibility Guidance
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B. UIC Program Director responsibilities
The UIC Program Director's goal is to ensure adequacy of the instrument on protecting USDWs
and to reduce or eliminate risks to the public that financial responsibility activities will not be
completed and to reduce or eliminate the burden associated with recovering expenses from
owners, operators or independent third party institutions in order to complete these financial
responsibility activities.
Pursuant to 40 CFR 146.85, the UIC Program Director must perform the initial review of a GS
project's financial responsibility demonstration and additional reviews on an ongoing basis.
Under 40 CFR 146.85(a)(5), the UIC Program Director must review the annual updates to each
project's financial responsibility demonstration, as well as the updated cost estimates; any delay
in receiving these updates to the instruments and cost estimates should serve as a warning to the
UIC Program Director of potential financial distress. Under 40 CFR 146.85(c)(3), the UIC
Program Director must approve any increase or decrease in the cost estimate, any withdrawal of
financial responsibility funds, and any decrease in the face value of financial responsibility
instruments. Pursuant to 40 CFR 146.85(c)(4), the UIC Program Director must ensure that any
withdrawal of funds or decrease in the face value of the instrument does not reduce the
instrument's face value to an amount less than the current cost estimate.
During the annual reevaluations, it is recommended that the UIC Program Director carefully
review each agreement that the owner or operator enters into with an independent third party
financial assurance provider. For instance, the UIC Program Director can decide to look for the
contractual conditions that need to be met in order for funds to be paid to complete financial
responsibility activities. The UIC Program Director also might decide to look for any exclusions
or coverage limitations in the instrument contract that could decrease the costs for the
independent third party financial institution and the owner or operator, but that would be
insufficient to meet environmental assurance needs. When reviewing the instrument contract text
regarding cancellation of the instrument, EPA recommends that the UIC Program Director
confirm that cancellation is prohibited unless the owner or operator fails to meet conditions that
the UIC Program Director finds acceptable.
The UIC Program Director can also look for clauses that specify the timeframe required for
payout on covered events. From the UIC Program Director's perspective, it is important to know
if the owner or operator will be allowed to submit claims after the policy is cancelled for events
that occurred while the policy was in force. Some contracts might even allow the coverage to
continue for a period of time after cancellation. Table 7 summarizes the Class VI Rule's
submission requirements, at 40 CFR 145.86, for GS owners or operators and the review
requirements for UIC Program Directors.
C. Independent third party responsibilities
The Rule requires, at 40 CFR 146.85(d)(3), that if an independent third party provider declares
bankruptcy or is no longer able to act as a trustee, the owner or operator must establish other
means of financial assurance or liability coverage within 60 days.
UIC Program Class VI Financial Responsibility Guidance 51
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The Rule also states that independent third party providers cannot cancel coverage unless the
owner or operator fails to meet certain conditions. Under 40 CFR 146.85(a)(4)(i), if an owner or
operator has failed to pay for the instrument, the financial institution can cancel or terminate the
policy and must send notice via certified mail to both the UIC Program Director and the owner
or operator.
UIC Program Class VI Financial Responsibility Guidance 52
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Table 7: Submission requirements at 40 CFR 146.85 for owners or operators and review
requirements for UIC Program Directors
Timeframe/Condition
Annually (a)(5)(ii)
Annually (c)
60 days prior to anniversary of
establishment of financial instrument
(c)(2)
Within 60 days of any amendments to
required project plans15 (c)(2)
During the active life of the project, and
60 days after Director has approved a
request to modify required project plans
(c)(3)
Within 60 days after the current cost
estimate increases to an amount greater
than the face amount of a financial
instrument currently in use (c)(4)
Whenever the current cost estimate
decreases (c)(4)
In the event of adverse financial
conditions such as bankruptcy; In the
event of bankruptcy, within 10 days of
commencement of Title 11 (Bankruptcy),
U.S. Code(d)
Within 60 days of Director notification
that original demonstration is no longer
adequate for required project phases16
(e)
Owner or Operator
Submission Requirements
Submit updated financial
responsibility demonstration
Submit an updated detailed written
estimate of the cost of performing
corrective action on wells in the
AoR, plugging the injection well(s),
post injection site care and site
closure, and emergency and
remedial response
Adjust cost estimate for inflation
Submit written updates of
adjustments to cost estimate
If change in plans increases cost,
revise cost estimate; revised cost
estimate must be adjusted for
inflation as specified at 40 CFR
146.85(c)(1)
If change in plans decreases the
cost, revise cost estimate; revised
cost estimate must be adjusted for
inflation as specified at 40 CFR
146.85(c)(1)
Increase face amount of coverage
up to an amount at least equal to
the current cost estimate and
submit evidence of such increase to
the UIC Program Director, or obtain
other financial responsibility
instruments to cover the increase
Reduce face amount of financial
assurance instrument to amount of
the current cost estimate, which
depends upon receiving written
approval from the UIC Program
Director
Notify Director by certified mail that
adverse financial conditions may
affect ability to carry out injection
well plugging and post injection site
care and site closure
The owner or operator must provide
adjustment of the cost estimate to
the UIC Program Director
Director Review Requirements
Evaluate the financial responsibility
demonstration to confirm that the
instrument(s) used remain adequate
Review submission to approve any
decrease or increase to initial cost
estimate
Any withdrawal of funds must be
approved by the UIC Program
Director
Approve any decrease in value of
the financial assurance instrument
Review updates to the cost estimate
and accompanying evidence
Provide written approval before face
amount of instrument may be
reduced in response to decreasing
estimated costs
Review submission to approve
update to the initial cost estimate
15 Required plans include area of review, plugging the injection well(s), post-injection site care and site closure, and
emergency and remedial response plans.
16 Financial responsibility demonstration is required for the following project phases: corrective action (as required
by 40 CFR 146.84), injection well plugging (as required by 40 CFR 146.92) and post-injection site care and site
closure (as required by 40 CFR 146.93), and, emergency and remedial response (as required by 40 CFR 146.94)
UIC Program Class VI Financial Responsibility Guidance
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List of Appendices
Appendix A: Regulatory Language for Financial Responsibility for Class VI Wells
Appendix B: Recommended Financial Responsibility Instrument Language for Class VI Wells
(F orm s/Templ ates)
Appendix C: Methodology for Estimating Costs for Financial Responsibility Determinations for
Class VI Wells
Appendix D: Injection Well Plugging and Abandonment Checklist for Financial Responsibility
Cost Determination
UIC Program Class VI Financial Responsibility Guidance 54
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Appendix A: Regulatory Language for Financial Responsibility for Class VI Wells
40 CFR 146.85 Financial responsibility.
(a) The owner or operator must demonstrate and maintain financial responsibility as determined
by the Director that meets the following conditions:
(1) The financial responsibility instrument(s) used must be from the following list of
qualifying instruments:
(i) Trust Funds
(ii) Surety Bonds
(iii) Letter of Credit
(iv) Insurance
(v) Self Insurance (i.e., Financial Test and Corporate Guarantee)
(vi) Escrow Account
(vii) Any other instrument(s) satisfactory to the Director
(2) The qualifying instrument(s) must be sufficient to cover the cost of:
(i) Corrective action (that meets the requirements of §146.84);
(ii) Injection well plugging (that meets the requirements of §146.92);
(iii) Post injection site care and site closure (that meets the requirements of
§146.93); and
(iv) Emergency and remedial response (that meets the requirements of §146.94).
(3) The financial responsibility instrument(s) must be sufficient to address endangerment
of underground sources of drinking water.
(4) The qualifying financial responsibility instrument(s) must comprise protective
conditions of coverage.
(i) Protective conditions of coverage must include at a minimum cancellation,
renewal, and continuation provisions, specifications on when the provider
becomes liable following a notice of cancellation if there is a failure to renew with
a new qualifying financial instrument, and requirements for the provider to meet a
minimum rating, minimum capitalization, and ability to pass the bond rating when
applicable.
(A) Cancellation - for purposes of this part, an owner or operator must provide
that their financial mechanism may not cancel, terminate or fail to renew except
for failure to pay such financial instrument. If there is a failure to pay the financial
instrument, the financial institution may elect to cancel, terminate, or fail to renew
the instrument by sending notice by certified mail to the owner or operator and the
Director. The cancellation must not be final for 120 days after receipt of
cancellation notice. The owner or operator must provide an alternate financial
responsibility demonstration within 60 days of notice of cancellation, and if an
alternate financial responsibility demonstration is not acceptable (or possible), any
funds from the instrument being cancelled must be released within 60 days of
notification by the Director.
(B) Renewal - for purposes of this part, owners or operators must renew all
financial instruments, if an instrument expires, for the entire term of the geologic
sequestration project. The instrument may be automatically renewed as long as
the owner or operator has the option of renewal at the face amount of the expiring
instrument. The automatic renewal of the instrument must, at a minimum, provide
UIC Program Class VI Financial Responsibility Guidance A-l
Appendix A: 40 CFR 146.85
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the holder with the option of renewal at the face amount of the expiring financial
instrument.
(C) Cancellation, termination, or failure to renew may not occur and the financial
instrument will remain in full force and effect in the event that on or before the
date of expiration: the Director deems the facility abandoned; or the permit is
terminated or revoked or a new permit is denied; or closure is ordered by the
Director or a U.S. district court or other court of competent jurisdiction; or the
owner or operator is named as debtor in a voluntary or involuntary proceeding
under Title 11 (Bankruptcy), U.S. Code; or the amount due is paid.
(5) The qualifying financial responsibility instrument(s) must be approved by the
Director.
(i) The Director shall consider and approve the financial responsibility
demonstration for all the phases of the geologic sequestration project prior to issue a
Class VI permit (§146.82).
(ii) The owner or operator must provide any updated information related to their
financial responsibility instrument(s) on an annual basis and if there are any changes, the
Director must evaluate, within a reasonable time, the financial responsibility
demonstration to confirm that the instrument(s) used remain adequate for use. The owner
or operator must maintain financial responsibility requirements regardless of the status of
the Director's review of the financial responsibility demonstration.
(iii) The Director may disapprove the use of a financial instrument if he
determines that it is not sufficient to meet the requirements of this section.
(6) The owner or operator may demonstrate financial responsibility by using one or
multiple qualifying financial instruments for specific phases of the geologic sequestration
project.
(i) In the event that the owner or operator combines more than one instrument for
a specific geologic sequestration phase (e.g., well plugging), such combination must be
limited to instruments that are not based on financial strength or performance (i.e., self
insurance or performance bond), for example trust funds, surety bonds guaranteeing
payment into a trust fund, letters of credit, escrow account, and insurance. In this case, it
is the combination of mechanisms, rather than the single mechanism, which must provide
financial responsibility for an amount at least equal to the current cost estimate.
(ii) When using a third-party instrument to demonstrate financial responsibility,
the owner or operator must provide a proof that the third party providers either have
passed financial strength requirements based on credit ratings; or has met a minimum
rating, minimum capitalization, and ability to pass the bond rating when applicable.
(iii) An owner or operator using certain types of third party instruments must
establish a standby trust to enable EPA to be party to the financial responsibility
agreement without EPA being the beneficiary of any funds. The standby trust fund must
be used along with other financial responsibility instruments (e.g., surety bonds, letters of
credit, or escrow accounts) to provide a location to place funds if needed.
(iv) An owner or operator may deposit money to an escrow account to cover
financial responsibility requirements; this account must segregate funds sufficient to
cover estimated costs for Class VI (geologic sequestration) financial responsibility from
other accounts and uses.
UIC Program Class VI Financial Responsibility Guidance A-2
Appendix A: 40 CFR 146.85
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(v) An owner or operator or its guarantor may use self insurance to demonstrate
financial responsibility for geologic sequestration projects. In order to satisfy this
requirement the owner or operator must meet a Tangible Net Worth of an amount
approved by the Director, have a Net working capital and tangible net worth each at least
six times the sum of the current well plugging, post injection site care and site closure
cost, have 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 well plugging, post injection site care
and site closure cost, and must submit a report of its bond rating and financial
information annually. In addition the owner or operator must either: have a bond rating
test of AAA, AA, A, or BBB as issued by Standard & Poor's or Aaa, Aa, A, or Baa as
issued by Moody's; or meet all of the following five financial ratio thresholds: a ratio of
total liabilities to net worth less than 2.0; a ratio of current assets to current liabilities
greater than 1.5; a ratio of the sum of net income plus depreciation, depletion, and
amortization to total liabilities greater than 0.1; a ratio of current assets minus current
liabilities to total assets greater than -0.1; and a net profit (revenues minus expenses)
greater than 0.
(vi) An owner or operator who is not able to meet corporate financial test criteria
may arrange a corporate guarantee by demonstrating that its corporate parent meets the
financial test requirements on its behalf. The parent's demonstration that it meets the
financial test requirement is insufficient if it has not also guaranteed to fulfill the
obligations for the owner or operator.
