N.J. Admin. Code § 7:1E-4.4

Current through Register Vol. 56, No. 11, June 3, 2024

Section 7:1E-4.4 - Financial responsibility

(a) The owner or operator of a major facility shall demonstrate financial responsibility for cleanup and removal activities.

(b) The owner or operator of a major facility shall demonstrate financial responsibility in the minimum amount of $ 1 million per occurrence and $ 2 million annual aggregate; provided, however, that if the owner or operator establishes to the satisfaction of the Department that a lesser amount will be sufficient to protect the environment and public health, safety and welfare, the Department may accept evidence of financial responsibility in such lesser amount. In determining the sufficiency of the amount of financial responsibility, the Department may consider factors including, without limitation, the nature and quantity of the hazardous substances which may be present at the facility, and the proximity and nature of environmentally sensitive areas located near the facility.

(c) The required per occurrence and annual aggregate coverage amounts do not in any way limit the liability of the owner or operator.

(d) Financial responsibility may be established by any one, or by any combination, of the following mechanisms:

1. Financial test of self-insurance;

2. Guarantee;

3. Insurance or risk retention group coverage;

4. Surety bond; or

5. Letter of credit.

(e) The owner or operator of any major facility which demonstrates financial responsibility pursuant to the requirements of the Federal Oil Pollution Act of 1990, P.L. 101-380, shall be deemed to have demonstrated financial responsibility in accordance with this chapter and the Act.

(f) An owner or operator may use self-insurance in combination with a guarantee only if, for the purposes of meeting the requirements of the financial test under this rule, the financial statements of the owner or operator are not consolidated with the financial statements of the guarantor.

(g) To pass the financial test of self-insurance, the owner or operator or guarantor must meet the criteria of (g)1, 2, 3 or 4 below based on the year-end financial statements of the latest completed financial reporting year. The owner or operator must maintain onsite a letter signed by the chief financial officer worded as specified in Appendix B, incorporated herein by reference. This letter shall be updated within 120 days of the close of each financial reporting year.

1. The owner or operator or guarantor must have a tangible net worth of at least $ 10 million, and the owner or operator or guarantor must:

i. Have a tangible net worth of at least 10 times the required aggregate amount in (b) above plus any other liability coverage for which the owner or operator is using a financial test to demonstrate financial responsibility to the State or EPA;

ii. Either file financial statements annually with the U.S. Securities and Exchange Commission, the Energy Information Administration, the Rural Utilities Services, or the Board of Public Utilities; or report annually the firm's tangible net worth to Dun and Bradstreet, and Dun and Bradstreet must have assigned the firm a financial strength rating of 4A or 5A; and

iii. Have year-end financial statements which, if independently audited, do not include an adverse auditor's opinion, a disclaimer of opinion, or a "going concern" qualification;

2. The owner or operator or guarantor must have a bond rating of AAA, AA, A or BBB as issued by Standard and Poor's, or Aaa, Aa, A or Baa as issued by Moody's, or net working capital of at least six times the required aggregate amount in (b) above plus any other liability coverage being provided by a financial test, and the owner or operator, or the guarantor, must have:

i. A tangible net worth of at least six times the applicable aggregate amount in (b) above;

ii. U.S. assets that are at least 90 percent of total assets or at least six times the required aggregate amount in (b) above plus any other liability coverage being provided by a financial test; and

iii. Fiscal year-end financial statements filed with U.S. Securities and Exchange Commission, Energy Information Administration, the Rural Utilities Services, or the Board of Public Utilities, or a special report by an independent certified public accountant stating that the data specified in the letter from the chief financial officer have been compared to the data in the latest financial statements and that no matters have come to his or her attention which cause him or her to believe that the data should be adjusted;

3. If the owner or operator is a local government and wishes to use a bond rating as the basis of the financial test, said government must have a bond rating of AAA, AA, A or BBB from Standard and Poor's, or Aaa, Aa, A or Baa from Moody's on outstanding issues. Where a local government has multiple outstanding issues, or where a local government's bonds are rated by both Standard and Poor's and Moody's, the lowest rating must be used to determine eligibility, and a copy of the bond rating published within the last 12 months shall be maintained. The owner or operator must maintain onsite a letter signed by the chief financial officer worded as specified in Appendix B, incorporated herein by reference. The local government shall also:

i. If a general purpose local government, have a currently outstanding issue or issues of general obligation bonds of $ 1 million or more, excluding refunded obligations. Bonds that are backed by credit enhancement other than municipal bond insurance shall not be considered in determining the amount of applicable bonds outstanding; and

ii. If other than a general purpose local government, have a currently outstanding issue or issues of revenue bonds of $ 1 million or more, excluding refunded issues. Bonds that are backed by credit enhancement other than municipal bond insurance shall not be considered in determining the amount of applicable bonds outstanding; or

