1ageP

and financial services, state/municipal 

 

 

 

•	 

•	 

•	 

Summary of EPA Webinars on 

Financial Responsibility for Geologic Sequestration Wells
 

EPA provided the following disclaimer to the webinar participants: 

The purpose of this public webinar series is for information sharing, and views 

or opinions expressed during the presentation belong to the speaker and do not 

necessarily represent the views and opinions of the U.S. EPA. 

EPA does not have express authority in the Safe Drinking Water Act to accept 

and use funds for financial assurance. Consequently, the Agency cannot 

implement some of the financial assurance mechanisms described in these 

webinars due to the requirement under the Miscellaneous Receipt Act to 

deposit funds EPA receives for the use of the Government into the Treasury. 

In April and May 2009, EPA sponsored a series of webinars on financial responsibility for 

carbon dioxide geologic sequestration (GS) wells. The goal of the series was to encourage 

information sharing on potential financial mechanisms that well owners and operators could use 

to meet the financial responsibility requirements for GS projects. EPA plans to use the 

information gathered through the webinar series to inform its decisions as it develops guidance 

related to financial responsibility for GS wells. The webinars addressed the following topics: 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements (held 

on April 28, 2009). 

Insurance (held on May 20, 2009). 

Self-Insurance: Financial Test and Corporate Guarantee (held on May 26, 2009). 

Collectively, about 100 people attended the webinars (many participants attended more than one 

webinar). The participants represented a range of organizations with interest in and unique 

perspectives on financial responsibility for GS, including EPA regions, corporate, consulting, 

governments, energy/environmental 

non-profits, electricity providers (e.g., 

energy companies and utilities), and 

academia. Figure 1 presents the 

breakout of participants’ affiliations. 

 

Each webinar consisted of a 

presentation on specific financial 

responsibility instruments, followed by 

a facilitated discussion where 

participants shared their experiences 

with and thoughts about the various 

instruments. The purpose of this 

report is to summarize the webinar 

series. 

Other, 5.7% Energy/Env 

Non-profit,
 

12.1%
 

EPA
 

Regions,
 

34.8%
 

Corporate/ 

onsulting/ 

Financial, 

17.7% 

State/Local Electricity 

Government, Academic, Providers, 

13.5% 7.1% 9.2% 

C

Figure 1: Webinar Participants
Page 2

Webinar overviews

 

Below is a brief summary of the three webinar presentations. All three presenters gave an 

overview of the phases of a GS project and highlighted the phases for which EPA has proposed 

financial responsibility requirements (i.e., corrective action, injection well plugging, postinjection site care and site closure, and emergency and remedial response). Note that the 

webinars did not address long-term liability for GS projects. Generally, the presenters then 

reviewed the financial responsibility mechanisms in detail and provided a historical background 

for their use by describing the current requirements and guidance for wells regulated by the 

Underground Injection Control (UIC) Program and state primacy partners. All presenters noted 

that Class I hazardous waste disposal wells have specific requirements under 40 CFR 144.63, 

while all other well classes follow the general requirement in 40 CFR 144.52(a)(7). 

• In the first webinar, Steve Platt of EPA Region 3 presented “Trust Funds, Letters of 

Credit, and Surety Bonds with Standby Trust Agreements.” Mr. Platt described a trust 

fund as repository of funds set aside to cover the full estimated cost of properly plugging 

wells and implementing post-closure activities. The funds are administered by a trustee 

designated by the grantor who establishes the trust. A letter of credit is a guarantee, 

issued by a by a bank or other regulated institution, that a specified dollar amount will be 

available to a specified party under certain conditions and that funds will be paid into a 

standby trust. Mr. Platt described a surety bond as guarantee by a surety company that 

specified obligations, such as plugging of the well, will be fulfilled. Mr. Platt also 

highlighted the difference between performance and financial guarantee bonds. As 

required for letters of credit and surety bonds, standby trusts are a mechanism for the UIC 

program to receive the funds guaranteed. Mr. Platt noted that a standby trust is not a 

stand-alone financial instrument to guarantee financial responsibility, unlike a trust fund. 

For each mechanism, Mr. Platt noted EPA’s history and long-standing experience with 

the mechanism.

In the second webinar, Charles Hernick of The Cadmus Group, Inc. gave the presentation 

on “Insurance.” Mr. Hernick reviewed the characteristics of insurance in detail and 

explained the differences between third party and captive insurance. In general, 

insurance can be characterized as a contract for the insurer to pay/reimburse the insured 

up to the maximum amount the policy covers for a specified risk, as long as the insured 

pays the policy premium. The premium is based on insurer’s determination of risk. 

Captive insurance—where a company forms a subsidiary to act as the insurer—tends to 

more closely resemble a self-insurance mechanism than a third party mechanism. He 

defined the term insurance, in the context of his presentation, to refer only to third-party 

insurance. The use of insurance for proposed Class VI wells, Mr. Hernick explained, 

could be used to cover two types of risk scenarios. The first would cover uncertain risks, 

such as emergency and remedial response, and the second type would cover defined 

environmental objectives such as well plugging. 

In the third webinar, Dale Ruhter of EPA’s Office of Resource Conservation and 

Recovery presented the “History of RCRA Subtitle C Financial Test.” Mr. Ruhter 

described background information on the test and its original intent. Mr. Ruhter then 

•

•
Page 3

provided an overview of the tests and noted that, although revisions were proposed in 

1991, they have been neither finalized nor withdrawn. 

• Also in the third webinar, Paul Bailey of ICF International presented “Self-Insurance: 

Financial Test and Corporate Guarantee.” Mr. Bailey started by describing the UIC Class 

II Well guidance, which presents a two-part approach for use of a “financial statement” 

mechanism for operators with a minimum net worth of $1 million. He summarized the 

details and provided examples of the two-part approach. Mr. Bailey also covered the 

Class II Well guidance for corporate guarantee. Mr. Bailey continued on to describe the 

details of the Class I self-insurance regulation, modeled on the Resource Conservation 

and Recovery Act (RCRA) Subtitle C requirements for closure and post-closure, as 

another possible model for GS self-insurance. With regard to the role of cost estimates, 

Mr. Bailey noted that depending on the case, cost estimates may not be needed for selfinsurance or the cost estimate may be represented in the financial test itself. He 

emphasized that including a cost may be more important for gaining public acceptability 

that it is for actual test performance. Mr. Bailey added that, although historically there is 

a very low risk of failure associated with self-insurance, there is no guarantee of the funds 

being available like there is with some other financial responsibility mechanisms.

Appendix A presents the slides for each webinar. 

 

Discussion overview

 

Following the presentations, EPA held a facilitated discussion to encourage participants to share 

their experiences using the financial responsibility instruments, the strengths and weaknesses of 

each, and their appropriateness and applicability to the various phases of GS projects. The 

following sections summarize the discussion. Note: this summary reflects the opinions of the 

webinar participants, and not necessarily that of EPA. 

Webinar 1: Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements

 

Participants at the first webinar provided the following insights on the desirability of trust funds, 

letters of credit, and surety bonds for financial assurance for GS:

 

• The concern is not the financial mechanisms, but the risk that they cover. The 

availability of these instruments will depend on the risk associated with the project. Some 

third parties will be more or less willing to cover that risk. 