(vii) An owner or operator may obtain an insurance policy to cover the estimated
costs of geologic sequestration activities requiring financial responsibility. This insurance
policy must be obtained from a third party provider.
(b) The requirement to maintain adequate financial responsibility and resources is directly
enforceable regardless of whether the requirement is a condition of the permit.
(1) The owner or operator must maintain financial responsibility and resources until:
(i) The Director receives and approves the completed post-injection site care and
site closure plan; and
(ii) The Director approves site closure.
(2) The owner or operator may be released from a financial instrument in the following
circumstances:
(i) The owner or operator has completed the phase of the geologic sequestration
project for which the financial instrument was required and has fulfilled all its financial
obligations as determined by the Director, including obtaining financial responsibility for
the next phase of the GS project, if required; or
(ii) The owner or operator has submitted a replacement financial instrument and
received written approval from the Director accepting the new financial instrument and
releasing the owner or operator from the previous financial instrument.
(c) The owner or operator must have a detailed written estimate, in current dollars, of the cost of
performing corrective action on wells in the area of review, plugging the injection well(s), post-
injection site care and site closure, and emergency and remedial response.
(1) The cost estimate must be performed for each phase separately and must be based on
the costs to the regulatory agency of hiring a third party to perform the required activities.
A third party is a party who is not within the corporate structure of the owner or operator.
UIC Program Class VI Financial Responsibility Guidance A-3
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(2) During the active life of the geologic sequestration project, the owner or operator
must adjust the cost estimate for inflation within 60 days prior to the anniversary date of
the establishment of the financial instrument(s) used to comply with paragraph (a) of this
section and provide this adjustment to the Director. The owner or operator must also
provide to the Director written updates of adjustments to the cost estimate within 60 days
of any amendments to the area of review and corrective action plan (§146.84), the
injection well plugging plan (§146.92), the post-injection site care and site closure plan
(§146.93), and the emergency and remedial response plan (§146.94).
(3) The Director must approve any decrease or increase to the initial cost estimate.
During the active life of the geologic sequestration project, the owner or operator must
revise the cost estimate no later than 60 days after the Director has approved the request
to modify the area of review and corrective action plan (§146.84), the injection well
plugging plan (§146.92), the post-injection site care and site closure plan (§146.93), and
the emergency and response plan (§146.94), if the change in the plan increases the cost. If
the change to the plans decreases the cost, any withdrawal of funds must be approved by
the Director. Any decrease to the value of the financial assurance instrument must first be
approved by the Director. The revised cost estimate must be adjusted for inflation as
specified at paragraph (c)(2) of this section.
(4) Whenever the current cost estimate increases to an amount greater than the face
amount of a financial instrument currently in use, 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 cost estimate and submit evidence of such increase to the Director, or
obtain other financial responsibility instruments to cover the increase. Whenever the
current cost estimate decreases, the face amount of the financial assurance instrument
may be reduced to the amount of the current cost estimate only after the owner or
operator has received written approval from the Director.
(d) The owner or operator must notify the Director by certified mail of adverse financial
conditions such as bankruptcy that may affect the ability to carry out injection well plugging and
post-injection site care and site closure.
(1) In the event that the owner or operator or the third party provider of a financial
responsibility instrument is going through a bankruptcy, the owner or operator must
notify the Director by certified mail of the commencement of a voluntary or involuntary
proceeding under Title 11 (Bankruptcy), U.S. Code, naming the owner or operator as
debtor, within 10 days after commencement of the proceeding.
(2) A guarantor of a corporate guarantee must make such a notification to the Director if
he/she is named as debtor, as required under the terms of the corporate guarantee.
(3) An owner or operator who fulfills the requirements of paragraph (a) of this section by
obtaining a trust fund, surety bond, letter of credit, escrow account, or insurance policy
will be deemed to be without the required financial assurance in the event of bankruptcy
of the trustee or issuing institution, or a suspension or revocation of the authority of the
trustee institution to act as trustee of the institution issuing the trust fund, surety bond,
letter of credit, escrow account, or insurance policy. The owner or operator must establish
other financial assurance within 60 days after such an event.
(e) The owner or operator must provide an adjustment of the cost estimate to the Director within
60 days of notification by the Director, if the Director determines during the annual evaluation of
the qualifying financial responsibility instrument(s) that the most recent demonstration is no
UIC Program Class VI Financial Responsibility Guidance A-4
Appendix A: 40 CFR 146.85
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longer adequate to cover the cost of corrective action (as required by §146.84), injection well
plugging (as required by §146.92), post-injection site care and site closure (as required by
§146.93), and emergency and remedial response (as required by §146.94).
(f) The Director must approve the use and length of pay-in-periods for trust funds or escrow
accounts.
UIC Program Class VI Financial Responsibility Guidance A-5
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UIC Program Class VI Financial Responsibility Guidance A-6
Appendix A: 40 CFR 146.85
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Appendix B: Recommended Financial Responsibility Instrument Language for Class VI Wells
(Forms/Templates)
DISCLAIMER
EPA does not have express authority in the Safe Drinking Water Act to accept and use funds for financial
assurance due to the requirement under the Miscellaneous Receipts Act to deposit funds EPA receives
for the use of the Government into the U.S. Treasury. Consequently, trust agreements, surety bonds,
letters of credit, insurance policies and other financial responsibility instruments cannot name EPA as a
recipient of funds or beneficiary. Therefore, EPA recommends that the standby trust agreements be
written such that EPA, as the DIG Program Director, has authority to notify the trustee of the need for
payments from the fund to cover the costs of GS project activities covered under the agreement.
Financial responsibility instruments may name a state, or tribal government as a recipient of funds or
beneficiary if authorized by applicable law. The following forms and templates include recommended
language. The DIG Program Director, owner or operator, and appropriate financial institution may work
together to determine the most suitable language.
Under 40 CFR 146.85, EPA has established requirements for financial responsibility for
Geologic Sequestration (GS). Historically, instruments utilized to demonstrate financial
responsibility for Underground Injection Control (UIC) program injection wells include
irrevocable trust fund, surety bond, performance bond, letter of credit, insurance, financial test,
and corporate guarantee. The template language for these instruments is adapted from language
from 40 CFR 144.70 (Class I hazardous waste well requirements). Because there is no
instrument language precedent for escrow accounts under the Underground Injection Control
(UIC) program, the following financial responsibility instrument language for escrow accounts
was based on existing environmental liability escrow account agreements used by states.
Contents:
I. Trust Agreement or Standby Trust
II. Financial Guarantee Surety Bond
III. Performance Surety Bond
IV. Irrevocable Standby Letter of Credit
V. Certificate of Insurance
VI. Letter from CFO
VII. Corporate Guarantee
VIII. Escrow Account
UIC Program Class VI Financial Responsibility Guidance B-l
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/. Trust Agreement
A trust agreement for a trust fund, as specified in this chapter, may be worded as follows,
except that instructions in brackets are to be replaced with the relevant information and the
brackets deleted. EPA recommends that a standby trust agreement contain similar language
except that an originally signed duplicate of the trust agreement should be submitted to the UIC
Program Director with the surety bond or letter of credit, and the fund should be fully funded
upon the disbursement of the surety bond or letter of credit.
Trust Agreement
TRUST AGREEMENT, the "Agreement," entered into as of [date] by and between [name of
the owner or operator], a [name of state] [insert "corporation," "partnership," "association,"
or "proprietorship"], the "Grantor," and [name of corporate trustee], [insert "incorporated in
the State of " or "a national bank"], the "Trustee."
Whereas, the United States Environmental Protection Agency, "EPA," an agency of the
United States Government, or the state of [name of state] has established certain regulations
applicable to the Grantor, requiring that an owner or operator of an injection well shall
provide assurance that funds will be available when needed for [corrective action, injection
well plugging, post injection site care and site closure, and/or emergency and remedial
response] of the injection well,
Whereas, the Grantor has elected to establish a trust to provide all or part of such financial
assurance for the facility(ies) 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.
(C) Facility or activity means any "underground injection well" or any other facility or
activity that is subject to regulation under the Underground Injection Control Program.
(D) Beneficiary (if any) means an entity other than EPA that has authority to direct the
Trustee to make payments of Trust proceeds to contractors or other entities for corrective
UIC Program Class VI Financial Responsibility Guidance B-2
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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action, injection well plugging, post injection site care and site closure, and/or emergency
and remedial response work.
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 [corrective action,
injection well plugging, post injection site care and site closure, and/or emergency and
remedial response] cost estimate, or portions thereof, for which financial assurance is
demonstrated by this Agreement].
Example Schedule A
Facility
EPA Identification
Number, name,
address
Cost Estimate
Corrective
action
Injection well
plugging
Post injection
site care and
site closure
Emergency and
remedial
response
Section 3. Establishment of Fund. The Grantor and the Trustee hereby establish a trust fund,
the "Fund," for the benefit of the state of [name of state]. The Grantor and the Trustee
acknowledge that the purpose of the Fund is to fulfill the Grantor's [corrective action,
injection well plugging, post injection site care and site closure, and/or emergency and
remedial response] obligations described at 40 CFR 146.84, 146.92, 146.93, and/or 146.94,
respectively. All expenditures from the Fund shall be to fulfill the legal obligations of the
Grantor under such regulations, and not any obligation of EPA. The Grantor and the Trustee
intend that no independent 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
responsibilities of the Grantor established by EPA regulations or the state of [name of state].
Example Schedule B
Facility
EPA Identification
Number, name,
address
Funding Value for Activities
UIC Program Class VI Financial Responsibility Guidance
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Section 4. Payment for [corrective action, injection well plugging, post injection site care and
site closure, and/or emergency and remedial response"!. The Trustee shall make payments
from the Fund as the UIC Program Director shall direct, in writing, to provide for the
payment of the costs of [corrective action, injection well plugging, post injection site care
and site closure, and/or emergency and remedial response] of the injection wells covered by
this Agreement. The Trustee shall use the Fund to reimburse the Grantor or other persons
selected by the [Trustee, Grantor or Beneficiary] to perform work when the UIC Program
Director advises in writing that the work will be or was necessary for the fulfillment of the
Grantor's [corrective action, injection well plugging, post injection site care and site closure,
and/or emergency and remedial response] obligations described at 40 CFR 146.84, 146.92,
146.93, and/or 146.94, respectively. The UIC Program Director may advise the Trustee that
amounts in the Fund are no longer necessary to fulfill the Grantor's obligations under 40
CFR 146.85 and that the Trustee may refund the remaining funds to the Grantor. Upon
refund, such funds shall no longer constitute part of the Fund as defined herein.
Section 5. Payments Comprising the Fund. Payments made to the Trustee for the Fund shall
consist of cash or securities acceptable to the Trustee.
Section 6. Trustee Management. The Trustee shall invest and reinvest the principal and
income of the Fund and keep the Fund invested as a single fund, without distinction between
principal and income, in accordance with general investment policies and guidelines which
the Grantor may communicate in writing to the Trustee from time to time, subject, however,
to the provisions of this Section. In investing, reinvesting, exchanging, selling, and managing
the Fund, the Trustee shall discharge his duties with respect to the trust fund solely in the
interest of the beneficiary and with the care, skill, prudence, and diligence under the
circumstances then prevailing which persons of prudence, acting in a like capacity and
familiar with such matters, would use in the conduct of an enterprise of a like character and
with like aims; except that:
(A) 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;
(B) 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
(C) The Trustee is authorized to hold cash awaiting investment or distribution un-invested
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:
UIC Program Class VI Financial Responsibility Guidance B-4
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(A) To transfer from time to time any or all of the assets of the Fund to any common,
commingled, or collective trust fund created by the Trustee in which the Fund is eligible to
participate, subject to all of the provisions thereof, to be commingled with the assets of
other trusts participating therein; and
(B) To purchase shares in any investment company, except as specified in writing by the
owner or operator, registered under the Investment Company Act of 1940, 15 U.S.C. 80a-l
et seq., including one which may be created, managed, underwritten, or to which
investment advice is rendered or the shares of which are sold by the Trustee. The Trustee
may vote shares in its discretion.
