6 Colo. Code Regs. § 1007-3-8.83
These amendments to 6 CCR 1007-3, Part 266 are made pursuant to the authority granted to the Solid and Hazardous Waste Commission in §§ 25-15-302(2), C.R.S.
Amendment of 6 CCR 1007-3, Part 266 Financial Requirements
The purpose of Part 266 of these regulations is to 1) provide assurance that funds will be available to the Department when needed for adequate closure and/or post-closure care of hazardous waste management facilities should the owner and/or operator become financially non-viable and 2) provide liability coverage for the compensation of third parties for bodily injury or property damage caused by accidents or improper hazardous waste management techniques. These regulations require the owners and/or operators to estimate the costs of closure and/or post-closure care of hazardous waste management facilities and assure financial responsibility for those costs through any of four mechanisms: trust fund, letter of credit, surety bond, and insurance.
These regulations also assure that funds will be available to third parties injured by accidents or improper hazardous waste management techniques at a facility, or who have experienced property damage at or caused by the facility.
A number of changes have been made in Part 266 that are more restrictive than the Federal regulations.
These changes to Part 266 are a result of, and respond to, concerns of the Department after many years of program implementation and vulnerabilities in the existing regulations that have been exposed by a) research done by EPA's Environmental Financial Advisory Board ("EFAB") and b) effects of the recent economic recession. The proposed regulatory changes were developed utilizing a series of three stakeholder meetings at which comments were received from interested parties, discussed, and incorporated as appropriate. The Department believes that all stakeholder concerns have been resolved.
Discussion of the Regulatory Proposal
Most of the changes proposed in this rulemaking to Part 266 fall into the two main categories discussed below:
The remainder of the changes are small clarifications.
At the present time, no owners or operators of hazardous waste facilities in Colorado are using the Financial Test or the Corporate Guarantee.
The Financial Test and Corporate Guarantee mechanisms rely on the continuing ability of the regulated entity to pay closure and/or post-closure costs. That is to say, the owner/operator ("o/o") of a hazardous waste facility may demonstrate its ability to pay for the cost of closure and/or post-closure care by presenting information about its own financial health. When the o/o meets certain requirements, it is not required to arrange with a third-party to guarantee payment of closure and/or post-closure costs, nor is it required to set aside funds. Under this mechanism, when closure and/or post-closure costs need to be paid, the o/o continues to be solely responsible for paying them.
These amendments to § 266.14(i) and § 266.16(f) and (g) remove the Financial Test and Corporate Guarantee from the allowable mechanisms in the regulations because this mechanism presents an overall risk that is unacceptable considering the following:
* Most companies with closure and/or post-closure liabilities are not hazardous waste management companies, but are involved in some other manufacturing or processing endeavor. As such, Department staff does not necessarily have current information about the financial health of that industry, let alone that particular company.
* The responsibilities of Department staff involve protection of public health and the environment. Normally, this does not include financial regulation and oversight.
* As demonstrated by the ASARCO facilities, which used the Financial Test at one time, the financial viability of companies can change very rapidly. The ASARCO facility in Denver has one old surface impoundment in post-closure that was covered by the Financial Test. When ASARCO unexpectedly declared bankruptcy, the Financial Test would no longer assure their post-closure costs. As a result of the bankruptcy, ASARCO was unable obtain a different financial assurance mechanism, and the only way cleanup was obtained was through a purchase and absorption of all ASARCO assets and liabilities by Grupo Mexico. However, financial assurance has never been established for the ASARCO facility since the bankruptcy.