• It is unclear whether GS projects will require a new instrument, but surety bonds, letters 

of credit, and trust funds do not seem to have changed much. It may be worth talking to 

insurers to determine what new types of mechanisms could be available. 

• Self insurance tests rely on performance over the last two years, but this may not 

accurately reflect the health of a company. Strong guidance on the use of self-insurance 

is needed, e.g., on specific language to be used in the letter of credit and other 

mechanisms. (See the discussion of Webinar 3 for additional input on self-insurance.) 
Page 4

Participants offered the following perspectives on the individual financial responsibility 

instruments presented: 

 

• Letters of credit are simply not available now to the extent that they once were, and 

therefore, may not be as significant an option as in the past. This may also be true for 

surety bonds to a lesser extent. The availability of these mechanisms would be a problem 

for the large corporations that may be involved in GS. 

 

• Banks in areas of the country with a large number of Class II wells are used to issuing 

letters of credit and surety bonds; this is less the case in areas where there are fewer 

wells. 

 

• One participant believed that, based on his third-party knowledge, states and EPA do not 

have the legal resources to use letters of credit, and that surety bonds are superior to the 

other options. 

 

• One state finds letters of credit effective and that stand-by trusts are acceptable if they are 

drawing on the letter of credit or the surety bond. This state adapts language from the 

RCRA Program for UIC. 

 

• Stand-by trusts are easy to obtain because they are sometimes the lowest-cost option; 

operators will shop around for banks and sometimes end up making very low annual 

contributions. The availability of standby trusts varies, however. 

• Some commenters said that, while bond ratings might have been a good measure of 

financial strength a year ago, several formerly AAA-rated companies are now 

experiencing financial difficulties.

 

Commenters offered the following discussion of pay-in periods in for trust funds: 

 

• For large, well-capitalized, companies, a pay-in period is perhaps not required or as 

useful as it is for small companies. 

 

• One state is examining the use of surety bonds for the early phases of a GS project, with a 

trust fund for the longer-term aspects of GS, thereby allowing for the pay-in over the life 

of the project. 

• One EPA region does not usually allow a pay-in period any longer than 2 or 3 years and 

sets out the pay-in requirements in an administrative order or other enforcement action. 
Page 5

Participants offered the following additional perspectives on financial responsibility 

demonstrations: 

• The cost estimate for plugging a well should be based on a contractor’s cost, not the 

operator’s cost because the fund may need to be used to hire a contractor for remediation. 

 

• Corporations are set up to minimize risk, and the parties signing the papers for the 

financial responsibility mechanisms are not the engineers familiar with the work or the 

risk. 

Webinar 2: Insurance 

Participants discussed circumstances (other than non-payment of premiums) under which an 

insurance company can cancel a GS operator’s policy. 

 

• One participant expressed concern that, if an insurance company feels that the 

owner/operator did not disclose all of the available information about the project, it is 

unclear whether the policy would continue to be in force. 

• EPA should reduce the possibility of policy cancellation; there needs to be an 

endorsement document that substantiates which documenters are disclosed and that those 

documents are acceptable to all parties. 

 

• While an insurance certificate shows evidence of a policy, it does not ensure that it 

conforms to regulations. 

The discussion continued on to the topic of individuals’ experiences with insurance for projects 

in the UIC Program or in other industries. 

 

• A participant who recently worked on a policy for a US Department of Energy (DOE) 

pilot project said that the applicability of insurance and the cost involved is site specific 

and varies considerably from one situation to the next. 

 

• Another participant, who also worked with a DOE partnership, said the partnership ended 

up working with environmental insurers to determine how to manage their risk, and 

developed a policy that took advantage of environmental markets to fill in the gaps of 

managing some of the risk. 

 

• A participant from an electric utility has had experience exploring specific insurance 

avenues both in commercial insurance as well as mutual insurance arrangements. 

Although there is some interest in using gas and electric mutuals for insurance purposes, 

mutual companies may be reluctant to provide the high levels of coverage that may be 

necessary for GS projects. 

 
Page 6

• Utility companies may use captive insurance, but they are looking at third party insurance 

in order to use the marketplace to absorb some financial risk. 

The group also discussed the desirability of insurance for GS projects: 

 

• Some participants believed that uncertainties exist regarding what insurers are willing to 

offer and whether insurance is appropriate. 

• Any insurance mechanisms that are used for GS would need to last the life of the project. 

 

• It is important to carefully understand what a policy covers. There has been much debate 

between underwriters and industry on this topic. 

 

• One participant believed that EPA should not impose specific requirements. Because of 

the economic downturn, insurance companies have suffered losses in their investment 

portfolios and imposing specific rules may discourage participations. 

The group discussed whether insurance could be combined with other financial assurance 

mechanisms to cover a single phase of a GS project (e.g., well closure) and, if so, which 

mechanism would kick-in first in the event that a GS owner/operator fails. 

 

• This should be clarified at the outset of project. 

• Procedures to manage surety bonds address these types of situations. 

 

Participants offered the following opinions regarding the merits of captive insurance:

• One participant offered that captive insurance includes “pure” single-owner insurance 

entities and “group” captives, which are multi-owner insurance companies. The latter 

includes both small group captives (such as risk retention groups) and large group 

captives, typically called “mutual insurers.” 

 

• One participant said he did not find captive insurance to be desirable because the 

specifics of what is involved are not always straightforward. 

 

• EPA should look at how insurance is financed for various organizations – whether it is 

rated or unrated, and various measurements; captive insurance should at least be 

considered. 

The group discussed how underwriters determine the price of a policy and whether they have 

sufficient knowledge of GS to make accurate estimates. 

 

• EPA should look into this, possibly by meeting with insurers. 

• EPA should not propose eligibility requirements for insurers, instead the market will 

drive the selection of financially viable insurers. 
Page 7

 

• Once demonstration projects are complete and industries become engaged at a 

commercial scale, mainline carriers will start to accept this risk if it is shown that there 

are no losses associated with the industry. 

 

• It would useful to have a list of approved insurance providers; such a list could change 

based on ratings. 

Participants offered the following input related to the applicability of insurance during various 

phases of a GS project:

• It is important to recognize the difference between covering liabilities versus covering 

activities such as well plugging and site closure. The availability of multiple mechanisms 

could help keep costs down. 

 

• Insurance probably works best for the operational phases of a facility, which does not 

involve unusual technologies (with the exception of sequestering the carbon dioxide). 

Insurance becomes problematic during site closure and post-closure care. 

Webinar 3: Self-Insurance: Financial Test and Corporate Guarantee

Participants identified the following concerns about self-insurance for GS projects: 

• Self-insurance is a high risk proposition because if it fails, there is nothing on which to 

fall back. 

 

• Once a company enters bankruptcy, even with a 10 day notice (after bankruptcy 

proceedings have started) there is little the regulator can do; this provides an indication 

that other methods of demonstrating financial responsibility provide more protection. 

 

• Self-insurance mechanisms are great while the companies are making money, but 

economic times change. 

 

• Pooling of industry funds may be a good option, but it takes some time for the pool to 

grow. 

 

• There are concerns about the timeframe of the proposed post injection site care 

requirement relative to when the test is administered. 