Section 8. Express Powers of Trustee. Without in any way limiting the powers and
discretions conferred upon the Trustee by the other provisions of this Agreement or by law,
the Trustee is expressly authorized and empowered:
(A) To sell, exchange, convey, transfer, or otherwise dispose of any property held by it, by
public or private sale. No person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity or expediency of any such
sale or other disposition;
(B) To make, execute, acknowledge, and deliver any and all documents of transfer and
conveyance and any and all other instruments that may be necessary or appropriate to carry
out the powers herein granted;
(C) To register any securities held in the Fund in its own name or in the name of a nominee
and to hold any security in bearer form or in book entry, or to combine certificates
representing such securities with certificates of the same issue held by the Trustee in other
fiduciary capacities, or to deposit or arrange for the deposit of such securities in a qualified
central depository even though, when so deposited, such securities may be merged and held
in bulk in the name of the nominee of such depositary with other securities deposited
therein by another person, or to deposit or arrange for the deposit of any securities issued
by the United States Government, or any agency or instrumentality thereof, with a Federal
Reserve bank, but the books and records of the Trustee shall at all times show that all such
securities are part of the Fund;
(D) To deposit any cash in the Fund in interest-bearing accounts maintained or savings
certificates issued by the Trustee, in its separate corporate capacity, or in any other banking
institution affiliated with the Trustee, to the extent insured by an agency of the federal or
state government; and
(E) To compromise or otherwise adjust all claims in favor of or against the Fund.
Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against
or in respect of the Fund and all brokerage commissions incurred by the Fund shall be paid
from the Fund. All other expenses incurred by the Trustee in connection with the
administration of this Trust, including fees for legal services rendered to the Trustee, the
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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
Director 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 UIC Program
Director 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 of 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 UIC Program
Director, 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 UIC
Program Director to the Trustee shall be in writing, signed by the UIC Program Director, and
the Trustee may rely on these instructions with to the extent permissible by law. 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 or the state of [name of state] hereunder has occurred. The Trustee shall have
UIC Program Class VI Financial Responsibility Guidance B-6
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no duty to act in the absence of such orders, requests, and instructions from the Grantor
and/or EPA or the state of [name of state], except as provided for herein.
Section 15. Notice of Nonpayment. The Trustee shall notify the Grantor and the appropriate
Director, 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, with the concurrence of the UIC Program
Director, or by the Trustee and the appropriate Director if the Grantor ceases to exist.
Provided, however, that EPA may not be named as a beneficiary of the Trust, receive funds
from the Trust, or direct that Trust funds be paid to a particular entity selected by EPA.
Section 17. Cancelation, 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, with the
concurrence of the UIC Program Director, or by the Trustee and the UIC Program Director 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 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. EPA
does not indemnify either the Grantor or the Trustee due to the restrictions imposed by the
Anti-Deficiency Act, 31 U.S.C. 1341. Rather, any claims against EPA are subject to the
Federal Tort Claims Act, 28 U.S.C. 2671, 2680.
Section 19. Choice of Law. This Agreement shall be administered, construed, and enforced
according to the laws of the State of [name of state] with regard to claims by the Grantor,
Trustee or Beneficiary (if any). Claims involving EPA are subject to federal law.
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.
[Signature of Grantor]
UIC Program Class VI Financial Responsibility Guidance B-7
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[Title]
[Seal]17
Attest: [Signature of attester]
[Title]
[Signature of trustee]
[Name of trustee]
[Title]
[Seal]18
Attest: [Signature of attester]
[Title]
The following is an example of the certification of acknowledgment which must accompany
the trust agreement for a trust fund. State requirements 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 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 to the Board of Directors of said
corporation, and that she/he signed her/his name thereto by like order.
[Signature of Notary Public]
17 A corporate seal is only recommended if the company has a corporate seal.
18 A corporate seal is only recommended if the company has a corporate seal.
UIC Program Class VI Financial Responsibility Guidance B-8
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//. Financial Guarantee Surety Bond
A surety bond guaranteeing payment into a trust fund, as specified in this chapter, may be
worded as follows, except that instructions in brackets are to be replaced with the relevant
information and the brackets deleted:
Financial Guarantee Bond
Dated bond executed:.
Effective date:
Principal: [legal name and business address of owner or operator].
Type of organization: [insert "individual," "joint venture," "partnership," or "corporation"]
State of incorporation:
Surety(ies): [name(s) and business address(es)]_
EPA Identification Number, name, address, and [corrective action, injection well plugging,
post injection site care and site closure, and/or emergency and remedial response] amount(s)
for each facility guaranteed by this bond [indicate [corrective action, injection well plugging,
post injection site care and site closure, and/or emergency and remedial response] 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 state of [name of state] or another party other than EPA, in the above
penal sum for the payment of which we bind ourselves, our heirs, executors, administrators,
successors, and assigns jointly and severally; provided that, where the Surety(ies) are
corporations acting as co-sureties, we, the Sureties, bind ourselves in such sum jointly and
severally only for the purpose of allowing a joint action or actions against any or all of us,
and for all other purposes each Surety binds itself, jointly and severally with the Principal,
for the payment of such sum only as is set forth opposite the name of such Surety, but if no
limit of liability is indicated, the limit of liability shall be the full amount of the penal sum.
UIC Program Class VI Financial Responsibility Guidance B-9
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Whereas said Principal is required, under the Underground Injection Control Regulations
(UIC), to have a permit or comply with requirements to operate under the Class VI Rule in
order to own or operate each injection well identified above, and
Whereas said Principal is required to provide financial assurance for [corrective action,
injection well plugging, post injection site care and site closure, and/or emergency and
remedial response] as a condition of the permit or provisions to operate under the Rule, and
Whereas said Principal shall establish a standby trust fund as is required when a surety
bond is used to provide such financial assurance;
Now, therefore, the conditions of the obligation are such that if the Principal shall
faithfully, before the beginning of [corrective action, injection well plugging, post injection
site care and site closure, and/or emergency and remedial response] of each injection well
identified above, fund the standby trust fund in the amount(s) identified above for the
injection well,
Or if the Principal shall fund the standby trust fund in such amount(s) within 15 days
after an order to begin [corrective action, injection well plugging, post injection site care and
site closure, and/or emergency and remedial response] is issued by the UIC Program Director
or a U.S. district court or other court of competent jurisdiction,
Or, if the Principal shall provide alternate financial assurance, as applicable, and obtain
the UIC Program Director's written approval of such assurance, within 90 days after the date
of notice of cancellation is received by both the Principal and the UIC Program Director from
the Surety(ies), then this obligation shall be null and void, otherwise it is to remain in full
force and effect.
The Surety(ies) shall become liable on this bond obligation only when the Principal has
failed to fulfill the conditions described above. Upon notification by the UIC Program
Director that the Principal has failed to perform as guaranteed by this bond, the Surety(ies)
shall place funds in the amount guaranteed for the injection well(s) into the standby trust
funds for the fulfillment of [corrective action, injection well plugging, post injection site care
and site closure, and/or emergency and remedial response] obligations described at 40 CFR
146.84, 146.92, 146.93, and/or 146.94, respectively.
The liability of the Surety(ies) shall not be discharged by any payment or succession of
payments hereunder, unless and until such payment or payments shall amount in the
aggregate to the penal sum of the bond, but in no event shall the obligation of the Surety(ies)
hereunder exceed the amount of said penal sum.
The Surety(ies) may cancel the bond only for failure to pay and by sending notice of
cancellation by certified mail to the Principal and to the UIC Program Director for the area in
which the injection well(s) is (are) located. EPA requires that cancellation not become final
for 120 days beginning on the date of receipt of the notice of cancellation by both the
Principal and the UIC Program Director, as evidenced by the return receipts.
UIC Program Class VI Financial Responsibility Guidance B-10
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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The Principal may terminate this bond by sending written notice to the Surety(ies),
provided, however, that no such notice shall become effective until the Surety(ies) receive(s)
written authorization for termination of the bond by the UIC Program Director for the area in
which the bonded facility(ies) is (are) located.
[The following paragraph is an optional rider that may be included.]
Principal and Surety(ies) hereby agree to adjust the penal sum of the bond yearly so that
it guarantees a new [corrective action, injection well plugging, post injection site care and
site closure, and/or emergency and remedial response] 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 unless the UIC Program Director determines in writing that the reduced amount is
adequate to fulfill the Principal's obligations under 40 CFR 146.84, 146.92, 146.93, and/or
146.94, respectively.
In Witness Whereof, the Principal and Surety(ies) have executed this Financial Guarantee
Bond and have affixed their seals on the date set forth above.
The persons whose signatures appear below hereby certify that they are authorized to
execute this surety bond on behalf of the Principal and Surety(ies).
Principal
[Signature(s)]
[Name(s)]
[Title(s)]
[Corporate seal]
Corporate Surety(ies)
[Name and address]
State of incorporation:
Liability limit: $
[Signature(s)]
[Name(s) and title(s)]
[Corporate seal]17
[For every co-surety, provide signature(s), corporate seal, and other information in the
same manner as for Surety above.]
Bond premium: $
19
A corporate seal is only recommended if the company has a corporate seal.
UIC Program Class VI Financial Responsibility Guidance B-ll
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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///. Performance Surety Bond
A surety bond guaranteeing performance of [corrective action, injection well plugging, post
injection site care and site closure, and/or emergency and remedial response], as specified in
this chapter, may be worded as follows, except that the instructions in brackets 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 "corporation"]
State of incorporation:
Surety(ies): [name(s) and business address(es)]_
EPA Identification Number, name, address, and [corrective action, injection well plugging,
post injection site care and site closure, and/or emergency and remedial response] amounts(s)
for each injection well guaranteed by this bond [indicate [corrective action, injection well
plugging, post injection site care and site closure, and/or emergency and remedial response]
amounts for each well]:
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 state of [insert name of state or another party other than EPA], in the
above penal sum for the payment of which we bind ourselves, our heirs, executors,
administrators, successors, and assigns jointly and severally; provided that, where the
Surety(ies) are corporations acting as co-sureties, we, the Sureties, bind ourselves in such
sum "jointly and severally" only for the purpose of allowing a joint action or actions against
any or all of us, and for all other purposes each Surety binds itself, jointly and severally with
the Principal, for the payment of such sum only as is set forth opposite the name of such
Surety, but if no limit of liability is indicated, the limit of liability shall be the full amount of
the penal sum.
UIC Program Class VI Financial Responsibility Guidance B-12
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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Whereas said Principal is required, under the Underground Injection Control Regulations,
as amended, to have a permit or comply with provisions to operate under the Class VI Rule
for each injection well identified above, and
Whereas said Principal is required to provide financial assurance for [corrective action,
injection well plugging, post injection site care and site closure, and/or emergency and
remedial response] as a condition of the permit or approval to operate under the Rule, and
Whereas said Principal shall establish a standby trust fund as is required when a surety
bond is used to provide such financial assurance;
Now, Therefore, the conditions of this obligation are such that if the Principal shall
faithfully perform [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response], whenever required to do so, of each
injection well for which this bond guarantees [corrective action, injection well plugging, post
injection site care and site closure, and/or emergency and remedial response], in accordance
with the [Corrective Action, Injection Well Plugging, Post Injection Site Care and Site
Closure, and/or Emergency and Remedial Response] Plan and other requirements of the
permit or provisions for operating under the Rule and other requirements of the permit or
provisions for operating under the Rule as 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 and obtain the UIC
Program Director's written approval of such assurance, within 90 days after the date of notice
of cancellation is received by both the Principal and the UIC Program Director from the
Surety(ies), then this obligation shall be null and void, otherwise it is to remain in full force
and effect.
The Surety(ies) shall become liable on this bond obligation only when the Principal has
failed to fulfill the conditions described above.
Upon notification by the UIC Program Director that the Principal has been found in
violation of the [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response] requirements of 40 CFR part 146, for an
injection well which this bond guarantees performances of [corrective action, injection well
plugging, post injection site care and site closure, and/or emergency and remedial response],
the Surety(ies) shall either perform [corrective action, injection well plugging, post injection
site care and site closure, and/or emergency and remedial response] in accordance with the
[Corrective Action, Injection Well Plugging, Post Injection Site Care and site closure, and/or
Emergency and remedial Response] Plan and other permit requirements or provisions for
operating under the Rule and other requirements or place the amount for [corrective action,
injection well plugging, post injection site care and site closure, and/or emergency and
remedial response] into a standby trust fund for the fulfillment of [corrective action, injection
well plugging, post injection site care and site closure, and/or emergency and remedial
response] obligations described at 40 CFR 146.84, 146.92, 146.93, and/or 146.94,
respectively.
UIC Program Class VI Financial Responsibility Guidance B-13
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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Upon notification by the UIC Program Director that the Principal has failed to provide
alternate financial assurance and obtain written approval of such assurance from the UIC
Program Director during the 90 days following receipt by both the Principal and the UIC
Program Director of a notice of cancellation of the bond, the Surety(ies) shall place funds in
the amount guaranteed for the injection well(s) into the standby trust fund.
The surety(ies) hereby waive(s) notification of amendments to [Corrective Action,
Injection Well Plugging, Post Injection Site Care and Site Closure, and/or Emergency and
Remedial Response] Plans, permits, applicable laws, statutes, rules, and regulations and
agrees that no such amendment shall in any way alleviate its (their) obligation on this bond.
The liability of the Surety(ies) shall not be discharged by any payment or succession of
payments hereunder, unless and until such payment or payments shall amount in the
aggregate to the penal sum of the bond, but in no event shall the obligation of the Surety(ies)
hereunder exceed the amount of said penal sum.
