DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT

Solid and Hazardous Waste Commission/Hazardous Materials and Waste Management Division

6 CCR 1007-3

hazardous waste

Amendment of 6 CCR 1007-3, Part 266 Financial Requirements

1)	Section 266.11 is amended by deleting and reserving paragraph (f) and adding a definition of “Captive Insurance Company” at paragraph (i) to read as follows: 

§ 266.11 Definitions of terms as used in this Part.
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(f) [Reserved] The following terms are used in the specifications for the financial tests for closure, post closure care, and liability coverage.  The definitions are intended to assist in the understanding of these regulations and are not intended to limit the meanings of terms in a way that conflicts with generally accepted accounting practices. 
"Assets" means all existing and all probable future economic benefits obtained or controlled by a particular entity. 
"Current assets" means cash or other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.
"Current liabilities" means obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets or the creation of other current liabilities. 
"Current plugging and abandonment cost estimate" means the most recent of the estimates prepared in accordance with 40 CFR § 144.62(a),(b), and (c).
"Independently audited" refers to an audit performed by an independent certified public accountant in accordance with generally accepted auditing standards. 
"Liabilities" means probable future sacrifices of economic benefits arising from present obligations to transfer assets or provide services to other entities in the future as a result of past transactions or events.
"Net working capital" means current assets minus current liabilities. 
"Net worth" means total assets minus total liabilities and is equivalent to owner's equity.
"Tangible net worth" means the tangible assets that remain after deducting liabilities; such assets would not include intangibles such as goodwill and rights to patents or royalties. 
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(i) "Captive Insurance Company" means a closely-held company owned by one or more organizations, parents, whose original purpose was and may continue to be, to insure some or all of the risks of shareholders or affiliated organizations.

2)	Section 266.14 is amended by revising paragraphs (a), (b) and (c) to read as follows:  

§ 266.14 Financial assurance for closure and/or post closure.

(a) An owner or operator of each facility, by the effective date of these regulations, must establish financial assurance for closure, and if applicable, post closure of the facility.  He/she must choose from the options as specified in paragraphs (a) through (i) of this section.  All hazardous waste facilities needing to implement post-closure care must initially provide enough financial assurance to provide for 30 years of post-closure care, maintenance, and monitoring.
 
(b) The owner and/or operator of each facility must choose from the options as specified in paragraphs (c) through (j) of this section.

(a) (c) Closure and/or Post Closure Trust Fund.

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(b) [Reserved]

(c) [Reserved]
 
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3)	Section 266.14(h) {Closure and/or Post Closure Insurance} is revised to read as follows:  

§ 266.14 Financial assurance for closure and/or post closure.

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(h) Closure and/or Post Closure Insurance.

(1) An owner or operator may satisfy the requirements of this section by obtaining closure and/or post closure insurance which conforms to the requirements of this paragraph and submitting a certificate of such insurance to the Department within 30 days after the effective date of these regulations.  An owner or operator of a new facility must submit  a copy of the insurance policy and all endorsements to the Department at least 90 days before the date on which hazardous waste is first received for treatment, storage, or disposal, and must submit the certificate of insurance to the Department within 30 days after Department approval of the insurance policy and at least 60 30 days before the date on which hazardous waste is first received for treatment, storage, or disposal.  If an owner or operator changes a current insurance policy, the owner or operator must submit a copy of the proposed insurance policy and all endorsements to the Department at least 90 days before changing to a new insurance policy. The insurance must be effective before this initial receipt of hazardous waste.  At a minimum, the insurer must be licensed to transact the business of insurance or be eligible to provide insurance as an excess or surplus lines insurer, in one or more states and comply with the Title 10 Insurance Code, C.R.S., as amended.

(2) The insurer must be licensed to transact the business of insurance or be eligible to provide insurance as an excess or surplus lines insurer, in one or more states and comply with the Title 10 Insurance Code, C.R.S., as amended. 