 

• EPA should include self-insurance as an option because it has demonstrated success in 

other programs and there is no evidence that it should not be used for GS. 

 

• The complications discussed in this webinar, plus the need to constantly monitor the 

company, may indicate that letters of credit and trust funds are a simpler approach to 

demonstrating financial responsibility. 

 
Page 8

Participants offered the following input regarding the cost of GS activities and the tangible net 

worth threshold for GS projects:

 

• The $10 million tangible net worth threshold seems low, considering the size of GS 

projects and what needs to be covered. 

 

• EPA should examine the risks associated with GS and estimate the costs associated with 

particular phases—especially the costs of dealing with extreme events. This type of 

analysis would help inform the necessary size of a corporation for passing a financial test. 

 

Participants offered the following input regarding evaluating financial tests:

 

• Differences have been observed between the content of an income statement and what is 

provided by a certified public accountant. This requires some effort on the part of the 

regulator to ensure that the numbers can be duplicated. 

 

• Validating information is important; the Form 10-K (for publicly traded companies) is 

often a better choice to review than the annual report to shareholders. 

 

• Both the financial test and corporate guarantee require a lot of information and time to 

review and verify effective assurance. 

 

• Conducting financial tests on multi-level companies is difficult because it is hard to know 

which level of the company will actually be financially responsible. 

 

• Participants discussed difficulties related to bond ratings. Regarding the acceptability of 

bond ratings, especially those on the lower end of an investment grade rating (BBB or 

Baa), one participant claimed that, since companies pay the rating agencies, they may 

resist giving a company a below investment-grade rating. Thus, bond ratings may lag 

behind the companies’ performance if they are close to the threshold. Regulators need to 

know why a company’s bonds are rated the way they are. A company’s risk investment 

profile will come across in the rating. 

 

Participants discussed whether self-insurance or corporate guarantees are more appropriate 

during certain phases of a GS project, compared to other mechanisms: 

 

• There are currently very few third party mechanisms available for GS. Some insurance 

companies will only cover the injection phase (i.e., when the company is making money). 

Participants thought that the viability of GS could be limited if self-insurance is not an 

option. 

 

• Several participants suggested that, as things progress with GS, there will be more 

certainty regarding what the best financial mechanisms are. Therefore it may not be 

necessary to solve all the questions now. EPA should focus on well plugging first, and 

the bigger unknowns related to financial assurance (e.g., site closure and care) can be 

solved later. 
 

Appendix A – Slide Presentations for the Three Webinars 
 

 

1

Webinar on Underground Injection Control (UIC) 

Program Applications 

Trust Funds Letters of Credit and Trust Funds, Letters of Credit, and
 

Surety Bonds with Standby Trust 

Agreements
 

April 28, 2009 

This public presentation is for information sharing only. Views or opinions 

expressed during the presentation belong to the speaker and do not necessarily 

represent the views and opinions of the U.S. EPA. 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on Financial Assurance 

Mechanisms: Overview 

 Welcome 

 Joseph Tiago, U.S. EPA, Headquarters 

 Presentation on Trust Funds, Letters of Credit, and 

Surety Bonds with Standby Trust Agreements 

 Stephen Platt, U.S. EPA, Region 3 

 Discussion Facilitator 

 Vanessa Leiby, The Cadmus Group, Inc. 

Webinar on Financial Responsibility Instruments for GS Wells 2

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 
 

 

Welcome 

 First in a series of EPA webcasts to discuss First in a series of EPA webcasts to discuss 

potential financial responsibility 

mechanisms for GS wells 

 Part 1. Trust Funds, Letters of Credit, and 

Surety Bonds with Standby Trust 

Agreements – April 28, 2009 

 Part 2. Insurance – May 20, 2009 

 Part 3. Self Insurance: Financial Tests and 

Corporate Guarantee – May 26, 2009 

3 

Webinar on Financial Responsibility Instruments for GS Wells 



Webinar on UIC Program Applications: 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements 



April 28, 2009 

Webinar on Financial Assurance 

Mechanisms: Disclaimer 

The ppurose of this p ublic presentation is for information 

sharing and views or opinions expressed during the 

presentation belong to the speaker and do not necessarily 

represent the views and opinions of the U.S. EPA. 

EPA does not have express authority in the Safe Drinking 

Water Act to accept and use funds for financial assurance. 

fi 

Consequently, 

nanci al 

the Agency cannot implem

ech i d ib d 

ent som

i th 

e of the 

fi i l assurance m hanisms described in these 

webinars due to the requirement under the Miscellaneous 

Receipt Act to deposit funds EPA receives for the use of 

the Government into the Treasury. 

4 

Webinar on Financial Responsibility Instruments for GS Wells 
 



Webinar on Financial Responsibility Instruments for GS Wells 6

 R

 D

5 

Webinar on Financial Responsibility Instruments for GS Wells 

Purpose 

eview 

 Proposed financial responsibility requirements for GS 

 Mechanisms available to meet the current requirements 

iscuss 

 Trust funds 

 Letters of credit 

 Surety bonds 

 Standby trust agreements (for letters of credit & surety 

bonds) 

Desired Outcome 

At the end of this webinar series:

 Participants will have exchanged information on 

their experiences with these financial assurance 

instruments. 

Parti cipants will h ave sharedi nformati on on

special considerations for meeting the unique 

needs of geologic sequestration wells. 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 
 





post-injection site care and site closure

8 

Webinar on Financial Responsibility Instruments for GS Wells 

Carbon Dioxide GS Rulemaking: 

Milestones 

 Federal Requirements Requirements Under the UIC

Program for Carbon Dioxide Geologic 

Sequestration Wells 

 Proposal published: July 25, 2008 

 Comment period closed: December 24, 2008 

Notice of Data Availability: Spring 2009 

Final rule expected 2010 or 2011 

Carbon Dioxide GS Rulemaking: 

Proposed Financial Responsibility Requirements 

The owner or operator must demonstrate and maintain 

financial responsibility and resources for: 

 Corrective action (that meets the requirements of §146.84), 

 Injection well plugging (that meets the requirements of §146.92), 

 Post-injection site care and site closure (that meets the 

requirements of §146.93), and 

 Emergency and remedial response (that meets the requirements of 

§146.94) in a manner prescribed by the Director 

The operator must provide an adjustment of the cost 

estimate to the Director if the Director has reason to 

believe that the original demonstration is no longer 

adequate to cover the cost of injection well plugging and 
 





7 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 
 

Webinar on Financial Responsibility Instruments for GS Wells 10

Carbon Dioxide GS Rulemaking: Summary 

of Comments Received on Proposed Regulations 

 EPA received received comments comments in the following following

reas: 

 Usefulness/ appropriateness of various 

instruments
 

 Improvements for some instruments 

 Need for flexibility to encourage commercial 

scale development of CCS
 

 Need for guidance on financial responsibility 

a

Webinar on Financial Responsibility Instruments for GS Wells 9 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 

Presentation on Trust Funds, Letters of 

Credit, and Surety Bonds with Standby 

Trust Agreements 

Stephen Platt, U.S. EPA, Region 3 
 

Phases of a GS Project 

Siting Area of 

Review 

and 

Corrective 

Action 

Well 

Construction 

Injection/ 

Operation/ 

Monitoring 

Injection 

Well 

Plugging 

PostInjection 

Site Care 

and 

Site 

Closure 

Long-Term 

Care 

Emergency and Remedial Response 

11 

Webinar on Financial Responsibility Instruments for GS Wells 

Available Mechanisms 

Mechanisms 

Third Party Instruments 

Surety 

Bonds 

Letters of 

Credit Trust Funds Insurance 

Self Insurance Instruments 

Financial 

Test 

Corporate 

Guarantee 

12 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 
 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 

14 

Webinar on Financial Responsibility Instruments for GS Wells 

Trust Funds 

What is a trust fund? 