4. If the owner or operator is a local government, said government must have the ability and authority to assess and levy taxes or to freely establish fees and charges. The local government's year-end financial statements, if independently audited, shall not include an adverse auditor's opinion or a disclaimer of opinion. The local government shall not have outstanding issues of general obligation or revenue bonds that are rated as less than investment grade. The owner or operator must maintain onsite a letter signed by the chief financial officer worded as specified in Appendix B, incorporated herein by reference. The following information shall be available, as shown in the year-end financial statements for the latest completed fiscal year:

i. Total revenues, consisting of the sum of general fund operating and non-operating revenues including net local taxes, licenses and permits, fines and forfeitures, revenues from use of money and property, charges for services, investment earnings, sales, restricted and unrestricted intergovernmental revenues, and total revenues from all other governmental funds including enterprise, debt service, capital projects, and special revenues, but excluding revenues to funds held in a trust or agency capacity. For purposes of this test, the calculation of total revenues shall exclude all transfers between funds under direct control of the local government using the financial test (interfund transfers), liquidation of investments, and issuance of debt;

ii. Total expenditures, consisting of the sum of fund operating and non-operating expenditures, including public safety, public utilities, transportation, public works, environmental protection, cultural and recreational, community development, revenue sharing, employee benefits and compensation, office management, planning and zoning, capital projects, interest payments on debt, payments for retirement of debt principal, and total expenditures from all other governmental funds including enterprise, debt service, capital projects, and special revenues. For purposes of this test, the calculation of total expenditures shall exclude all transfers between funds under direct control of the local government using the financial test (interfund transfers);

iii. Local revenues, consisting of total revenues as outlined in i above minus the sum of all transfers from other governmental entities, including all monies received from Federal, State or local government sources;

iv. Debt service, consisting of the sum of all interest and principal payments on all long-term credit obligations and all interest-bearing short-term credit obligations, including interest and principal payments on general obligation bonds, revenue bonds, notes, mortgages, judgments, and interest bearing warrants, but excluding payments on non-interest-bearing short-term obligations, interfund obligations, amounts owed in a trust or agency capacity, and advances and contingent loans from other governments;

v. Total funds, consisting of the sum of cash and investment securities from all funds, including general, enterprise, debt service, capital projects, and special revenue funds, but excluding employee retirement funds, at the end of the local government's financial reporting year. It includes Federal securities, Federal agency securities, State and local government securities, and other securities such as bonds, notes and mortgages. For purposes of this test, the calculation of total funds shall exclude agency funds, private trust funds, accounts receivable, value of real property, and other non-security assets; and

vi. Population, consisting of the number of people in the area served by the local government.

(h) If an owner or operator or guarantor using the financial test to provide financial responsibility finds that he or she no longer meets the requirements of the financial test based on the year-end financial statements, the owner or operator must obtain alternative coverage within 150 days of the end of the year for which financial statements have been prepared.

(i) The Department may require reports of financial condition at any time from the owner or operator, or guarantor. If the Department finds, on the basis of such reports or other information, that the owner or operator, or guarantor, no longer meets the financial test requirements of (g) above, the owner or operator must obtain alternate coverage within 30 days after notification of such a finding.

(j) If the owner or operator fails to obtain alternate coverage within 150 days of finding that he or she no longer meets the requirements of the financial test based on the year-end financial statements, or within 30 days of notification by the Department that he or she no longer meets the requirements of the financial test, the owner or operator must notify the Department of such failure within 10 days.

(k) To demonstrate financial responsibility through a guarantee:

1. Within 120 days of the close of each financial reporting year, the guarantor must demonstrate that it meets the financial test criteria set forth in (g) above by completing the letter from the chief financial officer as specified in Appendix B and must deliver the letter to the owner or operator and the Department. If the guarantor fails to meet the requirements of (g) above, within 120 days of the end of that financial reporting year the guarantor shall send by certified mail, before cancellation or nonrenewal of the guarantee, notice to the owner or operator and the Department. If the Department notifies the guarantor that he or she no longer meets the requirements of (g) above, the guarantor must notify the owner or operator within 10 days of receiving such notification from the Department. In both cases, the guarantee will terminate no less than 120 days after the date the owner or operator receives the notification or 120 days after the date the Department receives the notification, whichever is later, as evidenced by the return receipt. The owner or operator must obtain alternate coverage within 30 days; and

2. The guarantee must be worded as specified in Appendix B, and a copy of the guarantee maintained at the facility at all times.