(3) The owner or operator shall submit annually to the Department on the anniversary of the insurance policy the following information regarding the insurer’s qualifications.

(i) The most recent A.M. Best rating of A- or better for the insurer; and

(ii) Documentation demonstrating that the insurer has capital and surplus of at least one hundred million dollars in excess of all current policy liabilities.

(4) The owner or operator of a facility using a Captive Insurance Company, as defined in § 266.11(i), must do the following:

(i) Annually submit to the Department on the anniversary of the insurance policy, items specified in § 266.14(h)(3)(i) and(ii);

(ii) Utilize a Captive Insurance Company that is domiciled in the State of Vermont;

(iii) Annually submit to the Department the Annual Certificate of Good Standing for the Captive Insurance Company issued by the Department of Financial Regulation of Vermont; and

(iv) The owner or operator or Captive Insurance Company shall not defund the captive insurance policy without providing a 180 day notice to the Department of their intent to defund, and having in place another mechanism allowed in § 266.14.
	
(5) The Department may disallow use of the insurer or the Captive Insurance Company by the owner or operator if the applicable requirements of § 266.14(h)(3) and (4) are not met.

(2) (6) The wording of the certificate of insurance must be identical to the wording specified in § 266.18(h).

(3) (7) The closure and/or post closure insurance policy must be issued for a face amount at least equal to the current closure and/or post closure cost estimate, except as provided in § 266.14(j).  The term "face amount" means the total amount the insurer is obligated to pay under the policy.  Actual payments by the insurer will not change the face amount, although the insurer's future liability will be lowered by the amount of the payments.

(4) (8) The closure and/or post closure insurance policy must guarantee that funds will be available to close or provide post closure care of the facility whenever final closure and/or post closure occurs.  The policy must also guarantee that once final closure and/or post closure begins, the insurer will be responsible for paying out funds, up to an amount equal to the face amount of the policy, upon the direction of the Department, to such party or parties as the Department specifies.

(5) (9) Closure and post closure care reimbursements.
 
(i) After beginning partial or final closure, an owner or operator or another person authorized to perform closure may request reimbursements for closure expenditures by submitting itemized bills to the Department.  The owner or operator may request reimbursements for partial closure only if the remaining value of the policy is sufficient to cover the maximum costs of closing the facility over its remaining operating life.  Within 60 days after receiving bills for closure activities, the Department will instruct the insurer to make reimbursements in such amounts as the Department specifies in writing if the Department determines that the partial or final closure expenditures are in accordance with the approved closure plan, or otherwise justified.  If the Department has reason to believe that the maximum cost of closure over the remaining life of the facility will be significantly greater than the face amount of the policy, it may withhold reimbursements of such amounts as it deems prudent until it determines, in accordance with § 266.14(l), that the owner or operator is no longer required to maintain financial assurance for final closure of the facility.  If the Department does not instruct the insurer to make such reimbursements, it will provide the owner or operator with a detailed written statement of reasons.
 
(ii) An owner or operator or any other person authorized to conduct post closure care may request reimbursements for post closure care expenditures by submitting itemized bills to the Department.  Within 60 days after receiving bills for post closure care activities, the Department will instruct the insurer to make reimbursements in those amounts as the Department specifies in writing, if the Department determines that the post closure care expenditures are in accordance with the approved post closure plan or otherwise justified.  If the Department does not instruct the insurer to make such reimbursements, it will provide the owner or operator with a detailed written statement of reasons.

(6) (10) The owner or operator must maintain the policy in full force and effect until the Department consents to termination of the policy by the owner or operator as specified in paragraph (h) (11) (15) of this section.  Failure to pay the premium, without substitution of alternate financial assurance as specified in this section, will constitute a violation of these regulations, warranting such remedy as the Department deems necessary.  Such violation will be deemed to begin upon receipt by the Department of a notice of future cancellation, termination, or failure to renew due to nonpayment of the premium, rather than upon the date of expiration.