The Surety(ies) may cancel the bond only for failure to pay and by sending notice by
certified mail to the owner or operator and to the UIC Program Director of the area in which
the injection well(s) is (are) located. EPA requires that cancellation not become final for 120
days beginning on the date of receipt of the notice of cancellation by both the Principal and
the UIC Program Director, 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 UIC Program Director of the area in
which the bonded injection well(s) is (are) located.
[The following paragraph is an optional rider that may be included but is not required.]
Principal and Surety(ies) hereby agree to adjust the penal sum of the bond yearly so that
it guarantees a new [corrective action, injection well plugging, post injection site care and
site closure, and/or emergency and remedial response] amount, provided that the penal sum
does not increase by more than 20 percent in any one year, unless the UIC Program Director
determines in writing that the reduced amount is adequate to fulfill the Principal's obligations
under 40 CFR 146.84, 146.92, 146.93, and/or 146.94, respectively.
In Witness Whereof, The Principal and Surety(ies) have executed this Performance Bond
and have affixed their seals on the date set forth above.
The persons whose signatures appear below hereby certify that they are authorized to
execute this surety bond on behalf of the Principal and Surety(ies).
Principal
[Signature(s)] [Name(s)] [Title(s)] [Corporate seal]20
' A corporate seal is only recommended if the company has a corporate seal.
UIC Program Class VI Financial Responsibility Guidance B-14
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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Corporate Surety(ies)
[Name and address]
State of incorporation:
Liability limit: $
91
[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: $
A corporate seal is only recommended if the company has a corporate seal.
UIC Program Class VI Financial Responsibility Guidance B-15
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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IV. Irrevocable Standby Letter of Credit
A letter of credit, as specified in this chapter, may be worded as follows, except that
instructions in brackets are to be replaced with the relevant information and the brackets
deleted:
Irrevocable Standby Letter of Credit
[state or someone other than EPA]
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 [insert state or someone
other than EPA] presentation 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 satisfy [name of owner or operator's obligations set forth in
regulations issued under authority of the Safe Drinking Water Act."
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 for the fulfillment of [corrective action, injection well
plugging, post injection site care and site closure, and/or emergency and remedial response]
obligations described at 40 CFR 146.84, 146.92, 146.93, and/or 146.94, respectively.
[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 "the Uniform Commercial Code"].
UIC Program Class VI Financial Responsibility Guidance B-16
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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V. Certificate of Insurance
A certificate of insurance, as specified in this chapter, may be worded as follows, except that
instructions in brackets are to be replaced with the relevant information and the brackets
deleted:
Certificate of Insurance for [corrective action, injection well plugging, post injection site care
and site closure, and/or emergency and remedial response]
Name and Address of Insured (herein called the "insured"):
Name and Address of Insurer (herein called the "insurer"):.
Injection Wells covered: [list for each well: The EPA Identification Number, name,
address, and the amount of insurance for [corrective action, injection well plugging, post
injection site care and site closure, and/or emergency and remedial response] (these
amounts for all injection wells 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 [corrective action, injection well plugging, post
injection site care and site closure, and/or emergency and remedial response] for the injection
wells identified above. The Insurer further warrants that such policy conforms in all respects
with the requirements for the fulfillment of [corrective action, injection well plugging, post
injection site care and site closure, and/or emergency and remedial response] obligations
described at 40 CFR 146.84, 146.92, 146.93, and/or 146.94, respectively, 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.
The insurer may cancel the policy only for failure to pay the premium and by sending notice
of cancellation by certified mail to the owner or operator and to the UIC Program Director
for the area in which the injection well(s) is (are) located. EPA requires that cancellation not
become final for 120 days beginning on the date of receipt of the notice of cancellation by
the UIC Program Director, as evidenced by the return receipts.
Whenever requested by the UIC Program Director, the Insurer agrees to furnish to the UIC
Program Director a duplicate original of the policy listed above, including all endorsements
thereon.
UIC Program Class VI Financial Responsibility Guidance B-17
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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[Authorized signature of Insurer]
[Name of person signing]
[Title of person signing]
[Signature of witness or notary:]
[Date]
UIC Program Class VI Financial Responsibility Guidance B-18
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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VI. Letter from CFO
A letter from the chief financial officer, as specified in this chapter, may be worded as
follows, except that instructions in brackets are to be replaced with the relevant information
and the brackets deleted:
Letter From Chief Financial Officer
[Address to the UIC Program Director for which financial responsibility is to be
demonstrated.]
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.
[Fill out the following four paragraphs regarding injection wells and associated cost
estimates. If your firm has no injection wells that belong in a particular paragraph, write
"None" in the space indicated. For each injection well, include its EPA Identification
Number, name, address, and current [corrective action, injection well plugging, post injection
site care and site closure, and/or emergency and remedial response] cost estimate.]
1. This firm is the owner or operator of the following injection wells for which financial
assurance for [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response] is demonstrated through the financial
test. The current [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response] cost estimate covered by the test is
shown for each injection well (i.e., all obligations secured by the owner or operator using
by financial test):
2. This firm guarantees, through the corporate guarantee, the [corrective action, injection
well plugging, post injection site care and site closure, and/or emergency and remedial
response] of the following injection wells owned or operated by subsidiaries of this firm.
The current cost estimate for [corrective action, injection well plugging, post injection site
care and site closure, and/or emergency and remedial response] so guaranteed is shown for
each injection well:
3. In states where EPA is not administering the financial requirements, this firm, as owner
or operator or guarantor, is demonstrating financial assurance for the [corrective action,
injection well plugging, post injection site care and site closure, and/or emergency and
remedial response] of the following injection wells through the use of a test equivalent or
substantially equivalent to the financial test. The current [corrective action, injection well
plugging, post injection site care and site closure, and/or emergency and remedial response]
cost estimate covered by such a test is shown for each injection well:
4. This firm is the owner or operator of the following injection wells for which financial
assurance for [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response] is not demonstrated either to EPA or a
UIC Program Class VI Financial Responsibility Guidance B-19
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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state through the financial test or any other financial assurance instrument. The current
[corrective action, injection well plugging, post injection site care and site closure, and/or
emergency and remedial response] cost estimate not covered by such financial assurance is
shown for each injection well:
This firm [insert "is required" or "is not required"] to file a Form 10K with the Securities and
Exchange Commission (SEC) for the latest fiscal year.
The fiscal year of this firm ends on [month, day]. The figures for the following items marked
with an asterisk are derived from this firm's independently audited, year-end financial
statements for the latest completed fiscal year, ended [date].
[Fill in Financial Coverage Criteria regardless of which corporate financial test is being
used.]
Financial Coverage Criteria
1. (a) Cost in current dollars for [corrective action, injection well plugging, post injection
site care and site closure, and/or emergency and remedial response] (i.e., all obligations
secured by the owner or operator using the financial test)
(b) Sum of the company's financial responsibilities currently met using the financial
test or corporate guarantee, including CERCLA and RCRA
(c) Total of lines a and b
2. Tangible net worth
3. Current assets
4. Current liabilities
5. Net working capital [line 3 minus line 4]
6. Total assets
7. Total assets in U.S.
8. Is line 2 at least $100 million?
9. Is line 2 at least 6 times line l(c)?
10. Is line 5 at least 6 times line l(c)?
1 1. Is line 7 at least 90% of Line 6? If not, complete line 12.
12. Is line 7 at least 6 times line l(c)?
Yes
$
No
UIC Program Class VI Financial Responsibility Guidance
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
B-20
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[Fill in Alternative I if using the financial ratios test. Fill in Alternative II if using the bond
rating test.]
Alternative I: Financial Ratios Test
1 . Total liabilities
2. Net worth
3. Current assets
4. Current liabilities
5. Net working capital [line 3 minus line 4]
6. The sum of net income plus depreciation, depletion and amortization
7. Total assets
8. Is line 1 divided by line 2 less than 2.0?
9. Is line 3 divided by line 4 greater than 1.5?
10. Is line 6 divided by line 1 greater than 0.1?
1 1 . Is line 5 divided by line 7 greater than -0.1?
12. Is net profit greater than 0?
Yes
$
No
Alternative II: Bond Rating Test
1. Current bond rating of most recent issuance of this firm and name of rating service
(rating service must be either Standard & Poor's or Moody' s)
2. Date of issuance of bond
3. Date of maturity of bond
4. Committee on Uniform Securities Identification Procedures (CUSIP) number
I hereby certify that the wording of this letter is identical to the wording specified in the
Underground Injection Control VI Program Financial Responsibility Guidance as such
regulations were constituted on the date shown immediately below.
[Signature]
[Name]
[Title]
[Date]
UIC Program Class VI Financial Responsibility Guidance
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
B-21
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VII. Corporate Guarantee
A corporate guarantee as specified in this chapter may be worded as follows except that
instructions in brackets are to be replaced with the relevant information and the bracketed
material deleted:
Guarantee for [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response]
Guarantee made this day of , 20 , by [name of guaranteeing entity], a business
corporation organized under the laws of the State of , herein referred to as
guarantor, to the United States Environmental Protection Agency (EPA) or state of [name of
state], obligee, on behalf of our subsidiary [owner or operator] of [business address].
Recitals
1. Guarantor meets or exceeds the financial test criteria and agrees to comply with the
reporting requirements for guarantors.
2. [Owner or operator] owns or operates the following Class I hazardous waste injection
well 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. "[Corrective Action, Injection Well Plugging, Post Injection Site Care and Site Closure,
and/or Emergency and Remedial Response] Plan" as used below refers to the plans
maintained as required by 40 CFR part 146 for the [corrective action, injection well
plugging, post injection site care and site closure, and/or emergency and remedial response]
of injection wells as identified above.
4. For value received from [owner or operator], guarantor guarantees to EPA or the state of
[name of state] that in the event that [owner or operator] fails to perform ["[corrective
action, injection well plugging, post injection site care and site closure, and/or emergency
and remedial response]"] of the above facility(ies) in accordance with the [Corrective
Action, Injection Well Plugging, Post Injection Site Care and Site Closure, and/or
Emergency and Remedial Response] Plan and other requirements when required to do so,
the guarantor may do so or fund a trust fund in the name of [owner or operator] in the
amount of the adjusted [corrective action, injection well plugging, post injection site care
and site closure, and/or emergency and remedial response] cost estimates prepared.
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 may send within
90 days, by certified mail, notice to the UIC Program Director for the area in which the
facility(ies) is (are) located and to [owner or operator] that he intends to provide alternate
financial assurance in the name of [owner or operator]. Within 30 days after sending such
notice, the guarantor may establish such financial assurance if [owner or operator] has not
done so.
UIC Program Class VI Financial Responsibility Guidance B-22
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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6. The guarantor agrees to notify the UIC Program Director, by certified mail, of a
voluntary or involuntary case under Title 11, U.S. Code, naming guarantor as debtor,
within 10 days after its commencement.
7. Guarantor agrees that within 30 days after being notified by the UIC Program Director of
a determination that guarantor no longer meets the financial test criteria or that he is
disallowed from continuing as a guarantor of [corrective action, injection well plugging,
post injection site care and site closure, and/or emergency and remedial response], he may
establish alternate financial assurance, in the name of [owner or operator] if [owner or
operator] has not done so.
8. Guarantor agrees to remain bound under this guarantee notwithstanding any or all of the
following: amendment or modification of the [Corrective Action, Injection Well Plugging,
Post Injection Site Care and Site Closure, and/or Emergency and Remedial Response] Plan,
the extension or reduction of the time of performance of [corrective action, injection well
plugging, post injection site care and site closure, and/or emergency and remedial response]
or any other modification or alteration of an obligation of [owner or operator].
9. Guarantor agrees to remain bound under this guarantee for so long as [owner or
operator] must comply with the applicable financial assurance requirements of 40 CFR part
164.85 for the above-listed facilities, except that guarantor may cancel this guarantee by
sending notice by certified mail, to the UIC Program Director for the area in which the
facility(ies) is (are) located and to [owner or operator], such cancellation should become
effective no earlier than 120 days after actual receipt of such notice by both EPA or the
state of [name of state] and [owner or operator] as evidenced by the return receipts.
10. Guarantor agrees that if [owner or operator] fails to provide alternate financial
assurance and obtain written approval of such assurance from the UIC Program Director
within 90 days after a notice of cancellation by the guarantor is received by both the UIC
Program Director and [owner or operator], guarantor may provide alternate financial
assurance in the name of [owner or operator].