Note: Class I has specific requirements under 40 CFR 144.63 and other well 

classes don’t. They follow the general requirement in 40 CFR 144.52(a)(7) 

 Repository of funds set aside for a specific purpose 

 Administered by a trustee; designated by the grantor who establishes 

the trust 

 Funds must cover the full estimated cost of properly plugging wells

and implementing post-closure activities 

 For Class II, interest can go to owner/operator if the amount in the 

fund exceeds plugging/post closure costs; otherwise, interest is 

reinvested 

13 

Webinar on Financial Responsibility Instruments for GS Wells 

 Invest deposited funds, with guidance from the 

owner/operator 

 Provide EPA with an annual valuation of the fund 

 Accept additional deposits or release funds as the 

owner/operator drills addition wells or implements 

plugging and closure activities on some wells 

 EPA may delay payments if the cost of the entire 

operation changes, or the Agency may release funds if 

the value exceeds estimated closure costs 

Trust Funds: Current UIC 

Program Trustee Responsibilities 
 

Trust Funds: Current UIC 

Trust Requirements 

 Trusts must meet the following q re uirements for Class I 

(other classes do not have specific requirements): 

 Be established at a bank or other eligible institution 

 Contain funds equal to estimated costs associated with plugging

and post-closure activities 

 Specify the acceptable ways that the trustee can invest the fund’s 

money 

 It must designate EPA as the beneficiary. 

 Be accompanied by a “certificate of acknowledgement” Investing 

deposited funds, with guidance from the owner/operator 

 Specify conditions for authorizing payments or the return of fun

 Trustee must be free of conflicts of interest 

ds 

15 

Webinar on Financial Responsibility Instruments for GS Wells 

Trust Funds: Current UIC 

Program Pay-In Periods 

 The owner or operator operator may deposit deposit funds into the

trust fund in phases; that is, either over the term of 

the initial permit or over the remaining operating 

life of the injection well (as estimated in the well 

plugging plan), whichever period is shorter 

 The pay -in period should factor in the possibility 

that the owner or operator may face financial 

distress prior to the trust being fully funded 

16 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 
 

18 

Webinar on Financial Responsibility Instruments for GS Wells 

Letter of Credit 

What is a Letter of Credit? Credit?

 Guarantee that a set amount of money will be available 

to a specified party under certain conditions 

 It should: 

 Provide that funds will be paid into a standby trust 

 Be issued by a by a bank or other regulated and examined 

i nstitution 

 Allow UIC Program Director to draw upon letter of credit if 

the owner/operator fails to provide a substitute within 90 

days 

 Have a standby trust fund 

Surety Bonds 

17 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 

What is a surety bond? 

 Guarantee Guarantee by a surety company that specified obligations bligations such as 

plugging and abandoning UIC wells will be fulfilled 

 Should meet the following criteria: 

 Be backed by a standby trust fund 

 Be issued by an eligible surety company 

 Require that the issuing institution provide 120-day notice if it plans not to reissue 

credit 

 May draw upon the letter and must provide that the UIC program director may 

draw upon the letter of credit if owner/operator fails provide a substitute within 90 

days 

 Two types of surety bonds can demonstrate financial responsibility: 

 Financial guarantee bond 

 Performance bonds 
 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 

20 

Webinar on Financial Responsibility Instruments for GS Wells 

Types of Surety Bonds 

 Performance Bond 

 Directly tied to contractb etween cont ractor and project owner

 Guarantees that contractor will properly plug the GS wells. If 

contractor defaults on contract, surety company will:
 

 Finance original contractor to complete the project 

 Pay for a new contractor to plug the wells 

 Contract out the plugging of the wells 

 Pay the amount of the bond 

 Financial Guarantee Bond 

 May be identical to performance bond, however, claim pay-out 

normally takes the form of monetary compensation rather than 

negotiating with contractors 

19 

Webinar on Financial Responsibility Instruments for GS Wells 

Eligibility Requirements for Sureties 

Under Current UIC Requirements 

 For Class I UIC wells , eligible surety bond 

providers must be listed by the U.S. 

Department of Treasury on its Circular 570 

(40 CFR 144) 

 Class II Guidance suggests using such 

providers 
 

Webinar on Financial Responsibility Instruments for GS Wells 22

21 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 

Standby Trusts 

What is a standby trust?

 Required for letters of credit and surety bonds 

 A mechanism to receive on behalf of the UIC 

program director the funds guaranteed by surety 

bonds or letters of credit 

 Unlike a fundedt rust, a standby trust i s nota

stand-alone financial instrument to guarantee 

financial responsibility 

Facilitated Discussion 

Moderator: 

Vanessa Leiby,The Cadmus Group,Inc.

Please type in questions using the webcast question pane on 

your control panel, or you may respond by phone. 
 

24 

Webinar on Financial Responsibility Instruments for GS Wells 

Questions for Discussion 

 What experience have you had with trust funds, letters of credit, and/or 

surety b d ons? 

 If EPA were to obtain legal authority, should these mechanisms be 

considered for financial assurance for GS? Why or why not? 

 Trust funds? 

 Letters of Credit? 

 Surety Bonds? 

 What guidance s 	 hould EPAprovid e for GS andoth er well s?

 Describe your experience from the state/regional perspective with the 

management of trust funds, letters of credit, and/or surety bonds? 

23 

Webinar on Financial Responsibility Instruments for GS Wells 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 

Questions for Discussion 

 H ow welld o t rustf unds, lett ers ofcredit , andsurety bonds 

work for UIC wells? What additional eligibility 

requirements should be considered for sureties? 

 Are bond ratings an appropriate measure of financial 

strength? 

 Is payment over time appropriate for a trust fund? 

 If appropriate appropriate, what constitutes an appropriate pay in 
 

period?
 

 Are standby trust agreements readily obtained? 
 

Thank You! 

More information about the Geologic Sequestration equestration of 

Carbon Dioxide (CO2) 

 EPA Geologic Sequestration of Carbon Dioxide Website: 

http://www.epa.gov/safewater/uic/wells_sequestration.html 

 Text of the Proposed roposed rule for Federal Federal Requirements Under the UIC Program Program for 

Carbon Dioxide (CO2) Geologic Sequestration (GS) Wells: 

http://www.epa.gov/fedrgstr/EPA-WATER/2008/July/Day-25/w16626.pdf 

 Docket for the rule: www.regulations.gov, Docket ID EPA-HQ-OW-2008-0390 

Webinar on Financial Responsibility Instruments for GS Wells 25 

Webinar on UIC Program Applications:
 

Trust Funds, Letters of Credit, and Surety Bonds with Standby Trust Agreements April 28, 2009
 
 

Webinar on Underground Injection Control (UIC) 

Program Applications 

Insurance
 

May 20, 2009 

This public presentation is for information sharing only. Views or opinions This public presentation is for information sharing only. Views or opinions 

expressed during the presentation belong to the speaker and do not necessarily 

represent the views and opinions of the U.S. EPA. 