(7) (11) Each policy must contain a provision allowing assignment of the policy to a successor owner or operator.  Such assignment may be conditional upon consent of the insurer, provided such consent is not unreasonably refused.

(8) (12) The policy must provide that the insurer may not cancel, terminate, or fail to renew the policy except for failure to pay the premium.  The automatic renewal of the policy must, at a minimum, provide the insured with the option of renewal at the face amount of the expiring policy.  If there is a failure to pay the premium, the insurer may elect to cancel, terminate, or fail to renew the policy by sending notice by certified mail to the owner or operator and the Department.  Cancellation, termination, or failure to renew may not occur, however, during the 120 days beginning with the date of receipt of the notice by both the Department and the owner or operator, as evidenced by the return receipts.  Cancellation, termination, or failure to renew may not occur and the policy will remain in full force and effect in the event that on or before the date of expiration:

(i) The Department deems the facility abandoned; or

(ii) The permit is terminated or revoked or a new permit is denied; or

(iii) Closure is ordered by the Department or a State or other court of competent jurisdiction; or
 
(iv) The owner or operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy), U.S. Code; or

(v) The premium due is paid.

(9) (13) Whenever the current closure and/or post closure cost estimate increases to an amount greater that the face amount of the policy, the owner or operator, within 60 days after the increase, must either cause the face amount to be increased to an amount at least equal to the current closure and/or post closure cost estimate and submit evidence of such increase to the Department, or obtain other financial assurance as specified in this section to cover the increase.  Whenever the current closure and/or post closure cost estimate decreases, the face amount may be reduced to the amount of the current closure and/or post closure cost estimate following written approval by the Department.

(10) (14) Commencing on the date that liability to make payments pursuant to the post closure insurance policy accrues, the insurer will thereafter annually increase the face amount of the policy.  Such increase must be equivalent to the face amount of the policy, less any payments made, multiplied by an amount equivalent to 85 percent of the most recent investment rate or of the equivalent coupon issue yield announced by the U.S. Treasury for 26 week Treasury securities.

(11) (15) The Department will give written consent to the owner or operator that he/she may terminate the insurance policy when:

(i) An owner or operator substitutes alternate financial assurance as specified in this section; or

(ii) The Department releases the owner or operator from the requirements of this section in accordance with § 266.14(l).

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4)	Section 266.14(i) {Financial Test and Guarantee for Closure and/or Post Closure} is deleted and reserved as follows:  

§ 266.14 Financial assurance for closure and/or post closure.

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(i) [Reserved]  Financial Test and Guarantee for Closure and/or Post Closure.

(1) An owner or operator may satisfy the requirements of this section by demonstrating that he/she passes a financial test as specified in this paragraph.  To pass this test the owner or operator must meet the criteria of either paragraph (i)(1)(i) or (i)(1)(ii) of this section: 

(i) The owner or operator must have:

(A) Two of the following three ratios:  a ratio of total liabilities to net worth less than 2.0; a ratio of the sum of net income plus depreciation, depletion, and amortization to total liabilities greater than 0.1: and a ratio of current assets to current liabilities greater than 1.5; and 
 
(B) Net working capital and tangible net worth each at least six times the sum of the current closure and post closure cost estimates and the current plugging and abandonment cost estimates; and

(C) Tangible net worth of at least $10 million; and 

(D) Assets located in the United States amounting to at least 90 percent of total assets or at least six times the sum of the current closure and post closure cost estimates and the current plugging and abandonment cost estimates.

(ii) The owner or operator must have a current senior debt rating of AAA, AA, or A as issued by Standard and Poor's or Aaa, Aa, or A as issued by Moody's.  Senior debt includes bonds, notes and debentures.

(2) The phrase "current closure and post closure cost estimates" as used in paragraph (i)(1) of this section refers to the cost estimates required to be shown in paragraphs 5 8 of the letter from the owner's or operator's chief financial officer (§ 266.18(i)).  The phrase "current plugging and abandonment cost estimates" as used in paragraph (i)(1) of this section refers to the cost estimates required to be shown in paragraphs 5 8 of the letter from the owner's or operator's chief financial officer (40 CFR § 144.70(f)).