11. Guarantor expressly waives notice of acceptance of this guarantee by the EPA or the
state of [name of state] or by [owner or operator]. Guarantor also expressly waives notice
of amendments or modifications of the [Corrective Action, Injection Well Plugging, Post
Injection Site Care and Site Closure, and/or Emergency and Remedial Response] Plan.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Type name of person signing]
[Title of person signing]
[Signature of witness or notary]
UIC Program Class VI Financial Responsibility Guidance B-23
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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VIII. Escrow Account
An escrow agreement, as specified in this chapter, may be worded as follows, except that
instructions in brackets are to be replaced with the relevant information and the brackets deleted:
Escrow Agreement
This Escrow Agreement is entered into by and between: The "Grantor," [Name of owner or
operator] a [name of state] [insert "corporation," "partnership," "association," or
"proprietorship"]; and the "Escrow Agent," [name of Escrow Agent].
The Grantor and the Escrow Agent are hereinafter collectively referred to as the "Parties."
Recitals
Whereas, on [insert date] the "Agency," [(United States Environmental Protection Agency, an
agency of the United States Government), or (name of state agency)], issued to the Grantor an
individual [Class VI Well Permit];
Whereas, the Permit authorizes the Grantor to operate a Class VI Well located at [insert city,
state] and to operate an injection well in accordance with the terms and conditions set forth
therein;
Whereas, the Agency has established certain regulations applicable to the Grantor, requiring that
an owner or operator of an injection well shall provide assurance that funds will be available
when needed for [corrective action, injection well plugging, post injection site care and site
closure, and/or emergency and remedial response of the injection well];
Whereas, this Escrow Agreement is the Agency approved form of a financial assurance
instrument that provides for [corrective action, injection well plugging, post injection site care
and site closure, and/or emergency and remedial response of the injection well], as required by
the Permit. This Escrow Agreement defines the terms and conditions under which the account
will be held and disbursed;
Whereas, the "Required Escrow Amount" to be placed in the Escrow Account is [can insert
statement on the amount to be held in the Escrow Account];
Whereas, the Escrow Agent agrees to accept, hold, and disburse the Escrow Account funds and
the earnings thereon in accordance with the terms of this Escrow Agreement; and
Whereas said Escrow Agent shall establish a standby trust fund as is required when an Escrow
Account is used to provide such financial assurance.
Now, therefore, in consideration of the recitals above, the covenants and agreements set forth
herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
Escrow Account
1. The Grantor shall deliver to the Escrow Agent the Required Escrow Amount of $[insert
dollars] at least [insert number (#)] calendar days prior to [insert date].
UIC Program Class VI Financial Responsibility Guidance B-24
Appendix B: Recommended Financial Responsibility Instrument Language (Forms/Templates)
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2. Within [insert number (#)] business days of receipt of the Required Escrow Amount or
additional funds pursuant to Paragraph 3 below, the Escrow Agent shall place the
Required Escrow Amount in an interest bearing account (the "Escrow Account") at the
"Financial Institution", [insert name of financial institution] located at [insert city,
state]. All funds delivered by the Grantor to the Escrow Agent shall be deposited and
held by the Escrow Agent in the Escrow Account.
3. Within [insert number (#)] calendar days of any disbursement form the Escrow Account,
the Grantor shall deliver additional funds to the Escrow Agent so that the amount
available in the Escrow Account shall be no less than the Required Escrow Amount,
provided that at no time may the Escrow Account incur a negative balance.
4. The Financial Institution shall be entitled to charge the Escrow Account for services
related to the maintenance of the Escrow Account at a rate not exceeding the Financial
Institution's standard charges to other customers for similar services.
5. The Escrow Account shall be opened with the signature of the Escrow Agent indicating
that checks drawn against the Escrow Account shall be signed by the Escrow Agent and
by no other persons. Disbursements shall be made from the Escrow Account only in
accordance with the terms of this Agreement.
6. The Escrow Agent shall maintain a record of all deposits, income, disbursements, and
other transactions concerning the Escrow Account. [More details can be inserted here].
7. The Escrow Agent shall keep in its possession all book(s) and records relating to the
Escrow Account until such time as they are delivered to a successor Escrow Agent
pursuant to [insert paragraph] or to the Grantor and the Agency pursuant to [insert
paragraph] below.
Disbursements
8. The Escrow Agent shall make disbursements of the Escrow Account funds including any
accrued interest only as follows:
a. [Number (#) business days] following receipt of written direction from the Agency
stating that funds held in the Escrow Account are required to pay for [corrective
action, injection well plugging, post injection site care and site closure, and/or
emergency and remedial response of the injection well], the Escrow Agent shall
disburse such funds to the standby trust fund in the amount(s) identified, in
accordance with the Agency's written direction for the fulfillment of [corrective
action, injection well plugging, post injection site care and site closure, and/or
emergency and remedial response] obligations described at 40 CFR 146.84,
146.92, 146.93, and/or 146.94, respectively. Or, if an order is issued to begin
[corrective action, injection well plugging, post injection site care and site closure,
and/or emergency and remedial response] by a U.S. district court or other court of
competent jurisdiction, the Escrow Agent shall disburse such funds to the standby
trust fund within [Number (#) of business days].
UIC Program Class VI Financial Responsibility Guidance B-25
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b. The Escrow Agent shall disburse all funds in the Escrow Account to the Grantor
within [number (#)] business days of receipt of a joint written direction from the
Agency and the Grantor that the Escrow Account funds are no longer required to
fund the [corrective action, injection well plugging, post injection site care and
site closure, and/or emergency and remedial response of the injection well], as
required by the Permit.
Duties and Liabilities of Escrow Agent
9. The Escrow Agent shall have no liability or obligation with respect to the Escrow
Account funds except for the Escrow Agent's willful misconduct, bad faith, or gross
negligence. The Escrow Agent shall be under no duty to: (a) pass upon the adequacy of
any documents; (b) determine whether any of the Parties are complying with the terms
and provisions of the Escrow Agreement; or (c) determine the identity or authority of any
person purporting to be a signatory authorized by the Grantor or the Agency.
Escrow Agent's Fee
10. The Escrow Agent shall be entitled to compensation from the Grantor for its services
under this Escrow Agreement in accordance with the attached fee schedule.
Investment Risk
11. In no event shall the Escrow agent have any liability as a result of any loss occasioned by
the financial difficulty or failure of any institution, including the Financial Institution, or
for failure of any banking institutions, including the Financial Institution, to follow the
instructions of the Escrow Agent.
Notices
12. All notices, certifications, authorizations, request, or other communications permitted or
required shall be delivered as follows:
a. To the Grantor: [insert address]
b. To the Agency: [insert address]
c. To the Escrow Agent: [insert address]
13. The Escrow Agent shall annually, at least 30 days prior to the anniversary date of
establishment of the account, furnish to the Grantor and to the appropriate Agency a
statement confirming the value of the account. Any securities in the account shall be
valued at market value as of no more than 60 days prior to the anniversary date of
establishment of the account. The failure of the Grantor to object in writing to the Escrow
Agency within 90 days after the statement has been furnished to the Grantor and the
Agency shall constitute a conclusively binding assent by the Grantor, barring the Grantor
from asserting any claim or liability against the Escrow Agent with respect to matters
disclosed in the statement.
UIC Program Class VI Financial Responsibility Guidance B-26
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Resignation, Removal and Successor Escrow Agent
14. If, at anytime, the Escrow Agent shall resign, be removed, be dissolved, or otherwise
become incapable of acting, or the position of the Escrow Agent shall become vacant for
any reason, the Parties shall promptly appoint a successor Escrow Agent.
15. The Escrow Agency may not cancel or terminate the Escrow Account unless there is a
failure to pay service fees. The Escrow Agent should send notice of cancellation by
certified mail to the owner or operator and the Agency._
16. All interest income accrued on funds in the Escrow Account shall become part of the
Escrow Account and shall remain in the Escrow Account. The Grantor shall be solely
responsible for the payment of all federal and state taxes on accrued Escrow Account
interest.
Miscellaneous
17. This Escrow Agreement constitutes the entire agreement between the Parties relating to
the holding, investment, and disbursement of the Escrow Account funds.
18. The Escrow Agreement shall be binding upon, and shall inure to the benefit of the Parties
hereto and their successors and assigns.
This Escrow Agreement shall be governed by and be construed and interpreted in
accordance with the laws of [name of state] with regard to the Grantor without
giving effect to the conflict of laws principles thereof. Any claims relating to EPA
will be resolved under federal law including, but not limited to the Federal Tort
Claims Act 28 U.S.C. 2671, 2680.
19. This Escrow Agreement may be executed in any number of counterparts each which shall
constitute an original and all counterparts shall constitute one Agreement.
20. This Escrow Agreement may not be assigned, amended, altered, or modified except by
written instrument duly executed by all of the Parties, with the concurrence of the UIC
Program Director, or by the Escrow Agent and the appropriate Director if the Grantor
ceases to exist.
21. This Escrow Agreement shall terminate, and the Escrow Agent shall be relieved of all
liability to the Grantor after: (a) all funds in the Escrow Account have been properly
disbursed in accordance with the terms and conditions of this agreement; (b) the Escrow
Agent has provided a final accounting of all transactions hereunder to the Parties; and (c)
a copy of all books and records relating to the Escrow Account has been delivered to the
Grantor, and, if requested, to the Agency. EPA does not indemnify either the Grantor or
the Escrow Agent due to the restrictions imposed by the Anti-Deficiency Act, 31 U.S.C.
1341.
22. This Agreement shall take effect on the latest date of execution by the Grantor, Agency,
or Escrow Agent.
23. [Can add additional terms here]
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In witness whereof, the Parties have caused this Escrow Agreement to be duly executed as set
forth below.
[Signature of Grantor]
[Title]
[Seal]
[Signature of Escrow Agent]
[Title]
[Seal]
UIC Program Class VI Financial Responsibility Guidance B-28
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Appendix C: Methodology for Estimating Costs for Financial Responsibility Demonstrations for
Class VI Wells
DISCLAIMER
This is guidance only. It provides examples of cost considerations or activities that may need to be
performed to satisfy the requirements of the Class VI Rule. It may not include all necessary costs.
/. Introduction
In December 2010, EPA published "Federal Requirements under the Underground Injection
Control Program for Carbon Dioxide Geologic Sequestration Wells."22 The Rule established a
new Class VI well with specific requirements for the underground injection of carbon dioxide for
the purpose of GS, including minimum technical criteria for: geologic site characterization; area
of review (AoR) and corrective action; Class VI well construction and operation; mechanical
integrity testing (MIT) and monitoring; and injection well plugging, post-injection site care, and
site closure.
The Rule also contains specific provisions for owners or operators of Class VI wells to
demonstrate and maintain financial responsibility for corrective action on wells in the AoR,
injection well plugging, post-injection site care and site closure, and emergency and remedial
response. Operators would also be required to adjust the financial responsibility cost estimates as
needed, e.g., to account for any amendments to the required plans for the above activities or if
the UIC Program Director determines that the original demonstration is no longer adequate.
Appendix A presents the regulatory language for financial responsibility at 40 CFR Part 146.85.
Figure 2, reproduced from Chapter 2, presents the overall phases of GS project activities; the
required GS activities for which financial responsibility must be demonstrated are shown in bold.
To demonstrate financial responsibility, Class VI well owners or operators need to accurately
estimate costs, particularly for the GS-unique requirements, such as post-injection site care and
closure and emergency and remedial response, where less experience with estimating and
evaluating these costs exists. In some cases, states may be able to provide technical assistance in
estimating costs by providing resources or direct assistance. In all cases the UIC Program
Director must be able to evaluate these cost estimates. Finally, independent third party insurers
or providers of financial instruments need to know the process of cost estimation for Class VI
wells since accurate cost estimation is the underpinning of demonstrating financial responsibility.
22 The requirements are published under the Safe Drinking Water Act (SDWA), therefore, failure to perform or
sequester carbon dioxide is not a part of this regulation.
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Figure 2: GS Financial Responsibility Timeline (Reproduced from Chapter 2)
Siting
Area of
Review and
Corrective
Action
-H-
Well
Construction
Injection/
Operation/
Monitoring
AoR Reevaluation
and
Corrective Action
and Phased
Corrective Action
Injection Well
Plugging
Post-
Injection Site
Care
And Site
Closure
Long-Term
Care
Initial
FR Coverage
Demonstration Begins
Required for
Permitting
Emergency And Remedial Response
Coverage
Ends
FINANCIAL RESPONSIBILITY ACTIVITIES
Annual Updates
(In eluding Cost Estimates)
*P/ease note that the timeframes in this exhibit are not to scale. Financial responsibility demonstrations will coincide with permitting
(or revisions made after permitting), therefore Area of Review and Corrective Action prior to permitting (i.e., prior to well
construction) are not activities for which financial responsibility must be demonstrated.
This guidance provides methods and considerations for estimating the costs of GS activities for
which there are financial responsibility requirements. The intended audience is Class VI well
owners or operators, EPA and state regulators, and the general public. For information on
financial responsibility instruments in the UIC Program and for GS, see "Underground Injection
Control (UIC) Class VI Program: Financial Responsibility Guidance."