Webinar on Financial Assurance Mechanisms: 

Control Panel Navigation 

2 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
Webinar on Financial Assurance Mechanisms: 

Overview 

4 

 Welcome Welcome 

 Bruce Kobelski, U.S. EPA, Headquarters 

 Presentation on Insurance 

 Charles Hernick, The Cadmus Group, Inc. 

 Discussion Facilitator 

 Vanessa Leiby, The Cadmus Group, Inc. 

3 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Webinar on Financial Assurance Mechanisms: 

Welcome 

 Second in a series of EPA webcasts to 

discuss potential financial responsibility 

mechanisms for GS wells 

 Part 1. Trust Funds, Letters of Credit, and 

Surety Bonds with Standby Trust Agreements – 

April 28, 2009 

 Part 2. Ins urance– May 20 , 2009

 Part 3. Self Insurance: Financial Tests and 

Corporate Guarantee – May 26, 2009
 
6 

Webinar on Financial Assurance Mechanisms: 

Disclaimer 

 The purpose of this public presentation is for information 

sharing and views or opinions expressed during the

presentation belong to the speaker and do not necessarily 

represent the views and opinions of the U.S. EPA. 

 EPA does not have express authority in the Safe Drinking 

Water Act to accept and use funds for financial assurance. 

Consequently, the Agency cannot implement some of the 

financial assurance assurance mechanismechanisms described in these

webinars due to the requirement under the Miscellaneous 

Receipt Act to deposit funds EPA receives for the use of 

the Government into the Treasury. 

5 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Webinar on Financial Assurance Mechanisms: 

Purpose 

 Review of: 

–	 Proposed financial responsibility requirements 

– Insurance mechanisms available to meet the requirements 

• Third Party Insurance 

• Captive Insurance 

 Facilitated Discussion on: 

–	 Experiences using insurance 

–	 When in the GS lifecycle insurance may be most appropriate 

–	 What type of guidance is needed 
8 

Webinar on Financial Assurance Mechanisms: 

Desired Outcome 

At the end of this webinar series: 

 Participants will have exchanged information on 

their experiences with insurance as a financial 

assurance mechanism. 

 Participants will have shared information on 

special considerations for meeting the unique 

needs of geologic sequestration wells. 

7 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Carbon Dioxide GS Rulemaking: 

Milestones 

 Federal Requirements Under the UIC 

Program for Carbon Dioxide Geologic 

Sequestration Wells 

 Proposal published: July 25, 2008 

 Comment period closed: December 24, 2008 

 Noti ce of D at a A vail abilit y: 2009

 Final rule expected 2010 or 2011 
10 

Carbon Dioxide GS Rulemaking: 

Proposed Financial Responsibility Requirements 

 §146.85(a) The owner or operator must demonstrate and 

maintain financial responsibilityand resources for: 

 Corrective action (that meets the requirements of §146.84), 

 Injection well plugging (that meets the requirements of §146.92), 

 Post-injection site care and site closure (that meets the 

requirements of §146.93), and 

 Emergency and remedial response (that meets the requirements of 

§146.94) in a manner prescribed by the Director 

 §146.85(b) The operator must provide provide an adjustment of the 

cost estimate to the Director if the Director has reason to 

believe that the original demonstration is no longer 

adequate to cover the cost of injection well plugging and 

post-injection site care and site closure 

9 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Carbon Dioxide GS Rulemaking: Summary of 

Comments Received on Proposed Regulations 

 EPA received comments in the following 

areas: 

 Usefulness/ appropriateness of various 

instruments
 

 Improvements for some instruments 

 Need for flexibility lexibility to encourage to encourage commercial
 

scale development of CCS
 

 Need for guidance on financial responsibility 
Webinar on Financial Assurance Mechanisms 

Presentation on Insurance 

Charles Charles Hernick Hernick , The Cadmus Group , Inc. 

11 

Webinar on Financial Assurance Mechanisms: 

Phases of a GS Project 

Siting Area of 

Review 

and 

Corrective

Action 

Well 

Construction 

Injection/ 

Operation/ 

Monitoring 

Injection 

Well 

Plugging 

PostInjection 

Site Care 

and 

Site 

Closure 

Long-Term 

Care 

Emergency and Remedial Response 

12 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
14 

Webinar on Financial Assurance Mechanisms: 

Available Mechanisms 

Mechanisms 

Third Party Instruments 

Surety 

Bonds 

Letters of 

Credit Trust Funds Insurance 

Self Insurance Instruments 

Financial 

Test 

Corporate 

Guarantee 

13 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Webinar on Financial Assurance Mechanisms: 

Overview of Insurance 

 Characteristics and Definitions 

–	 Contract between the insurer and insured 

–	 Policy covers specific risks up to a maximum amount 

–	 Insured pays policy premium 

–	 Premium based on carrier’s determination of risk 

–	 If event occurs, insurer pays/reimburses insured 

–	 Third P arty/C ommercial: Insurance carri er is not

affiliated with the insured party by ownership 

–	 Captive Insurance: The insured company or companies 

share ownership of their insurance carrier 
Webinar on Financial Assurance Mechanisms: 

Class I Hazardous Waste Wells 

 Class I has specific requirements under 40 CFR 144.63 (Other 

well classes do not; rather, they follow the general requirement in 

40 CFR 144.52(a)(7)) 

 The owner/operator has primary responsibility for closure and 

post-closure obligations and any needed corrective action 

 Options for closure and post-closure include trust funds, surety 

bonds, letters of credit, insurance, proof of owner/operator 

financial responsibility, guaranty of related party 

15 

Webinar on Financial Assurance Mechanisms: 

Class I Hazardous Waste Wells 

 InsuranceInsurance 

 Does not specify language for insurance 

policies
 

 Requires a Certificate of Insurance from 

owner/operator that policy conforms to regulations 

 Insurer must pay out funds upon the direction 

of regulatory agency
 

 Amount of coverage to be equal to covered 

event
 

16 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
18 

Webinar on Financial Assurance Mechanisms: 

Class II Financial Instruments 

 Class II wells follow a general requirement in 40 CFR 

144.52( ) a( 7)

 Guidance provides a choice of financial instruments (EPA 

UIC Program Guidance # 67, May 9, 1990) 

 The permittee, including the transferor of a permit, is 

required to demonstrate and maintain financial 

responsibility and resources to close, plug, and abandon 

the underground injection operation in a manner prescribed 

by the Director 144.52 (a) (7) (i) 

17 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Webinar on Financial Assurance Mechanisms: 

Class II Financial Instruments 

 For EPA-administered programs, the transferor of a 

Class I, II, or III well is required to demonstrate and 
 

maintain financial responsibility and resources to close, 

plug, and abandon the underground injection operation 

in a manner prescribed by the Director (40 CFR 144.28 

(d)(1))
 

 Instruments specifically named: surety bonds , trust

funds, letters of credit, financial statements 

 Insurance not specifically named in 1990 guidance 
20 

Webinar on Financial Assurance Mechanisms: 

Applicability of Insurance to GS 

 There are current current third party policies written written for GS 

 Reflect underwriters’ assessment of risks: 

–	 Pollution, business interruption, loss of well control, 

transmission of CO2, induced seismicity, operational issues 

(human failure) 

–	 Possible damages: ground water, mineral stocks, plant and 

human death, release to atmosphere (tax credit loss), migration 

out of reservoir 

 Risk reduction starts with site selection 

19 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 

Webinar on Financial Assurance Mechanisms: 

Applicability of Insurance to GS (cont.) 