(3) To demonstrate that he/she meets this test, the owner or operator must submit the following items to the Department:

(i) A letter signed by the owner's or operator's chief financial officer and worded as specified in § 266.18(i); 

(ii) A copy of the independent certified public accountant's report on examination of the owner's or operator's financial statements for the latest completed fiscal year; and

(iii) If the criteria of § 266.14(i)(1)(i) is used, a special report from the owner's or operator's independent certified public accountant to the owner or operator stating that: 

(A) He/she has compared the data which the letter from the chief financial officer specifies as having been derived from the independently audited, year end financial statements for the latest fiscal year with the amounts in such financial statements; and 

(B) In connection with that procedure, no matters came to his/her attention which caused him/her to believe that the specified data should be adjusted.
 
(iv) Companies not required to submit audited financial statements to the U.S. Securities and Exchange Commission must have the auditors opinion prepared by an auditor licensed in the State of Colorado.

(4) An owner or operator of a new facility must submit the items specified in paragraph (i) of this section to the Department at least 60 days before the date on which hazardous waste is first received for treatment, storage, or disposal.

(5) After the initial submission of items specified in paragraph (i) of this section, the owner or operator must send updated information to the Department within 90 days after the close of each succeeding fiscal year.  This information must consist of all three items specified in paragraph (i) of this section.

(6) If the owner or operator no longer meets the requirements of paragraph (i)(1) of this section, he/she must send notice to the Department of intent to establish alternate financial assurance as specified in this section.  The notice must be sent by certified mail within 90 days after the end of the fiscal year for which the year end financial data show that the owner or operator no longer meets the requirements.  The owner or operator must provide the alternate financial assurance within 120 days after the end of such fiscal year.

(7) The Department may, based on a reasonable belief that the owner or operator may no longer meet the requirements of paragraph (i)(1) of this section, require reports of financial condition at any time from the owner or operator in addition to those specified in paragraph (i)(3) of this section.  If the Department finds, on the basis of such reports or other information, that the owner or operator no longer meets the requirements of paragraph (i)(1) of this section, the owner or operator must provide alternate financial assurance as specified in this section within 30 days after notification of such a finding.

(8) The Department may disallow use of this test on the basis of qualifications in the opinion expressed by the independent certified public accountant in the accountant's report on examination of the owner's or operator's financial statements [see paragraph (i)(3)(ii) of this section].  The Department will evaluate other qualifications on an individual basis.  The owner or operator must provide alternate financial assurance as specified in this section within 30 days after notification of the disallowance. 

(9) During the period of post closure care, the Department may approve a decrease in the current post closure cost estimate for which this test demonstrates financial assurance if the owner or operator demonstrates to the Department that the amount of the cost estimate exceeds the remaining cost of post closure care.

(10) The owner or operator is no longer required to submit the items specified in paragraph (i)(3) of this section when: 

(i) An owner or operator substitutes alternate financial assurance as specified in this section; or 

(ii) The Department releases the owner or operator from the requirements of this section in accordance with § 266.14(l).

(11) An owner or operator may meet the requirements for this section by obtaining a written guarantee.  The guarantor must be the direct or higher-tier parent corporation of the owner or operator, a firm whose parent corporation is also the parent corporation of the owner or operator, or a firm with a "substantial business relationship" with the owner or operator.  The guarantor must meet the requirements for owners or operators in paragraphs (i)(1) through (i)(8) of this section and must comply with the terms of the guarantee.  The wording of the guarantee must be identical to the wording specified in § 266.18(j).  A certified copy of the guarantee must accompany the items sent to the Department as specified in paragraph (i)(3) of this section.  One of these items must be the letter from the guarantor's chief financial officer.  If the guarantor's parent corporation is also the parent corporation of the owner or operator, the letter must describe the value received in consideration of the guarantee.  If the guarantor is a firm with a "substantial business relationship" with the owner or operator, this letter must describe this "substantial business relationship" and the value received in consideration of the guarantee.  The terms of the guarantee must provide that:

(i) If the owner or operator fails to perform final closure and/or post closure care of a facility covered by the guarantee in accordance with the closure plan and other permit requirements whenever required to do so, the guarantor will do so or establish a trust fund as specified in § 266.14(a) in the name of the owner or operator.

