Jump to main content.


TSDFs: Meeting the Financial Assurance Requirements

Highlights

This section includes the following:

How much financial assurance do I need for closure and post-closure and how do I demonstrate meeting the requirements?

All units that manage hazardous waste are required to demonstrate financial assurance for closure. The first step in this process is preparing a closure cost estimate. Closure costs include the expenses for ceasing operation of the unit or facility and safely closing the unit and cleaning up any contamination. Post-Closure care costs include long-term maintenance of the unit or facility, monitoring, and record keeping during the required post-closure care period. Units that will be clean closed (i.e., tanks, surface impoundments, or waste piles where all wastes and contaminated soils and equipment are removed) are not subject to post-closure care financial assurance requirements.

Owner/operators calculate cost estimates based on the cost of paying a third party to perform the required closure and post-closure care activities as outlined in the facility's operating permit. Cost estimates must be adjusted annually throughout the operational life of the facility to account for inflation. Owner/operators may either recalculate these costs each year, or use the Department of Commerce, Bureau of Economic Analysis' Implicit Price Deflator (IPD) to calculate the inflation factor and adjust the initial cost estimate. Instructions for using the IPD are included in the regulations (see §264/265.142(b)).

In cases where the owner/operators are subject to both the closure and post-closure care financial assurance requirements, they must prepare cost estimates for both closure activities and post-closure care activities and demonstrate financial assurance for each expense.

The regulations in Subpart H outline how hazardous waste TSDF owner/operators should determine cost estimates, the acceptable mechanisms for demonstrating financial assurance, and the minimum amounts of liability coverage required. (For more information on closure and post-closure, see Closure and Post-Closure Care for Hazardous Waste TSDFs.)

Top of Page

What financial assurance mechanisms/instruments can I use?

There are several allowable financial assurance mechanisms/instruments described in the regulations that an owner/operator may use alone, or in combination, to demonstrate that they meet the closure and post-closure care financial assurance requirements. These mechanisms are described below.

Trust Fund (§264/265.143(a))
An owner/operator may establish a trust fund into which he deposits money specifically earmarked for closure and/or post-closure care. The owner/operator pays into the trust fund for a specified period of time (pay-in period) such that at the time of closure, there are sufficient funds to cover closure and/or post-closure care costs.

Top of Page

Surety Bond (§264.143(b) & (c); §265.143(b))
An owner/operator may secure a guarantee from a surety company (in the form of a bond) that all closure and/or post-closure care requirements will be fulfilled. If the owner/operator fails to meet the requirements specified in the bond, the surety company is liable for the costs. If using a surety bond, the owner/operator must also establish a standby trust fund, into which the surety company will make payments if the owner/operate fails to comply with its financial responsibilities. This money deposited into the standby trust fund can then be used to pay a third party to perform closure/post-closure.

An owner/operator may use two types of bonds to meet the financial assurance requirements—payment bond or a performance bond. A payment bond guarantees that if the owner/operator fails to pay for closure and/or post-closure, the surety company will pay the costs into the standby trust fund. A performance bond guarantees that if the owner/operator fails to perform all the required closure and/or post-closure care activities, the surety company will either perform the required activities or pay sufficient funds into the standby trust fund.

Top of Page

Letter of Credit (§264.143(d); §265.143(c))
An owner/operator may obtain an irrevocable standby letter of credit from an institution that has the authority to issue such letters. The letter of credit must be equal to the amount of the cost estimate and must be increased when ever the closure cost estimate increases (i.e., either annually or when the facility is expanded). The owner/operator must also establish a standby trust fund into which the letter of credit issuing institution will pay if the owner/operator fails to meet its closure/post-closure care obligations.