 Environmental Finance Advisory Board (EFAB) Recommendations on captive 

insurance for the RCRA program (March 20, 2007): 

–	 The financially responsible affiliate should either (a) pass the financial test and 

unconditionally guarantee the obligations of the captive or (b) possess investment 

grade rating, or 

–	 The captive entity issuing the insurance policy should have a rating of “secure” or 

better by AM Best or comparable rating agency 

–	 The rating of the captive should be formally reviewed by the rating agency 

annually, and States should be notified within 30-days of a rating change, an 

outlook change, or a rating being placed under review 

 Class I Hazardous Requirements: Carriers must “be licensed to transact the business 

of insurance, or eligible to provide insurance as an excess or surplus lines insurer,” in 

at least one state; no minimum rating 
Webinar on Financial Assurance Mechanisms: 

Insurance for GS: Strengths 

 Provides assurance to regulating agency 

 Provides source of payment to the insured or other parties parties 

 Assumes adequate coverage for risk 

 Addresses environmental risks that are known to occur 

(although it is difficult to predict risk in general) 

 Provides site-specific flexibility 

 Carrier may not require collateral or credit restrictions 

 Allows for more competitive price and fewer restriction on 

capital 

 Expands variety of mechanisms available 

21 

Webinar on Financial Assurance Mechanisms: 

Insurance for GS: Weaknesses 

 Site specific policies may lead to complex documents and decisions for 

regulators
 

− In the event of a claim, responsible party may still be obligated to 

reimburse the carrier
 

− Insurance regulations vary by state
 

− Insurers make their own assessments of risk and payment
 

 All parties need to be well informed to make sure coverage is adequate 

 C ostesti mat es may vary i n accuracy; l ook atli mitofli ability 

 Delayed or denied payment of legitimate claims possible 

 Ongoing debate about whether the legal separation implies sufficient 

financial separation for captive Insurance 

22 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
Webinar on Financial Assurance Mechanisms: 

Insurance Examples 

 Growing body of literature on financial assurance for 

GS—many st dui es focus on insurance 

–	 Obtain private insurance or bonds from injection through postclosure 

– Caps and premiums are risk-based and based on site performance 

–	 Permitting for early projects could be regulated under modified 

UIC program with CCS-specific legislation in place; individual 

applicants must show proof of financial resources for site care and 

remedi ation 

–	 Alternative for early projects is Price Anderson model – individual 

insurance with liability cap using lower thresholds 

23 

Webinar on Financial Assurance Mechanisms: 

Insurance Examples 

Price-Anderson Act Model Financial 

Requirements (for Nuclear projects) 

 Licensees required to obtain maximum 

amount of private liability insurance 

available on market, currently $300 million 

(or show proof ofcomparabl e resources) 

 Licensees are strictly liable for 

“extraordinary nuclear occurrences” 

24 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
Webinar on Financial Assurance Mechanisms: 

Facilitated Discussion 

Moderator: 

Vanessa Leiby, The Cadmus Group, Inc.
 

Please type in questions using the webcast question pane on 

your control panel, or you may respond by phone. 

25 

Webinar on Financial Assurance Mechanisms: 

Control Panel Navigation 

26 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
Webinar on Financial Assurance Mechanisms: 

Questions for Discussion 

–	 Should insurance be considered for financial assurance for 

GS? Why or why not? 

–	 What experiences have you had with insurance for GS or 

other related industries? 

–	 Can/should specific procedures for insurance be established in 

the GS rule? 

–	 Are captive and third party insurance equally suited to GS? 

–	 Should EPA propose requirements for determining which 

insurers are eligible to provide policies for GS? 

–	 If insurance is considered for GS, what type of guidance 

should be available? 

27 

Webinar on Financial Assurance Mechanisms: 

Questions for Discussion 

 Does insurance make more sense for a financial responsibility 

demonstration during one phase (or all phases) compared to other 

mechanisms? 

Siting Area of 

Review 

and 

Corrective 

Action 

Well 

Construction

Injection/ 

Operation/ 

Monitoring 

Injection 

Well 

Plugging 

PostInjection 

Site Care 

and 

Site 

Closure 

Long-Term 

Care 

Emergency and Remedial Response 

28 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
Webinar on Financial Assurance Mechanisms: 

Thank You! 

More information about the Geologic Sequestration of 

Carbon Dioxide (CO2) 

 EPA Geologic Sequestration of Carbon Dioxide Website: 

http://www.epa.gov/safewater/uic/wells_sequestration.html 

 Text of the Proposed rule for Federal Requirements Under the UIC Program for 

Carbon Dioxide Dioxide (CO2) Geologic Geologic Sequestration equestration (GS) Wells: 

http://www.epa.gov/fedrgstr/EPA-WATER/2008/July/Day-25/w16626.pdf 

 Docket for the rule: www.regulations.gov, Docket ID EPA-HQ-OW-2008-0390 

29 

Webinar on UIC Program Applications:
 

Insurance May 20, 2009
 
Webinar on Underground Injection Control (UIC) 

Program Applications 

Self-Insurance: Financial Test and 

C t G t Corporate Guarantee 

May 26, 2009 

Th bl f f h l his public presentation is for information sharing only. Views or opinions 

expressed during the presentation belong to the speaker and do not necessarily 

represent the views and opinions of the U.S. EPA. 

Webinar on Financial Assurance Mechanisms: 

Control Panel Navigation 

2 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
Webinar on Financial Assurance Mechanisms: 

Overview 

 Welcome 

 Joseph Tiago, U.S. EPA, Headquarters Headquarters

 History of RCRA Subtitle C Financial Test 

 Dale Ruhter, U.S. EPA, Headquarters 

 Presentation on Self-Insurance 

 Plau B ail ey, ICF I nternati onal 

 Discussion Facilitator 

 Vanessa Leiby, The Cadmus Group, Inc. 

3 

Webinar on Financial Assurance Mechanisms: 

Welcome 

 Third in a series of EPA webinars to discuss 

potential financial responsibility 

mechanisms for GS wells 

 Part 1. Trust Funds, Letters of Credit, and 

Surety Bonds with Standby Trust Agreements – 

April 28, 2009 

 Ptar 2 . Insurance – May 20 , 2009 

 Part 3. Self Insurance: Financial Test and 

Corporate Guarantee – May 26, 2009 

4 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
6 

Webinar on Financial Assurance Mechanisms: 

Disclaimer 

 The purpose of this public presentation is for information 

sharing and views or opinions expressed during the

presentation belong to the speaker and do not necessarily 

represent the views and opinions of the U.S. EPA. 