(ii) The guarantee will remain in force unless the guarantor sends notice of cancellation by certified mail to the owner or operator and to the Department.  Cancellation may not occur, however, during the 120 days beginning on the date of receipt of the notice of cancellation by both the owner or operator and the Department, as evidenced by the return receipts.

(iii) If the owner or operator fails to provide alternate financial assurance as specified in this section and obtain the written approval of such alternate assurance from the Department within 90 days after receipt by both the owner or operator and the Department of a notice of cancellation of the guarantee from the guarantor, the guarantor will provide such alternative financial assurance in the name of the owner or operator.

(12) If the Department has subscribed to an automated system containing audited financial data on the owner or operator, the owner or operator will only be required to submit a closure and/or post closure cost estimate.  Passage of the financial test will then be determined by the Department.
 
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5)	Section 266.16(f) {Financial Test for Liability Coverage} is deleted and reserved as follows:  

§ 266.16  Liability Requirements.

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(f) [Reserved]  Financial Test for Liability Coverage.

(1) An owner or operator may satisfy the requirements of this section by demonstrating that he/she passes a financial test as specified in this paragraph.  To pass this test the owner or operator must meet the criteria of paragraph (f)(1)(i) or (f)(1)(ii):

(i) The owner or operator must have: 

(A) Net working capital and tangible net worth each at least six times the amount of liability coverage to be demonstrated by this test; and 

(B) Tangible net worth of at least $10 million; and 

(C) Assets in the United States amounting to either:

(1) At least 90 percent of his/her total assets; or

(2) At least six times the amount of liability coverage to be demonstrated by this test.

(ii) The owner or operator must have a current senior debt rating of AAA, AA, or A as issued by Standard and Poor's or Aaa, Aa, or A as issued by Moody's.  Senior debt includes bonds, notes and debentures.

(2) The phrase "amount of liability coverage" as used in paragraph (f)(1) of this section refers to the annual aggregate amounts for which coverage is required under paragraphs (a) and (b) of this section.

(3) To demonstrate that he/she meets this test, the owner or operator must submit the following three items to the Department:

(i) A letter signed by the owner's or operator's chief financial officer and worded as specified in § 266.18(i). 

(ii) A copy of the independent certified public accountant's report on examination of the owner's or operator's financial statements for the latest completed fiscal year. 
 
(iii) If the criteria of § 266.16(f)(1)(i) is used, a special report from the owner's or operator's independent certified public accountant to the owner or operator stating that:

(A) He/she has compared the data which the letter from the chief financial officer specifies as having been derived from the independently audited, year end financial statements for the latest fiscal year with the amounts in such financial statements; and 

(B) In connection with that procedure, no matters came to his/her attention which caused him/her to believe that the specified data should be adjusted.

(iv) Companies not required to submit audited financial statements to the U.S. Securities and Exchange Commission must have the auditors opinion prepared by an auditor licensed in the State of Colorado.

(4) An owner or operator of a new facility must submit the items specified in paragraph (f)(3) of this section, the owner or operator must send updated information to the Department at least 60 days before the date on which hazardous waste is first received for treatment, storage, or disposal.

(5) After the initial submission of items specified in paragraph (f)(3) of this section, the owner or operator must send updated information to the Department within 90 days after the close of each succeeding fiscal year.  This information must consist of all three items specified in paragraph (f)(3) of this section.