The Sections that follow address the following topics:
• Guidelines for estimating costs to support financial responsibility demonstrations for
Class VI wells.
• Suggestions for estimating the total project costs for activities that require financial
responsibility over the life of a GS project.
This guidance provides a framework and considerations for owners or operators to assist with the
cost estimation process. In each Section, tables break out a number of relevant activities and cost
estimates. Additionally, each Section includes a number of considerations for cost estimation.
However, this guidance is not intended to be a complete or all inclusive template for estimating
costs. Costs for activities not listed in this guidance may be relevant, and uncertainty and
variability should be considered. Many of the tables have a field for "other" costs not described
in this guidance. Notably, the cost of securing financial responsibility instruments for GS
activities is not described in this guidance. Full responsibility for complete and accurate cost
estimations rests with the owner or operator alone.
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//. Estimating Costs to Support GS Financial Responsibility Demonstrations
This Section suggests a process for estimating costs for the following activities:
1. Performing corrective action on wells in the AoR
2. Plugging the injection well(s)
3. Post-injection site care
4. Site closure
5. Emergency and remedial response
These activities follow the siting of a GS project and occur during and following carbon dioxide
injection activities. Each GS project will have different characteristics for each of these activities
and will require unique management decisions by the owner or operator or the UIC Program
Director. Corrective action activities are conducted according to the owner or operator's
approved AoR and Corrective Action Plan that details the immediate, as well as phased-in,
actions to ensure that all wells in the AoR receive needed corrective action. During project
operation, injection and monitoring, as well as during injection well plugging and post-injection
site care and closure a number of activities are required as either one-time or recurring events as
should be described in respective planning documents. Additionally, during these phases costs
for emergency response may be incurred to address movement of formation of fluids that may
endanger underground sources of drinking water (USDWs). The process of estimating costs for
each of these activities is described in this Section.
Sources of information to support cost estimations include environmental, geological, and
engineering firms, which typically perform these types of activities on contractual basis. It is
recommended that operators or permitting authorities consult third parties, such as certified
contractors or engineers with established credentials or with whom they have worked before.
Also, see the "Final Cost Analysis for the Federal Requirements Under the Underground
Injection Control Program for Carbon Dioxide Geologic Sequestration Wells (Final GS Rule)"
(EPA 816-R-10-013) which contains costs estimated by EPA as part of the rulemaking.
1. Performing corrective action on wells in the AoR
Summary of Requirements
Class VI well operators must identify all artificial penetrations (including active and abandoned
wells and mines) in the AoR, determine which wells may potentially endanger USDWs, and
apply corrective action to those wells in a manner that prevents movement of carbon dioxide or
other fluids.
At the UIC Program Director's approval, owners or operators of Class VI wells may be able to
phase-in corrective action and focus initially on those wells in the portion of the AoR that would
be intersected by the carbon dioxide plume or pressure front over the early years of the injection
operation. The operator would address the remaining wells after injection has commenced
according to the requirements of 40 CFR 146.84 and as described in the approved AoR and
Corrective Action Plan. Class VI well operators must provide financial assurance that resources
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are available to address wells for which corrective action is deferred. This phased approach is
only applicable to Class VI wells.
Throughout the life of the project, owners and operators will be required to periodically
reevaluate the AoR according to 40 CFR 146.84. Owners or operators would need to address any
additional deficient wells identified if the AoR were determined to be larger (or differently
shaped) as a result of the reevaluation.
To estimate corrective action costs, owners or operators may need to identify the costs of
following activities:
• Obtaining data inputs for the AoR model (e.g., monitoring and operating data gathered
during the course of injection);
• Updating the AoR modeling based on operational and monitoring data;
• Identifying and evaluating wells in the AoR that were not evaluated in the pre-operational
AoR study; or
• Addressing newly-identified deficient wells and wells identified in the original study for
which corrective action was deferred.
Estimating Costs
AoR Modeling
While the Class VI Rule contains no specific requirement to demonstrate financial responsibility
for AoR reevaluations, it will be necessary to update the AoR models to ensure that all wells that
need corrective action are identified. The cost of this element derives from paying an expert (or
team of experts) to set up, run, and interpret a site-specific simulation model. This could also be
a re-run of the modeling conducted in the original AoR. In either case, the model should
incorporate monitoring and operating data collected during injection operations. Some operators
may choose to retain contractor support for this activity. In this case, the cost would be based on
the estimate provided by the contractor.
Table 1: Estimating AoR Modeling Costs
Activity
Obtaining/compiling data inputs for model (e.g., monitoring and
operating data )
Incorporate monitoring results into computational AoR models
Cost Estimate
Sum of Above = Total Cost
Estimate
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Identifying and Evaluating Additional Wells that Require Corrective Action
Locating wells in the AoR may involve a range of activities, from database searches to ground
surveys to sophisticated remote sensing techniques, such as airborne or geophysical surveys.
If reliable state or local databases exist, an updated data search may suffice, but if well logs or a
physical inspection of known wells is not conclusive (e.g., in areas where land uses rapidly
change), ground or airborne surveys may be needed. An airborne magnetic survey is carried out
using a helicopter which flies over the area to detect well casings. Magnetic surveys can also be
carried out from ground vehicles, but airborne surveys can cover large survey areas much more
efficiently.
If additional wells in the AoR are identified, additional follow-up, research of well records, or
physical inspection of the wells can be used to obtain additional data on the condition of these
wells. The total cost of this activity is the sum of the following (see Table 2):
• The labor hours needed to perform a database search.
• The cost of performing ground or airborne surveys (a function of the size of the AoR).
• The labor hours required to evaluate the condition of the wells.
Table 2: Estimating the Cost of Evaluating Wells in the AoR
Activity
Conduct database search
Perform ground or airborne survey
Evaluate wells
Other
Cost Estimate
Sum of Above = Total
Cost Estimate
Addressing Deficient Wells in the AoR
A deficient well is one that may potentially serve as a conduit for the movement of carbon
dioxide or fluids into USDWs. Available corrective action techniques to address deficient wells
in the AoR include plugging of the injection wells in the AoR or remedial cementing. The total
cost of this activity is dependent on the action taken, the number of wells in the AoR that must be
addressed (if injection well plugging or remedial cementing is used), and the extent of any
additional testing performed. Cost estimates must account for wells to be identified as part of
phased corrective action and any wells identified as part of AoR reevaluations. See Table 3.
• Plugging deficient injection wells involves cleaning out the well (i.e., the removal of
existing plugs and casing strings) and re-plugging the wells using cement that is
compatible with carbon dioxide.
• In remedial cementing, operators squeeze carbon dioxide-compatible cement into
channels or voids between the casing and the borehole to prevent upward migration along
the un-cemented casing.
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Table 3: Estimating the Cost to Address Deficient Wells in the AoR
23
Activity
Plug deficient wells
Perform remedial
cementing
Other testing necessary to
determine well integrity
A
Cost to clean out well
and re-plug well
Cost to cement well
Sampling and analysis
cost per well
B
Number of wells
Number of wells
No. of monitoring
wells
Cost Estimate
Total = A*B
Total = A*B
Total = A*B
Sum of Above =
Total Cost Estimate
Total Costs: AoR Reevaluation and Corrective Action
The total cost estimate for reevaluating the AoR and performing all necessary corrective action is
the sum of the above activities, as illustrated in Table 4 below:
Table 4: Total Cost of AoR Reevaluation and Corrective Action
Activity
Cost to update AoR modeling (from Table 1)
Cost to identify and evaluate additional wells in the AoR (from
Table 2)
Cost to address deficient wells in the AoR (from Table 3)
Cost Estimate
Sum of Above = Total
Cost Estimate
Considerations for Cost Estimation
The following should be considered in estimating and evaluating costs for updating the AoR
model and applying additional corrective action:
• The sophistication of the original AoR calculation model (i.e., how easily its parameters
can be updated to incorporate new data and how well the code is constructed to
accommodate changes in the parameters).
• The type of geophysical or other method used to locate wells in the AoR.
• The anticipated size and shape of the carbon dioxide plume and pressure front. This will
affect the amount of monitoring data that would need to be incorporated into model
updates or the complexity/extent of additional well surveys.
23 This form is one possible method for estimating cost, but it is more likely that insurance for improbable but
sizeable risk events be based on damage estimates rather than the number of wells. The most appropriate estimate
will be project- and project phase-specific.
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• The type of target formation, which may affect the number of wells in the AoR. For GS
projects in saline reservoirs, there may be few, if any, existing wellbores. However, old
abandoned oil and gas fields may have a significant number of wells.
• Geologic conditions, which may affect the modeling sophistication needed to adequately
incorporate operational data and evaluate the plume.
• The pace of development or land use changes in the region, which may increase the
chance that additional wells, including other Class VI wells, have been drilled (or
abandoned) between AoR evaluations. In smaller AoRs with fairly slow or stable
development, database searches may be adequate; otherwise field studies may be
necessary.
• The availability (and completeness) of state and local databases of drinking water wells
and oil and gas exploration wells.
• The condition of the cement and overall well maintenance at the wells, which may impact
the cost of applying corrective action.
• Access to the wells, e.g., if they are on private property.
• Composition of the carbon dioxide stream, which can affect the requirements for the
cement used to plug the well.
2. Plugging the Injection Well(s)
Summary of Requirements
When injection operations are complete, owners or operators must plug injection wells to ensure
that the wells do not become conduits for the movement of carbon dioxide, or other fluids thus
preventing any endangerment of USDWs. This requirement is similar to the financial
responsibility requirements for Class I and II wells. Owners or operators have the flexibility of
choosing from suitable materials and available tests specific to the carbon dioxide GS operations
for meeting the requirements for injection well plugging.
The cost associated with plugging each injection well upon completion of injection operations
through the well includes:
• Flushing the well with a buffer fluid;
• Performing appropriate tests to measure bottomhole reservoir pressure and a final
external mechanical integrity test (MIT) to evaluate the integrity of the existing casing
and cement that will remain in the ground after the well is plugged; and
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• Emplacing plugs made of any material (e.g., cement) compatible with the fluids with
which they may come into contact over all or part of the well, with special care taken to
seal drinking water zones.
Cost estimates for injection well plugging should address all activities described in the owner or
operator's approved Injection Well Plugging Plan. For additional information, see Appendix D,
which presents an Injection Well Plugging and Abandonment checklist developed by the
National UIC Technical Workgroup.
Estimating Costs
Flushing the Well and Performing Pressure Testing and MIT
The costs of well flushing - removing fluids remaining in the long string casing that could react
with the well components over time - typically include a "base cost." This base cost may include
the cost of bringing equipment on site, incurred by the engineering firm performing the flushing.
The total cost of injection well plugging then can be estimated by adding the cost of flushing per
foot/meter multiplied by the average depth of each well and number of wells to the base cost, as
seen in Table 5. The cost of flushing operation normally depends on the materials used and the
diameter of the well. The total cost for flushing the well would be the combination of these costs,
as shown in Table 5.
The purpose of testing bottom-hole reservoir pressure is to determine the appropriate density of
injection well plugging fluids to achieve static equilibrium prior to plug placement.
An external MIT is required to ensure that the long string casing and cement that are left in the
ground after injection well plugging and site closure will maintain integrity over time. A variety
of testing options are available for demonstrating mechanical integrity, including:
• A tracer survey such as oxygen-activation logging. An oxygen activation log is executed
by using high energy neutrons to convert oxygen into nitrogen-16, a gamma-ray emitter
with a very short half life. The nitrogen-16 is generated in the wellbore. As the nitrogen-
16 moves away from the source, nearby detectors will register changes in gamma
radiation. By tracing the gamma rays emitted by the nitrogen-16 as it drifts, this method
can detect the direction and velocity of fluid movement.
• A temperature log that records the temperature down the length of the well. By
comparing the log with the anticipated temperature profile (e.g., the geothermal gradient),
any temperature anomalies, which may indicate leaks, can be located.
• A noise log that uses a microphone and amplifier to detect noise created due to
disturbances or turbulence that may indicate leaks. The log is most often created with
measurements made at various points in the well, though it may also be performed as a
continuous survey.
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In addition to the methods specified above, the UIC Program Director may request any
additional or alternative test to evaluate mechanical integrity, or allow the use of another test
with the written approval of the Administrator.
Reservoir pressure testing and MIT costs typically include a "base cost," e.g., to retain a
contractor or to bring equipment on site, plus a cost per foot/meter multiplied by the depth of the
well. The total cost for the testing would be the sum of these costs, as shown in Table 5.