 EPA does not have express authority in the Safe Drinking 

Water Act to accept and use funds for financial assurance. 

Consequently, the Agency cannot implement some of the 

financial assurance assurance mechanismechanisms described in these 

webinars due to the requirement under the Miscellaneous 

Receipt Act to deposit funds EPA receives for the use of 

the Government into the Treasury. 

5 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

Purpose 

 Review of: 

 Proposed financial responsibility responsibility requirem requirements 

 History of RCRA Subtitle C Financial Test 

 Self-insurance: financial test and corporate guarantee 

mechanisms available to meet the requirements
 

 Facilitated Discussion on: 

 Experiences using self-insurance 

 When in the GS lifecycle self-insurance may be most 

appropriate
 

 What type of guidance is needed 
8 

Webinar on Financial Assurance Mechanisms: 

Desired Outcome 

At the end of this webinar series: 

 Participants will have exchanged information on 

their experiences with self-insurance (financial 

test and corporate guarantee) as financial 

assurance mechanisms 

 Participants will have shared information on 

special considerations for meeting the unique 

needs of geologic sequestration wells 

7 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

CO2 GS Rulemaking: Milestones 

 Federal Requirements Under the UIC 

Program for Carbon Dioxide Geologic 

Sequestration Wells 

 Proposal published: July 25, 2008 

 Comment period closed: December 24, 2008 

 Noti ce of D at a A vail abilit y: 2009

 Final rule expected 2010 or 2011 
10 

Webinar on Financial Assurance Mechanisms: 

CO2 GS Rulemaking: 

Proposed Financial Responsibility Requirements 

 §146.85(a) The owner or operator must demonstrate and 

maintain financial responsibilityand resources for: 

 Corrective action (that meets the requirements of §146.84), 

 Injection well plugging (that meets the requirements of §146.92), 

 Post-injection site care and site closure (that meets the 

requirements of §146.93), and 

 Emergency and remedial response (that meets the requirements of 

§146.94) in a manner prescribed by the Director 

 §146 .85(d) The operator must provide provide an adjustment of the 

cost estimate to the Director if the Director has reason to 

believe that the original demonstration is no longer 

adequate to cover the cost of injection well plugging and 

post-injection site care and site closure 

9 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

CO2 GS Rulemaking: Summary of Comments 

Received on Proposed Regulations 

 EPA received comments in the following 

areas: 

 Usefulness/ appropriateness of various 

instruments
 

 Improvements for some instruments 

 Need for f Need for flexibility lexibility to encourage to encourage commercial 

scale development of CCS 

 Need for guidance on financial responsibility 
12 

Webinar on Financial Assurance Mechanisms 

Presentation on 

History of RCRA Subtitle C Financial Test 

Dale Ruhter, U.S. EPA, Headquarters 

11 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms 

RCRA Subtitle C Financial Test: 

Background 

 The current financial test used in the RCRA Subtitle C 

program was initially nitially promulgated ulgated in 1982 

 The intent of the test is to allow firms that are capable of 

meeting their environmental obligations to self-assure, thus 

avoiding the cost of obtaining a third-party instrument 

 The test was developed based on criteria of performance, 

availability, and public and private costs 

 A summary of the RCRA Subtitle C financial test for 

closure and post-closure is below 
Webinar on Financial Assurance Mechanisms 

RCRA Subtitle C Financial Test: 

Usage 

 The financial test and corporate guarantee cover 

an estimated: estimated:

 37% of the Treatment, Storage, or Disposal 

facilities (TSDs), and
 

 56% of the TSDs’ RCRA closure and postclosure obligations
 

 Financial tests similar to that for RCRA Subtitle C

closure and post-closure are also used by other 

programs, such as Class I UIC facilities for 

plugging and abandonment 

13 

Webinar on Financial Assurance Mechanisms 

RCRA Subtitle C Financial Test: 

Subsequent Developments 

 The Agency first proposed revisions to the RCRA 

Subtitle C financial test in 1991 

 These revisions have been neither finalized nor 

withdrawn
 

 In 2005, EPA promulgated a different financial test 

that can be used by a subset of hazardous waste 

facilities (those operating under a RCRA 

standardized permit) 

14 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
16 

Webinar on Financial Assurance Mechanisms 

RCRA Subtitle C Financial Test for 

Closure and Post-Closure 

 RCRA Subtitle C Financial Test – Alternative I 

 Must meet two of the following three ratios: 

 Total liabilities to net worth less than 2.0; 

 Sum of net income plus depreciation, depletion, and amortization to total 

liabilities greater than 0.1; and, 

 Current assets to current liabilities greater than 1.5; and 

 Net working capital and tangible net worth each at least six times 

the sum of current closure and post-closure cost estimates and the 

current plugging and abandonment cost estimates; and 

 Tangible net worth of at least $10 million; and 

 Assets in the U.S. of at least 90% of total assets or at least six times 

the sum of current closure and post-closure cost estimates and the 

current plugging and abandonment cost estimates 15 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms 

RCRA Subtitle C Financial Test for 

Closure and Post Closure 

 RCRA Subtitle C Financial Test – Alternative II 

 A current rating for the most recent bond i ssuance of AAA, AA, 

A, or BBB as issued by Standard & Poor’s or Aaa, Aa, A, or Baa 

as issued by Moody’s; and 

 Tangible net worth of at least six times the sum of current closure 

and post-closure cost estimates and the current plugging and 

abandonment cost estimates; and 

 Tangible net worth of at least $10 million; and 

 Assets in the U.S. of at least 90% of total assets or at least six 

times the sum of current closure and post-closure cost estimates 

and the current plugging and abandonment cost estimates 
Webinar on Financial Assurance Mechanisms 

Presentation on Self-Insurance: Financial 

Test and Corporate Guarantee 

Paul Bailey, ICF International 

Webinar on Financial Assurance Mechanisms: 

Phases of a GS Project 

Siting Area of 

Review 

and 

Corrective 

Action 

Well 

Construction 

Injection/ 

Operation/ 

Monitoring 

Injection 

Well 

Plugging 

PostInjection 

Site Care 

and 

Site 

Closure 

Long-Term 

Care 

Emergency and Remedial Response 

18 

17 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
Webinar on UIC Program Applications:

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009

Mechanisms

Webinar on Financial Assurance Mechanisms:

Available Mechanisms

Third Party Instruments Self Insurance Instruments

Surety 

Bonds

Letters of 

Credit Trust Funds Insurance Financial Test

Corporate 

Guarantee

19

Webinar on Financial Assurance Mechanisms: 

Self-Insurance Models

 Class II Self Class II Self-Insurance Insurance

 Class I Self-Insurance

20
Webinar on Financial Assurance Mechanisms: 

Class II Guidance for Self-Insurance 

 UIC Class II Well guidance (EPA UIC 

Program Guidance # 67, May 9, 1990) 

presents a two-part approach for use of a 

“financial statement” mechanism for those 

with a minimum net worth of $1 million: 

 Part 1: Meet “financial coverage criteria” 

 Part 2: Pass bond rating alternative or five 

financial tests
 

21 

Webinar on Financial Assurance Mechanisms: 