(6) If the owner or operator no longer meets the requirements of paragraph (f)(1) of this section, the owner or operator must obtain alternate liability coverage for the entire amount of required liability coverage as specified in this section.  Alternate liability coverage must be submitted to the Department within 90 days after the end of the fiscal year for which the year end financial data show that the owner or operator no longer meets the test requirements.

(7) The Department may, based on a reasonable belief that the owner or operator may no longer meet the requirements of paragraph (f)(1) of this section, require reports of financial condition at any time from the owner or operator in addition to those specified in paragraph (f)(3) of this section.  If the Department finds, on the basis of such reports or other information, that the owner or operator no longer meets the requirements of paragraph (f)(1) of this section, the owner or operator must provide alternate financial assurance as specified in this section within 30 days after notification of such a finding.

(8) Department may disallow use of this test on the basis of qualifications in the opinion expressed by the independent certified public accountant in his/her report on examination of the owner's or operator's financial statements [see paragraph (f)(3)(ii) of this section].  An adverse opinion or a disclaimer of opinion will be cause for disallowance.  The Department will evaluate other qualifications on an individual basis.  The owner or operator must provide a Certificate of Insurance for the entire amount of required liability coverage as specified in this section within 30 days after notification of disallowance.

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6)	Section 266.16(g) {Guarantee for liability coverage} is deleted and reserved as follows:  

§ 266.16  Liability Requirements.

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(g) [Reserved]  Guarantee for liability coverage.

(1) Subject to paragraph (g)(2) of this section, an owner or operator may meet the requirements of this section by obtaining a written guarantee, hereinafter referred to as "guarantee".  The guarantor must be the direct or higher tier parent corporation of the owner or operator, a firm whose parent corporation is also the parent corporation of the owner or operator, or a firm with  a "substantial  business relationship" with the owner or operator.  The guarantor must meet the requirements for owners or operators in paragraphs (f)(1) through (f)(8) of this section.  The wording of the guarantee must be identical to the wording specified in § 266.18(k) of this part.  A certified copy of the guarantee must accompany the items sent to the Department as specified in paragraph (f)(3) of this section.  One of these items must be the letter from the guarantor's chief financial officer.  If the guarantor's parent corporation is also the parent corporation of the owner or operator, this letter must describe the value received in consideration of the guarantee.  If the guarantor is a firm with a "substantial business relationship" with the owner or operator, this letter must describe this "substantial business relationship" and the value received in consideration of the guarantee. 

(i) If the owner or operator fails to satisfy a judgement based on a determination of liability for bodily injury or property damage to third parties caused by sudden or nonsudden accidental occurrences (or both as the case may be), arising from the operation of facilities covered by this guarantee, or fails to pay an amount agreed to in settlement of claims arising from or alleged to arise from such injury or damage, the guarantor will do so up to the limits of coverage.
(ii) [Reserved]
 
(2)(i) In the case of corporations incorporated in the United States, a guarantee may be used to satisfy the requirements of this section only if the Attorneys General or Insurance Commissioners of (A) The State in which the guarantor is incorporated, and (B) Each State in which a facility covered by the guarantee is located have submitted a written statement to EPA that a guarantee executed as described in this section and § 266.18(k) is a legally valid and enforceable obligation in that State.

(ii) In the case of corporations incorporated outside the United States, a guarantee may be used to satisfy the requirements of this section only if (A) The non U.S. corporation has identified a registered agent for service of process in each State in which a facility covered by the guarantee is located and in the State in which it has its principal place of business, and (B) The Attorney General or Insurance Commissioner of each State in which a facility covered by the guarantee is located and the State in which the guarantor corporation has its principal place of business, has submitted a written statement to EPA that a guarantee executed as described in this section and § 266.18(k) is a legally valid and enforceable obligation in that State.

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7)	Section 266.16(h) {Insurance for liability coverage} is revised to read as follows:  
§ 266.16  Liability Requirements.

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(h) Insurance for liability coverage.

(1) An owner or operator may demonstrate the required liability coverage by having liability insurance as specified in this subsection.