* The EFAB, in their January 11, 2006 report, observes that "very little information [is available] concerning the utilization of the Financial Test by small entities, and particularly those without a bond rating. If the small company is private, it is not subject to the same financial disclosure requirements imposed on public companies."1 While some of the companies required to have financial assurance in Colorado are large publicly-traded corporations, this is not true of them all. For instance, International Risk Group, LLC ("IRG") is a privately held company that specializes in the remediation of environmentally impaired land and property. IRG's affiliate, Lowry Assumptions, LLC, has an agreement with the Department and the US Air Force for the remediation of the Former Lowry Air Force Base, and as such must provide financial assurance. Lowry Assumptions, LLC, currently makes use of other approved financial assurance mechanisms. Had IRG wanted to use the Financial Test or Corporate Guarantee, the Department may not have been able to verify IRGs ability to fund its closure and post-closure responsibilities.2
It should be noted that the EFAB, making recommendations at the national level, did not have sufficient concerns as to recommend to EPA that the Financial Test and Corporate Guarantee be removed as a financial assurance mechanism. Part of the EFAB's reasoning included a cost burden to industry in transferring to another mechanism. This is not the case in Colorado, as we currently have no facilities using the Financial Test or Corporate Guarantee. The EFAB did, however, recommend tightening the requirements for the Financial Test and Corporate Guarantee.
These amendments to § 266.14(h) and § 266.16(h) strengthen the requirements for Insurance Companies to include qualifications for the Insurer. The Insurer must, at a minimum:
The Department has chosen to utilize an A.M. Best rating to assure that the Insurer has the financial strength to secure their liabilities. A.M. Best is a third party rating agency that evaluates all insurers and is the top rated third-party agency to provide their type of analysis and research. A rating of A- means that the Insurer has a very good financial prognosis and is not at risk of becoming financially insolvent. An Insurer will also have to demonstrate that they have at least $100 million or greater in capital and surplus beyond the liability of their outstanding policies. This will ensure that the liability covered by the policy will be guaranteed even if other outstanding policies are paid in full. The Department is also requiring an owner and/or operator to submit the insurance policy to the Department before it is approved for financial assurance. This will ensure that the policy coverage adequately meets the required needs of the closure, post-closure and/or corrective action at the facility before the policy is bound.
These amendments to § 266.14(h) also strengthen the requirements for captive insurance providers. A captive insurance company is a closely-held company owned by one or more organizations or parents whose original purpose was, and may continue to be, to insure some or all of the risks of shareholders or affiliated organizations. It is used in areas other than environmental protection where parent firms find it to their advantage to set up a captive insurance company to cover well-understood risks at a lower cost than purchasing insurance policies available from commercial carriers. As a result, the financial health of the captive insurance company is closely tied with the parent company, so if the parent company encounters financial difficulties there is no guarantee that the captive insurance company would retain the necessary resources to fund any closure and/or post-closure liabilities they may have.
The Department has had concerns about captive insurance for some time. These concerns include the following:
These concerns have been adequately addressed by adding the same requirements that were added for all insurers, as explained above. In addition, requirements have been added that the captive insurer be domiciled in the State of Vermont and that the captive insurer gives the Department at least 180 days notice before defunding a captive insurance policy. The Department is proposing that all captive insurance companies be domiciled in Vermont because Vermont regulates more captive insurance entities than any other state and has developed regulations that keep pace with, and effectively control, the captive insurance industry. The Department has also required that if the captive insurance company fails to pass the annual examination conducted by the Department of Financial Regulation of Vermont, the o/o shall submit notification to the Department, at which point a different approved mechanism would need to be secured. The 180-day notice allows the Department to work with the company to put another approved financial assurance mechanism in place before the captive insurance policy lapses.
The EFAB also evaluated captive insurance in March 2007.3 In that evaluation, the EFAB recognized that an A.M. Best Rating and the Department of Financial Regulation of Vermont's standards and expertise as the best available.
1 U.S. Environmental Protection Agency Environmental Financial Advisory Board, January 11, 2006 report: EFAB initial findings concerning use of the financial test and corporate guarantee to meet financial assurance requirements under RCRA programs.
2 IRG is in complete compliance with all of its current financial assurance requirements. It is only being used in this Statement of Basis and Purpose as an example of a small privately-held company that has financial assurance responsibilities.
3 U.S. Environmental Protection Agency Environmental Financial Advisory Board, March 20, 2007 report: EFAB Report on the Use of Captive Insurance as Financial Assurance Tool in the EPA Office of Solid Waste and Emergency Response (OSWER) Programs. OSWER Programs include the hazardous waste program.
Statement of Basis and Purpose Rulemaking Hearing of May 20, 2014
6 CCR 1007-3-8.83