Class II Guidance Financial Coverage 

Criteria 

 History of plugging wells 

 Remaining economic life of production fields or 

leases 

 Number of years in business 

 Number of production fields 

 Number of wells 

 Estimated cost of well plugging 

 Financial condition 

(Source: EPA UIC Program Guidance # 67, May 9, 1990) 

22 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
Webinar on UIC Program Applications:

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009

Webinar on Financial Assurance Mechanisms: 

Class II Guidance Bond Rating 

Alternative

 Most recent rating on bonds used to raise

capital should be within the four highest 

categories:

 Standard & Poor's (AAA, AA, A, or BBB)

 Moody’s (Aaa, Aa, A, or Baa)

 Submit annual report of bond rating

23

Webinar on Financial Assurance Mechanisms: 

Class II Guidance Financial Tests

Type of Ratio Formula Threshold

1) Debt-Equity Ratio Current Liabilities < 1 0

Net Worth

< 1.0

2) Debt-Equity Long Term Liabilities

Net Worth

< 2.0

3) Liquidity Current Assets-Current Liabilities

 Total Assets

> -0.10

4) Cash Return on Liabilities Net Income + Depreciation

+ Depletion + Amortization

Total Liabilities

> 0.10

Total Liabilities

5) Net Profit Revenues - Expenses > 0 

(Source: EPA UIC Program Guidance # 67, May 9, 1990)

24
Webinar on Financial Assurance Mechanisms: 

Class II Financial Test Submission 

 Provide Provide either: either:

 A full auditor’s opinion from independent 

Certified Public Accountant (CPA)
 

 A "Glossy" financial statement 

 A 10K Report, submitted to the Securities and 

Exchange Commission
 

 A Federal Energy Regulatory Commission Form 2 

Report 

(Source: EPA UIC Program Guidance # 67, May 9, 1990) 

25 

Webinar on Financial Assurance 

Mechanisms: Class II Guidance 

Corporate Guarantee 

 May be issued by a large parent corporation that 

owns at least 50% of the subsidiary’s voting stock 

 Parent must have been in business at least five 

years and have net worth at least $1 million 

 Guarantee typically made in writing by a 

corporate officer authorized to legally bind the 

parent 

 Presumably, parent must pass all 5 financial tests 

(Source: EPA UIC Program Guidance # 67, May 9, 1990) 

26 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
28 

Webinar on Financial Assurance Mechanisms: 

Class I Self -Insurance 

 Self-insurance option is spelled out at 40 CFR 144 

Subpart F, specifically pecifically §144.63(f) 

 Must satisfy one of two financial tests 

 Must submit signed Chief Financial Officer letter, 

independent CPA’s (1) report on examination of 

financial statements and (2) special report reconciling 

numbers 

 Auditor’s opinion must be “clean” 

(Source: 40 CFR 144.63(f)(10)) 

27 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

Class I Financial Test Alternative I 

 Two of the following three ratios: 

 Total Liabilities / Net Worth < 2 .0 

 sum of net income plus depreciation, depletion and amortization 

(NIDDA) / Total Liabilities > 0.1 

 Current Assets/Current Liabilities > 1.5 

 Net Working Capital (NWC) and Tangible Net Worth 

(TNW) each at least 6 times the cost estimate 

 TNW at least $10 million 

 Assets in U.S at least 90% of total assets or at least 6 times 

the cost estimate 

(Source: 40 CFR 144.63(f)(10)) 
30 

Webinar on Financial Assurance Mechanisms: 

Class I Financial Test Alternative 2 

 Current rating for most recent bond 

issuance of AAA, AA, A or BBB (S&P) or 

Aaa, Aa, A, or Baa (Moody’s) 

 TNW at least 6 times the cost estimate 

 TNW at least $10 million 

 Assets in U.Sat l east90%oft otalassets or 

at least 6 times the cost estimate 

(Source: 40 CFR 144.63(f)(10)) 

29 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

Class I Corporate Guarantee 

 Written guarantee guarantee by parent following following 

specified terms 

 Parent must satisfy self-insurance 

requ irements

(Source: 40 CFR 144.63(f)(10)) 
Webinar on Financial Assurance Mechanisms: 

Role of Cost Estimate 

 Class II (no role) vs . Class I hazardous hazardous 

(included in “multiples”) 

 RCRA financial tests use either site-specific 

or categorical cost information 

 Unlike other mechanisms, not limited to the 

amount of assurance 

31 

Webinar on Financial Assurance Mechanisms: 

Potential Strengths of Self Insurance 

 HistoricallyHistorically- Very low risk of failure failure 

 Solid analytical and experiential foundation 

for class I tests: 

 EPA Office of Inspector General report (March 30, 2001) 

indicates that firms with less than $10 million in tangible net 

worth went bankrupt ankrupt four tim four times more frequently frequently than firms 

with tangible net worth greater than $10 million. 

 Low cost (annual documentation) 

32 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 
Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

Potential Weaknesses of Self Insurance 

 No guarantees 

 Risk of inadequate or excessive 

oversight 

33 

34 

Webinar on Financial Assurance Mechanisms: 

Facilitated Discussion 

Moderator: 

Vanessa Leiby, The Cadmus Group, Inc. 

Please type in questions using the webcast question pane on 

your control panel, or you may respond by phone. 
36 

Webinar on Financial Assurance Mechanisms: 

Control Panel Navigation 

35 

Webinar on UIC Program Applications:
 

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009
 

Webinar on Financial Assurance Mechanisms: 

Questions for Discussion 

 Should self-insurance or corporate guarantees be considered for 

financial assurance for GS?Why or why not? 

 What experiences have you had with self-insurance or corporate 

guarantees for GS or other related industries? 

 Can/should specific procedures for self-insurance or corporate 

guarantees be established in the GS rule? 

 If self-insurance or corporate guarantees are considered for GS, 

what type of guidance should be available? 

 Is a tangibl e net worth th reshold of $10 million suffi ci ent f or GS 

projects? Why or why not? 

 With respect to GS wells what are your potential concerns with 

Financial Tests? 
Webinar on UIC Program Applications:

Self-Insurance: Financial Test and Corporate Guarantee May 26, 2009

Webinar on Financial Assurance Mechanisms:

Questions for Discussion

 Does self insurance or corporate guarantees make more sense for a 

financial responsibility demonstration during one phase (or all phases) 

compared to other mechanisms?

Siting Area of 

Review 

and 

Corrective

Action

Well 

Construction

Injection/ 

Operation/

Monitoring

Injection 

Well

Plugging

PostInjection

Site Care 

and 

Site 

Closure

Long-Term

Care

37

Emergency and Remedial Response

Webinar on Financial Assurance Mechanisms:

Thank You!

More information about the Geolog q ic Se uestration of 

Carbon Dioxide (CO2)

 EPA Geologic Sequestration of Carbon Dioxide Website: 

http://www.epa.gov/safewater/uic/wells_sequestration.html

 Text of the Proposed rule for Federal Requirements Under the UIC Program for 

Carbon Dioxide (CO ) Geologic Sequestration (GS) Wells:

38

Carbon Dioxide (CO2) Geologic Sequestration (GS) Wells:

http://www.epa.gov/fedrgstr/EPA-WATER/2008/July/Day-25/w16626.pdf

 Docket for the rule: www.regulations.gov, Docket ID EPA-HQ-OW-2008-0390