Top of Page

Insurance(§264.143(e), §265.143(d))
An owner/operator may obtain an insurance policy for a face value amount at least equal to the cost estimate for closure/post-closure expenses. The face amount, which is the total amount the insurer is obligated to pay under the policy, must be increased annually and any other time the cost estimate increases. The insurer must be licensed by a state (use of offshore insurers is not allowed) and may not cancel, terminate, or fail to renew the policy unless the owner/operator fails to pay the premiums.

Top of Page

Financial Test(§264.143(f), §265.143(e))
An owner/operator can meet the financial assurance requirements by passing one of the two alternative financial tests specified in the regulations. These tests demonstrate and document that the owner/operator has sufficient assets located within the United States to cover closure and/or post-closure care costs. The two alternative tests are:

Alternative 1. The owner and operator must meet each of the following criteria:

and, the owner and operator must satisfy two of the following three ratios:

Alternative 2. The owner and operator must meet each of the following criteria:
The owner or operator must submit updated information to the regulatory authority within 90 days after the close of each succeeding fiscal year.

Top of Page

Corporate Guarantee (§264.143(f); §265.143(e))
An owner/operator may obtain a written guarantee from another company (the guarantor) to ensure coverage for closure/post-closure care costs. In order to do this, the guarantor must be a direct corporate parent company (a corporation that directly owns at least 50 percent of the voting stock of another corporation or subsidiary), a corporate grandparent (a corporation that indirectly owns over 50 percent of a company through a subsidiary), a sibling corporation (a corporation that shares the same parent corporation), or a firm with a “substantial business relationship” with the owner/operator. The guarantor also must meet the requirements of either of the two alternative financial tests previously discussed. If the owner/operator fails to perform or pay for closure/post-closure care, the guarantor must either perform the required activities or establish a trust fund to pay a third party to perform closure/post-closure care. As with the financial test, the owner or operator must submit updated information to the regulatory authority within 90 days after the close of each succeeding fiscal year.

Top of Page

What are the Liability Requirements?

Under the RCRA liability coverage regulations (found at 40 CFR Part 264/265, Subpart H), all owners and operators of hazardous waste TSDFs are required to maintain accident liability insurance during the active life of their hazardous waste management units or facilities. This liability coverage ensures that sufficient money will be available to compensate third parties that are either physically harmed or have property damaged by an accidental release of hazardous constituents from a hazardous waste TSDF. To demonstrate liability coverage, owner/operators can use any one or combination of the following financial mechanisms: liability insurance, financial test, corporate guarantee, letter of credit, surety bond, or trust fund. These financial mechanisms are similar to the allowable mechanisms used to meet the closure and post-closure care financial assurance requirements. The specific requirements for use of each mechanism are spelled out in the regulations (see §264/265.147).

The liability coverage regulations designate two categories for which a TSDF may be required to demonstrate liability coverage -- sudden and nonsudden accidental occurrences. Sudden accidental occurrences are defined as releases that are not continuous or repeated. Examples include fires and explosions. All TSDF owner/operators are required to demonstrate coverage for sudden accidental releases for at least $1 million per occurrence and an annual aggregate of at least $2 million. Nonsudden accidental occurrences take place over an extended time and involve continuous or repeated release or exposure to hazardous waste (e.g., liquid waste leaking from a surface impoundment or landfill and contaminating groundwater supplies). Only owners/operators of hazardous waste land-based hazardous waste management units (i.e., surface impoundments, landfills, land treatment units, some miscellaneous disposal units) are required to demonstrate nonsudden accidental occurrence liability coverage. An owner/operator may use one or more of the approved financial mechanisms (i.e., liability insurance, financial test, corporate guarantee, letter of credit, surety bond, trust fund) to demonstrate this coverage. Minimum nonsudden accidental occurrence coverage must be at least $3 million per occurrence and an annual aggregate of at least $6 million. An owner/operator may combine sudden and nonsudden liability coverages, provided the total coverage equals the sum of the individual requirements (i.e., a combined total of at least $4 million per occurrence and an annual aggregate of at least $8 million).

Top of Page


Local Navigation




Jump to main content.