(l) To demonstrate financial responsibility through liability insurance:

1. Such insurance must be obtained from a qualified insurer or risk retention group. It may be in the form of a separate insurance policy or an endorsement to an existing insurance policy;

2. An existing insurance policy must be amended by an endorsement worded as specified in Appendix B and a separate insurance policy must be evidenced by a certificate of insurance worded as specified in Appendix B. A copy of this endorsement or certificate must be maintained at the facility at all times;

3. Cancellation or any other termination of the liability insurance by the insurer or group, except for nonpayment of premium or material misrepresentation by the insured, will be effective only upon written notice and only after the expiration of 60 days after the date on which the insured receives the written notice or 60 days after the date on which the Department receives the written notice, whichever is later. Cancellation for nonpayment of premium or material misrepresentation by the insured will be effective only upon written notice and only after the expiration of a minimum of 10 days after the date on which the insured receives the written notice or 10 days after the date on which the Department receives the written notice, whichever is later; and

4. Within 60 days of receipt of a notice of cancellation or other termination, the owner or operator shall provide alternative financial assurance as specified in this section.

(m) To demonstrate financial responsibility through a surety bond:

1. The surety company issuing the bond must be among those listed as acceptable sureties on Federal bonds in the latest Circular 570 of the U.S. Department of the Treasury;

2. The surety bond must be worded as specified in Appendix B, and a copy of the surety bond maintained at the facility at all times;

3. 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. In all cases, the surety's liability is limited to the per-occurrence and annual aggregate sums;

4. The owner or operator who uses a surety bond to meet the requirements of (a) above must establish a standby trust fund when the surety bond is acquired. The trustee shall be an entity which has the authority to act as a trustee and whose trust operations are regulated and examined by a Federal or New Jersey agency. Under the terms of the bond, all amounts paid by the surety under the bond will be deposited directly into the standby trust fund in accordance with instructions from the Department;

5. The surety(ies) may cancel the bond by sending written notice of cancellation by certified mail to the principal and the Department, provided, however, that the cancellation shall not occur during the 120 days beginning on the date of receipt of the notice of cancellation by the principal or the date of receipt of the notice of cancellation by the Department, whichever is later, as evidenced by the return receipt; and

6. Within 60 days of receipt of a notice of cancellation or other termination, the owner or operator shall provide alternative financial assurance as specified in this section.

(n) To demonstrate financial responsibility through a letter of credit:

1. The issuing agency must be an entity that has the authority to issue letters of credit in the State and whose letter-of-credit operations are regulated and examined by a State agency;

2. The letter of credit must be worded as specified in Appendix B, and a copy of the letter of credit maintained at the facility at all times;

3. The owner or operator who uses a letter of credit to meet the requirements of (a) above must establish a standby trust fund when the letter of credit is acquired. The trustee shall be an entity which has the authority to act as a trustee and whose trust operations are regulated and examined by a Federal or New Jersey agency. Under the terms of the letter of credit, all amounts paid pursuant to a draft by the Department will be deposited by the issuing institution directly into the standby trust fund in accordance with instructions from the Department;

4. The letter of credit must be irrevocable with a term specified by the issuing institution, and must provide that credit be automatically renewed for the same term as the original term, unless, at least 120 days before the current expiration date, the issuing institution notifies the owner or operator and the Department by certified mail of its decision not to renew the letter of credit. Under the terms of the letter of credit, the 120 days will begin on the date when the owner or operator receives the notice or on the date when the Department receives the notice, whichever is later, as evidenced by the return receipt; and

5. Within 60 days of receipt of a notice of cancellation or other termination, the owner or operator shall provide alternative financial assurance as specified in this section.

(o) Within 10 days after commencement of a voluntary or involuntary proceeding under Title 11 (Bankruptcy), U.S. Code:

1. Naming an owner or operator as debtor, the owner or operator shall notify the Department by certified mail of such commencement; or

2. Naming the provider of financial assurance as debtor, the provider shall notify the owner or operator by certified mail of such commencement, and the owner or operator shall then notify the Department.

(p) An owner or operator will be deemed to be without the required demonstration of financial responsibility in the event of commencement of bankruptcy or other incapacity of his or her provider of financial assurance. Within 30 days after receiving notice of such an event, the owner or operator shall submit to the Department an alternate demonstration of financial responsibility.

N.J. Admin. Code § 7:1E-4.4

Amended by R.1996 d.252, effective 6/3/1996.
See: 27 N.J.R. 2337(a), 27 N.J.R. 2882(a), 28 N.J.R. 2858(a).
Deleted provisions relating to operators unable to demonstrate financial responsibility and to authority to establish alternate minimum amounts of financial responsibility.
Recodified from 7:1E-4.5 and amended by R.1996 d.462, effective 10/7/1996.
See: 28 N.J.R. 2730(a), 28 N.J.R. 4424(b).
Former N.J.A.C. 7:1E-4.4, "Discharge cleanup and removal plan", recodified to 7:1E-4.3.
Amended by R.2007 d.93, effective 4/2/2007.
See: 38 N.J.R. 4285(a), 39 N.J.R. 1253(a).
Rewrote (a), (g) and (h).