Table 5: Estimating the Cost of Flushing Injection Wells and Performing the MIT
Activity
Flush injection wells
Measure bottomhole
reservoir pressure
Perform MITs
(e.g., tracer survey,
temperature log, noise
log)
A
Base cost
B
Cost per
foot/meter
C
Average
Well depth
D
Number of
wells
Cost Estimate
Total =A+(B*C*D)
Sum of Above =
Total Cost Estimate
Emplacing Plugs
A variety of methods are available to plug injection wells, including the balance method, the
cement retainer method, and the two-plug method. While most aspects of plugging Class V wells
are similar to the procedures used for other classes of injection wells, the process for Class VI
wells may require the owner or operator to use more plugs or to use carbon dioxide-compatible
cement. The cost of plugging the injection well includes a "base cost" for the services of the
contractor, which includes the cost of preparing the site, and transporting equipment (e.g.,
drilling rigs or pump trucks) to the site. In addition, injection well plugging costs include the cost
of each plug multiplied by the number of plugs per well (e.g., one plug within the injection
formation and one plug from the surface to bottom of the lowermost USDW) summed over the
number of wells, as shown in Table 6.
Table 6: Estimating the Cost to Plug Injection Wells
Activity
Plug injection wells
A
Base cost
B
Cost per
plug
C
Average number
of plugs
D
Number of
wells
Cost Estimate
Total = A+(B*C*D)
Sum of Above =
Total Cost Estimate
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Total Costs: Injection Well Plugging
The total cost estimate for plugging injection wells is the sum of the above cost estimates, as
illustrated in Table 7.
Table 7: Total Cost to Plug Injection Well
Activity
Cost to flush well and perform reservoir pressure test and MIT
(from Table 5)
Cost to plug well (from Table 6)
Cost Estimate
Sum of Above =
Total Cost Estimate
Considerations for Cost Estimation
The following should be considered in estimating and evaluating costs for plugging injection
wells:
• Well depth, which affects the cost of MITs as well as the number of plugs or the amount
of cement needed.
• Composition of the captured carbon dioxide, which may affect what types of cement are
appropriate.
• The presence of multiple subsurface layers with USDWs, which may affect the number
of plugs and the amount and types of cement required.
• Types of subsurface formations, which may affect both the ease of injection well
plugging and the types of cement needed.
3. Post-Injection Site Care
Summary of Requirements
Class VI well operators must follow a Director-approved Post-Injection Site Care and Site
Closure Plan which includes (1) assessing the pressure differential between pre-injection and
predicted post-injection pressures in the injection zone; (2) determining the predicted position of
the plume and associated pressure front at the time the site is closed; (3) developing a description
of post-injection monitoring location(s), methods, and proposed frequency of monitoring; and (4)
maintaining a schedule for submitting post-injection site care and monitoring results to the UIC
Program Director. The plan will be site-specific, but it is assumed that operators would perform
direct monitoring of the pressure front and indirect monitoring of the carbon dioxide plume to
confirm that it is limited to intended zones in a frequency approved by the UIC Program
Director. However, direct monitoring of the plume may be necessary in some cases in which it
may include geochemical monitoring in the injection zone. The operator must conduct post-
injection site care for a default period of 50 years, unless they can demonstrate that the plume
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and pressure front no longer pose a risk of endangerment to USDWs and an alternative
timeframe has been approved by the UIC Program Director. (If such a demonstration cannot be
made after 50 years or after the approved alternative timeframe, the UIC Program Director may
require additional site care.) This requirement is unique to Class VI wells.
Costs associated with post-injection site care include the cost of monitoring/plume tracking
identified in the UIC Program Director-approved Post-Injection Site Care and Site Closure Plan.
It is assumed that the monitoring would include:
• Geochemical sampling and analysis of ground water samples; and
• Determining the extent of the carbon dioxide plume using pressure monitoring or indirect
geophysical methods.
Estimating Costs
Geochemical and Pressure Monitoring
Ground water sampling costs are a function of
the parameters to be analyzed (e.g., carbon
dioxide, salinity, pH, or metals) and the
number of monitoring wells. The worksheet in
Table 8 below illustrates how to estimate the
cost of a round of sampling and analysis which
will be repeated in a Director-approved
frequency during the post-injection site care
period.
Each sampling activity may include a "base
cost" which might be due to general activities
such as retaining a contractor and/or equipment
(e.g., sampling equipment), site visit, labor, etc.
Thus, the total cost of each geochemical
monitoring activity would include this base
cost plus the cost associated with actual sample collection (e.g., using wireline formation testers
and U-Tubes), and analyses of the parameters in the UIC Program Director-approved plan per
well multiplied by the number of monitoring wells subjected to geochemical monitoring (Table
8). Geochemical analyses can be conducted on-site through automated monitoring using down-
hole sensors or off-site through a certified laboratory; off-site analyses may require additional
packing, storing, and shipping costs. The parameters analyzed would be site-specific and detailed
in the UIC Program Director-approved Post-Injection Site Care and Site Closure Plan, which
may include relatively "typical" parameters such as aqueous and pure phase carbon dioxide,
TDS, pH, etc., and heavy metals, organic contaminants, and dissolved minerals (e.g., if site-
specific data indicate a potential for mineralization or mobilization of these parameters). The
composition of injected carbon dioxide, native fluids, and subsurface rock matrix would also be
considered for determining the parameters to be analyzed. The cost of pressure monitoring could
Examples of Sampling and Analysis Activities
• Collect samples
• Pack/store/ship samples
Examples of Parameters
TDS
Salinity
PH
Methane
Ethane, N2
Metals (Na, K, Ca)
Stable isotopes (C, O)
Organic constituents
Dissolved minerals
Aqueous and pure phase carbon dioxide
Pressure
Other parameters
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be estimated in a similar fashion, since it may be conducted through the use of various pressure
sensors (e.g. piezo-electric, transducers, strain gauges, diaphragms, etc.) located down-hole.
For more detailed information on monitoring and testing that is appropriate for GS sites see
"Geologic Sequestration of Carbon Dioxide: Underground Injection Control (UIC) Class VI
Well Testing and Monitoring Guidance for Owners and Operators."
Table 8: Estimating Geochemical Sampling and Pressure Monitoring Costs
Activity
Monitoring
parameters (e.g.
pH, gases, metals,
etc.)
A
Base Cost
B
Average Cost per
well
C
Number of
monitoring wells
Cost Estimate
Total = A+(B*C)
Sum of Above =
Total Cost Estimate
Post-Injection Geophysical Surveys
Various subsurface monitoring techniques that are available to track the extent of a carbon
dioxide plume include both seismic and electrical methods. Although their applicability might be
limited and site-specific, they would create an additional cost during the post-injection site care
period if applied and will therefore be discussed in this Section.
Seismic survey data can be used to evaluate carbon dioxide plume movement by evaluating
changes in fluid properties due to displacement of brine by the carbon dioxide. There are two
major subsurface seismic methods for monitoring: vertical seismic profiling and cross-well
seismic methods.
• Vertical seismic profiling (VSP) is a technique in which surface sources are arrayed
around a well that is in close proximity to a carbon dioxide plume, along with sensors
deployed down-hole. The advantage of VSP is that it offers high quality resolution in the
vicinity of the test well. It can also be used to detect upward migration of carbon dioxide.
• In cross-well seismic methods, seismic sources suspended on a cable are lowered into one
well, and the receivers are lowered into an adjacent well. Both wells must penetrate to the
base of the storage reservoir under investigation. This method results in a two-
dimensional vertical slice of the subsurface with high resolution at the reservoir level.
Some of the other geophysical methods that may be used in a GS site are electromagnetic
surveys (EM), electrical resistance tomography (ERT), and microgravity surveys.
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Appendix C: Cost Estimation Methodology
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The base cost for geophysical methods is
typically a function of costs associated with
retaining a contractor, choice of recording
equipment, choice of source (e.g., seismic
source), labor, etc., and would be a constant
cost for geophysical monitoring activity.
However, the rest of the cost would vary
according to the extent of the area being
surveyed (e.g., number of detectors used/area). Thus, as can be seen in Table 9, the total cost of
geophysical activity would be the sum of the separate costs for each method used, calculated
based on the area surveyed.
Table 9: Estimating Geophysical Monitoring Costs
Examples of Plume Monitoring Activities and
Geophysical Methods
• Seismic surveys
• Electromagnetic surveys (EM)
• Electrical Resistance Tomography (ERT)
• Microgravity surveys
• Other methods
Activity
Geophysical survey
(e.g., seismic survey,
electromagnetic
survey, etc.)
A
Base Cost
B
Cost/square mile or km
C
Survey area (in
square miles or
km)
Cost Estimate
Total = A+(B*C)
Sum of Above =
Total Cost Estimate
Total Costs: Post-Injection Site Care
It is likely that ground water sampling and analysis, pressure monitoring, and plume tracking
would be conducted at different frequencies during the post-injection site care phase of a GS
project and will be site-specific. See Section III for additional information on estimating the total
cost over the life of the post-injection site care.
Considerations for Cost Estimation
The following should be considered in estimating and evaluating costs for post-injection site
care:
• The size and shape of the AoR, which would affect the number of monitoring wells or the
extent of geophysical surveys.
• The site characteristics, depth and proximity of USDWs and the depth and thickness of
the confining zone(s), which may affect the amount of monitoring expected, particularly
the need for monitoring wells to ensure that drinking water supplies are unaffected by the
GS project.
• The composition of the carbon dioxide and subsurface aqueous and solid geochemistry
and mineralogy, which would impact ground water monitoring needs.
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• Baseline geochemistry at the site, which would impact the potential for certain metals or
minerals to be mobilized.
• Whether tracers are used, and must therefore be monitored.
4. Site Closure
Summary of Requirements
Before the UIC Program Director can authorize closure of the GS site, the owner or operator
must perform and submit a non-endangerment demonstration that the site no longer poses a risk
of endangerment to USDWs [40 CFR 146.93(b)(3)]. At this point, the UIC Program Director
would determine whether further monitoring is necessary or authorize closure of the site. This
pre-closure demonstration of non-endangerment is unique for Class VI wells.
After site closure is authorized by the UIC Program Director, the owner or operator will plug all
monitoring wells in a manner that will prevent endangerment of USDWs and as described in the
UIC Program Director-approved Post-Injection Site Care and Site Closure Plan.
Costs associated with closing a GS project include costs of the following activities:
• Performing a non-endangerment demonstration; and
• Plugging monitoring wells.
Estimating Costs
Perform Non-Endangerment Demonstration
The non-endangerment demonstration will likely be an analysis of the entire site (including
reviews of geochemical and pressure monitoring and geophysical or other site-specific data), and
a report by a professional geologist or engineer that no additional monitoring is needed to ensure
that the GS project does not pose an endangerment to USDWs. Sources of estimates of the cost
of this demonstration are independent third party professional engineers, geologists, or
geological or engineering firms.
Table 10: Estimating the Cost to Demonstrate Non-Endangerment
Activity
Prepare non-endangerment demonstration report
Cost Estimate
Sum of Above = Total Cost
Estimate
UIC Program Class VI Financial Responsibility Guidance C-14
Appendix C: Cost Estimation Methodology
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Plug Monitoring Wells
Because monitoring wells are used for post-injection site monitoring, they are not plugged after
the completion of injection. Once PISC monitoring is complete and the UIC Program Director
has authorized site closure, the owner or operator must plug the monitoring wells in a manner
which will prevent the movement of injection or formation fluids that could endanger USDWs
[40 CFR 146.93(e)]. Estimating the cost to plug a monitoring well is a function of the number of
plugs and the number of monitoring wells, which would include any additional wells drilled for
the purpose of post-injection monitoring, as shown in Table 11.
Table 11: Estimating the Cost to Plug Monitoring Wells
Activity
Plug monitoring
wells
A
Cost per plug
B
Number of plugs per
monitoring well
C
Number of
monitoring wells
Cost Estimate
Total = A*B*C
Sum of Above =
Total Cost Estimate
Total Costs: Site Closure
The estimated total cost of site closure is the sum of the activities in Tables 10 and 11, as
illustrated in Table 12 below.
Table 12: Total Cost of Site Closure
Activity
Cost to prepare non-endangerment demonstration (from Table 10)
Cost to plug monitoring wells (from Table 11)
Cost Estimate
Sum of Above =
Estimate
Total Cost
Considerations for Cost Estimation
The following should be considered in estimating and evaluating costs for GS site closure:
• The anticipated size and shape of the carbon dioxide plume. This will affect the amount
of data collected during the post-injection monitoring phase that would need to be
evaluated in preparing the non-endangerment demonstration.
• The composition of the carbon dioxide stream and subsurface geochemistry and
mineralogy, which would impact ground water monitoring requirements and therefore the
amount of data to be evaluated for the non-endangerment demonstration. The
composition of the carbon dioxide can also affect appropriate plugs and cements for
plugging monitoring wells.
• Geologic conditions that may affect the sophistication of the analysis needed for the non-
endangerment demonstration.