(2) Each insurance policy must be evidenced by a Certificate of Liability Insurance.  The wording of the certificate of insurance must be identical to the wording specified in § 266.18(h).  The owner or operator must submit a signed duplicate original of the certificate of insurance to the Department.  If requested by the Department, the owner or operator must provide a signed duplicate of the insurance policy.  An owner or operator of a new facility must submit the signed duplicate original of the Certificate of Liability Insurance to the Department at least 60 days before the date on which hazardous waste is first received for treatment, storage, or disposal.  The insurance must be effective before this initial receipt of hazardous waste.

(3) Insurance for liability coverage must meet the requirements specified in § 266.14(h)(2)-(5).

(3) (4) The insurance afforded with respect to such occurrences is subject to all of the terms and conditions of the policy; provided, however, that any provisions of the policy inconsistent with subsections (i) through (v) of this Paragraph (3) (4) are amended to conform with subsections (i) through (v);

(i) Bankruptcy or insolvency of the insured shall not relieve the Insurer of its obligations under the policy. 

(ii) The Insurer is liable for the payment of amounts within any deductible applicable to the policy, with a right of reimbursement by the insured for any such payments made by the Insurer.  This provision does not apply with respect to the amount of any deductible for which coverage is demonstrated as specified in § 266.16(f) and § 266.16(g).

(iii) Whenever requested by the Department, the Insurer agrees to furnish to the Department a signed duplicate original of the policy.

(iv) Cancellation of the insurance policy whether by the Insurer or the insured, a parent corporation providing insurance coverage for its subsidiary, or by a firm having an insurable interest in and obtaining liability insurance on behalf of the owner or operator of the hazardous waste management facility, will be effective only upon written notice and only after the expiration of sixty (60) days after a copy of such written notice is received by the Department.
 
(v) Any other termination of the insurance policy will be effective only upon written notice and only after the expiration of thirty (30) days after a copy of such written notice is received by the Department.

(4) (5) Each insurance policy must be issued by an insurer which, at a minimum, is licensed to transact the business of insurance, or be eligible to provide insurance as an excess or surplus lines insurer, in one or more states and comply with Title 10 C.R.S. 1987, as amended.

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 8) Section 8.83 {Statement of Basis and Purpose for the Rulemaking Hearing of May 20, 2014 is added to Part 8 of the Regulations to read as follows:

Statement of Basis and Purpose
Rulemaking Hearing of May 20, 2014

8.83 Basis and Purpose.

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) and (3.5), 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:

1.	Elimination of the Financial Test and Corporate Guarantee
2.	Strengthening the requirements for Insurance and Captive Insurance Companies

The remainder of the changes are small clarifications.

1.	Elimination of the Financial Test and Corporate Guarantee

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.”   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. 

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.  

2.	Strengthening the Requirements for Insurance and Captive Insurance Companies

A.	Requirements for Insurers. 

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: 1) be licensed to transact the business of insurance in the State of Colorado, 2) attain a rating of A- or better from A.M. Best, 3) be eligible to provide insurance as an excess or surplus lines insurer of more than $100 million in one or more States, and 4) submit a copy of the proposed insurance policy to the Department for review before it is in full force and effect. 

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.

B.	Requirements for Captive Insurance Companies. 

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:  
1.	A lack of independence, and thus the transfer of risk, between the captive subsidiary and the insured parent company.
2.	A lack of consistent requirements for captives with regard to minimum capitalization thresholds, reserves, and encumbrances on reserves.
3.	Captive insurance being domiciled in states/nations where the regulatory oversight is antiquated or favors the industry rather than protecting the general public.
4.	Similar to the concern about the Financial Test and Corporate Guarantee, a general lack of Department expertise in monitoring and reviewing the financial state of captive insurance providers and their parent companies.
5.	Also similar to the concern about the Financial Test and Corporate Guarantee, the financial viability of companies (and their captive insurance providers) can change very rapidly.  

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.   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.