UIC Program Class VI Financial Responsibility Guidance
Appendix C: Cost Estimation Methodology
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• Monitoring well depth, which would affect the number of plugs and the types and amount
of cement needed.
• The presence of multiple subsurface layers with USDWs, which would impact the
number of plugs and types of cement required.
• The types of subsurface formations, which may impact the ease of plugging and the types
of cement needed.
5. Emergency and Remedial Response
Summary of Requirements
The Class VIUIC permit will contain a Director-approved Emergency and Remedial Response
Plan that describes actions to be taken to address movement of injection or formation fluids or
other events that may endanger USDWs. If evidence shows potential endangerment of USDWs
(per 40 CFR 146.94), the owner or operator must cease injection and notify the UIC Program
Director, investigate and identify the carbon dioxide release, and then implement the Emergency
and Remedial Response Plan.
Owners or operators must provide financial assurance that resources are available to implement
the Emergency and Remedial Response Plan, i.e., to perform any necessary remediation to
address contamination that results from carbon dioxide leaks or fluid movement. The
requirement to provide financial assurance for emergency and remedial response is unique for
Class VI wells.
Examples of Events Which May Necessitate
Emergency and Remedial Response
• Injection well malfunction
• Ground water contamination
Estimating Costs
Estimating financial responsibility needs
for emergency and remedial response is
complicated by uncertainties as to whether
such events will occur and the nature of , Monitoring well failure
the events (and therefore the cost of
responding). While the probability will be
low that emergency and remedial response will be necessary at a GS site, it is important that the
potential for such events is not underestimated and that adequate resources are available to
address such contingencies. Estimating these costs will require an assessment of the risk
involved. The owner or operator's in-house risk manager will be a reliable sources of
information needed to identify the appropriate size of an insurance policy, bond, or other
financial responsibility instrument. Also, environmental and engineering firms, which typically
perform "emergency response" type activities on a contractual basis, may be able to provide base
cost estimates.
Each GS site will be unique; therefore the risks and events that may require a remedial response
and the actions that a GS project operator would take to address potential endangerment of
UIC Program Class VI Financial Responsibility Guidance C-16
Appendix C: Cost Estimation Methodology
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USDWs (that meets the requirements of 40 CFR 146.94) will be unique to each site. Examples of
emergency and remedial responses may include those listed in Table 13.
Table 13: Emergency and Remedial Response Actions
Activity
Response actions to address unplanned event
Cost Estimate
Sum of Above = Total Cost Estimate
Considerations for Cost Estimation
The following should be considered in estimating and evaluating costs related to emergency and
remedial response:
• The size of the site, including the volume of carbon dioxide injected.
• The number of injection wells and their age (for converted wells), which may affect the
likelihood of a well failure.
• The risks of occurrence of the known scenarios which could require emergency or
remedial response actions.
• The composition of the carbon dioxide and subsurface geochemistry and mineralogy,
which would impact the potential for ground water contamination.
• The presence of communities, drinking water systems, residences, or buildings near the
injection site or within the AoR.
• Proximity to USDWs or other drinking water sources.
III. Lifetime Costs for a GS project
The purpose of financial responsibility is to ensure that there will be sufficient funds to fully
cover specified costs. Because GS projects occur over long time frames (i.e., decades), it is
important to recognize that costs projected over extended periods are inexact. Uncertainty may
exist for future prices. Price changes may be due to inflation, relative price changes, or changes
in technology. For this reason, 40 CFR146.85(c) requires an annual reevaluation of costs to
account for changes in cost over time.
Variation in the number of times activities may occur is another source of uncertainty. Between
the selection of a site and its ultimate closure, some activities may occur just once, while others
may occur hundreds of times. For example, some activities, such as injection well plugging, will
happen once in the project's lifespan, while monitoring will occur periodically and corrective
action or remedial responses may occur infrequently or never at all.
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The owner or operator should consider all likely scenarios when estimating the costs that would
need to be covered by their financial responsibility instrument.
While it is difficult to make exact predictions of when these "milestone" activities will occur, an
owner or operator is likely to have information available at the time of the permit application
(e.g., reservoir data and the anticipated rates/volumes of carbon dioxide to be injected) to support
reasonable estimates. In addition, all of the activities for which financial responsibility must be
provided will be described in the various plans the owner or operator must develop at the time of
their permit application and concurrently with the financial responsibility determination. Table
14 presents the frequency at which GS activities might occur and some data sources an owner or
operator might consider in estimating the timing of each event.
Table 14: GS Project Scheduling
Activities whose costs
should be covered by the
Owner or Operator's
Financial Responsibility
Instrument
Performing corrective action
Plugging the injection well(s)
Post-injection site care
Site closure
Emergency and remedial
response
Frequency
Periodically throughout the
operational phase or as needed.
One time
Periodically throughout the post-
injection phase; varies by site and
type of monitoring activity
One time
As needed
Sources of Information
• AoR and Corrective Action Plan
• Anticipated carbon dioxide
volumes and reservoir data
• AoR delineation model
• Injection Well Plugging Plan
• Reservoir data
• Post-Injection Site Care and Site
Closure Plan
• Post-injection Site Care and Site
Closure Plan
• Emergency and Remedial
Response Plan
GS project operators should pursue a conservative approach to cost estimation, taking into
account contingency factors. Ultimately, the appropriate level of financial responsibility required
for a site will be approved by the UIC Program Director based on their evaluation of site-specific
information and may be much higher than the amount necessary to cover the best-case scenario,
even though the best-case scenario may be the most likely scenario to occur.
To the extent possible, owners or operators are encouraged to estimate the uncertainty associated
with the variability of the data in quantitative or qualitative terms. Descriptions of uncertainty
may include assumptions and methods used to estimate costs and the use sensitivity analysis to
identify where the improvement in state of knowledge could be made to reduce this uncertainty.
To the extent technological advancements can improve knowledge in these identified areas the
uncertainty in the cost estimate may be reduced. Financial responsibility cost estimates may be
based on risk assessments where best professional judgment is used to select inputs to baseline
risk and risk reduction models. Risk modeling efforts may be performed by the owner or
operator, or an independent third party in cases where an independent third party provides a
financial responsibility instrument.
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Appendix C: Cost Estimation Methodology
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Additional sources for cost estimation information include:
• The U.S. Department of Energy's Energy Information Administration, which publishes an
Annual Energy Outlook.
• The U.S. Bureau of Labor Statistics which publishes annual occupational employment
statistics (including wage date), the Producer Price Index, and the Consumer Price Index.
• Industry publications, such as the Oil and Gas Journal, which publishes indices of
construction costs.
• Financial institutions through which financial responsibility instruments are acquired.
• Commercially-available "cost estimation" software products.
Estimating Total GS Project Costs
Exhibit 3 illustrates how scheduling information can be used to estimate the total costs to support
financial responsibility demonstrations for GS projects. The scheduling of anticipated activities
can be estimated as described under "Scheduling GS Project Milestones" earlier in this Section.
The cost estimates for each activity in the schedule would be based on the tables in Section II.
UIC Program Class VI Financial Responsibility Guidance C-19
Appendix C: Cost Estimation Methodology
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Exhibit 3: Estimating Total GS Costs
One Time Activities
Periodic or Recurring
Activities
Uncertain Activities
Siting
T
Area of Review Model AoR
and Corrective Table 1
Action
T
Well
Construction
T
Injection/
Operation/
Monitoring
AoR
Reevaluation
and Corrective
Action
T
Injection Well
Plugging
Flush Injection Wells and
perform testing/MIT
Table 5
Plug Injection Well
Table 6
Post-injection
Site Care
Site Closure
Perform Non-Endangerment
Demonstration
Table 10
Plug Monitoring Wells
Table 11
Evaluate Wells
Table 2
Address Deficient Wells
Table 3
Reevaluate AoR
Table 1
Evaluate Wells
Table 2
Address Deficient Wells
Table 3
Emergency and
Remedial
Response
Implement Response
Actions as Needed
Table 13
Perform Geochemical
Sampling and Pressure
Monitoring
Table 8
Conduct Geophysical
Monitoring
Table 9
Long-term Care
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Appendix C: Cost Estimation Methodology
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Appendix D: Injection Well Plugging and Abandonment Checklist for Financial Responsibility
Cost Determination
Available online at: http://www.epa.gov/r5water/uic/ntwg/p-achecklist.pdf
P&A CHECKLIST
For Financial Responsibility Cost Determination
Facility Name:
EPA Well ID:
Well Location:
Well Class:
Type of Well:
List USDWs:
Formation Name
Formation Top
Formation Bottom
Is well construction information current? Y/N
Current Well Construction Information
(Attach a well bore diagram):
UIC Program Class VI Financial Responsibility Guidance
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Well Construction Information
Surface
Intermediate
Long String (Production)
Liner
Tubing
Other (additional casing string)
Hole
Size
Casing Size
Depth Set
Sacks of
Cement
Describe the weight and grade of the material casing strings and tubing are constructed:
Surface:
Intermediate:
Long String:
Additional string(s):
Tubing:
List all perforation(s) past and present:
Perforations
1
2
3
4
5
6
Depth to
Top of Perf
Dept to
Bottom of
Perf
Active or
Plugged
Formation
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If the perforation has been plugged, list the date and describe the procedure, including cement
used, cement tops, etc.:
Total Well Depth:
Packer Type:
Packer Depth:
Additional packer information:
Perforations:!)
Plug Locations Required for Proper P&A:
Plug Identifier*
Plug Top
Plug Bottom
Resource Being Protected
(USDW, gas, coal, etc.)
*Plug Identifier: Examples, 7" casing shoe 2700'-2600', surface, perforations 2100'-1900'
Have any intervals/sections of the wellbore been plugged previously? If so, give the location of
the plugs, the circumstances that required the plug and how the plug was set.
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Injection Well Plugging and Abandonment
Normal Costs
1 Rig Costs
Travel: miles @ $_
Labor: hrs (a),
(Super & Crew)
Equipment Costs hrs @ $
(Rig cost, drilling package, etc.)
Miscellaneous Site Costs (Tubing work string rental,
water storage, flow tanks, mud pit, etc.)
hrs. @ $
Well Head Cutting
Cement Tagging$ per#
Pulling Casing/Tubing
hrs.@ $_
2. Cement Costs
Pump Truck & Operator (Including Set Up)
hrs.@ $
Tank Truck & Operator
hrs (2> $
Cement
sacks @ /sk
Type Cement
Type Cement_
_sacks @ /sk
Cement Retainer(s) $ each
List Retainers:
Cement Additives (high temperature/pressure)
UIC Program Class VI Financial Responsibility Guidance D-4
Appendix D: Plugging and Abandonment Checklist
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Balance Plug inc. fluids and testing
$ per plug x count
List Plugs:
Surface Plug inc. fluids and testing
$
Wireline Service
Transportation hrs. @ $_
Labor: hrs @
Service Charges
Perf/Squeeze shots @ $ /shot
Cut Casing event(s) @ $
Cement Retainer(s) $ each
List Retainers:
TOC Log
Depth charge for gage rings, junk basket
ft@,$
Specialized tools for fluid sampling
4 Site Preparations & Costs
General Site Engineering & Plan Development
Owner or Operator Site Supervisor
Backhoe & Operator
hrs @ $
UIC Program Class VI Financial Responsibility Guidance D-5
Appendix D: Plugging and Abandonment Checklist
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Dozer & Operator
hrs (2> $
Road Construction and Improvement Costs
Pit Liner
5. Transportation & Miscellaneous
Special Land Use Costs (Zoning & Permits)
Winch truck w/driver (wages & mileage)
hrs @ $
Water truck w/ driver (wages & mileage)
hrs @ $
Vacuum Truck w/ driver (wages & mileage)
hrs @ $
2 axle rig-up truck driver& crew wages & mileage)
hrs @ $
1 axle truck w/ driver (wages & mileage)
hrs (5) $
Hot oiler (equip, labor & mileage)
hrs (S, $
Welder (equip, labor & mileage)
hrs (a $
Packer Fluid per specs.
$ per bbl
Hydraulic Jacks hrs @ $_
Bridge Plug
Waste Disposal Costs
Tool Rental (Ex: Casing Ripper, Collar Buster, etc.)
List:
a.
b.
c.
UIC Program Class VI Financial Responsibility Guidance D-6
Appendix D: Plugging and Abandonment Checklist
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6 Land Reclamation
(State Delegated Programs)
Please provide comments and language
1. Remediation Costs (mostly shallow wells)
Sample Analysis (fluid or soil)
Soil Removal
Site Assessment Study Costs
System Removal Costs
Disposal System Modification Costs
Installation of Monitoring Well Costs
# Wells
Type
Depth
Construction
Subtotal
TOTAL
Contingency
Inflation Costs =
(% Cost x yrs since plan developed)
TOTAL AMOUNT
Rounded to $100.00 =
UIC Program Class VI Financial Responsibility Guidance
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