401 KAR 34:090. Closure financial requirements.

 

      RELATES TO: KRS 224.01, 224.10, 224.40, 224.43, 224.46, 224.99, 40 C.F.R. 264.142, 264.143

      STATUTORY AUTHORITY: KRS 224.10-100, 224.46-505, 224.46-520

      NECESSITY, FUNCTION, AND CONFORMITY: To implement provisions of KRS 224.46-505 and KRS 224.46-520 and to establish closure financial requirements.

 

      Section 1. Cost Estimate for Closure. (1) The owner or operator shall have a detailed written estimate, in current dollars, of the cost of closing the facility in accordance with the requirements in Sections 2 to 6 of 401 KAR 34:070 and applicable closure requirements in Section 9 of 401 KAR 34:180, Section 8 of 401 KAR 34:190, Section 6 of 401 KAR 34:200, Section 8 of 401 KAR 34:210, Section 8 of 401 KAR 34:220, Section 6 of 401 KAR 34:230, Section 8 of 401 KAR 34:240, Section 3 of 401 KAR 34:245, Sections 2 to 4 of 401 KAR 34:250, and Section 6 of 34:285.

      (a) The estimate shall equal the cost of final closure at the point in the facility's active life when the extent and manner of its operation will make closure the most expensive, as indicated by its closure plan (see Section 3(2) of 401 KAR 34:070); and

      (b) The closure cost estimate shall be based on the costs to the owner or operator of hiring a third party to close the facility. A third party is a party who is neither a parent nor a subsidiary of the owner or operator. (See definition of parent corporation in Section 1(1)(e) of 401 KAR 34:080.) The owner or operator may use costs for on-site disposal if he can demonstrate that on-site disposal capacity will exist at all times over the life of the facility.

      (c) The closure cost estimate shall not incorporate any salvage value that may be realized with the sale of hazardous wastes, or nonhazardous wastes if applicable under Section 4(4) of 401 KAR 34:070, facility structures or equipment, land, or other assets associated with the facility at the time of partial or final closure.

      (d) The owner or operator shall not incorporate a zero cost for hazardous wastes, or nonhazardous wastes if applicable under Section 4(4) of 401 KAR 34:070, that might have economic value.

      (2) During the active life of the facility, the owner or operator shall adjust the closure cost estimate for inflation within sixty (60) days prior to the anniversary date of the establishment of the financial instrument used to comply with Section 2 of this administrative regulation. For owners and operators using the financial test or corporate guarantee, the closure cost estimate shall be updated for inflation within thirty (30) days after the close of the firm's fiscal year and before submission of updated information to the cabinet as specified in Section 8(3) of this administrative regulation. The adjustment shall be made by recalculating the maximum costs of closure in current dollars, or by using an inflation factor derived from the most recent Implicit Price Deflator for Gross National Product published by the U.S. Department of Commerce in its Survey of Current Business as specified in paragraphs (a) and (b) of this subsection. The inflation factor is the result of dividing the latest published annual Deflator by the Deflator for the previous year.

      (a) The first adjustment shall be made by multiplying the closure cost estimate by the inflation factor. The result shall be the adjusted closure cost estimate.

      (b) Subsequent adjustments shall be made by multiplying the latest adjusted closure cost estimate by the latest inflation factor.

      (3) During the active life of the facility, the owner or operator shall revise the closure cost estimate no later than thirty (30) days after the cabinet has approved the request to modify the closure plan, if the change in the closure plan increases the cost of closure. The revised closure cost estimate shall be adjusted for inflation as specified in subsection (2) of this section.

      (4) The owner or operator shall keep the following at the facility during the operating life of the facility:

      (a) The latest closure cost estimate prepared in accordance with subsections (1) and (3) of this section; and

      (b) When this estimate has been adjusted in accordance with subsection (2) of this section, the latest adjusted closure cost estimate.

 

      Section 2. Financial Assurance for Facility Closure. An owner or operator of each facility shall establish financial assurance for closure of the facility. He shall choose from the options as specified in Sections 3 to 9 of this administrative regulation.

 

      Section 3. Closure Trust Fund. (1) An owner or operator may satisfy the requirements of this administrative regulation by establishing a closure trust fund which conforms to the requirements of this section and submitting an originally signed duplicate of the trust agreement to the cabinet. An owner or operator of a new facility shall send the originally signed duplicate of the trust agreement to the cabinet at least sixty (60) days before the date on which hazardous waste is first received for treatment, storage, or disposal. The trustee shall be an entity which has the authority to act as a trustee and whose trust operations are regulated and examined by a federal or state agency.

      (2) The Trust Agreement for Closure and Postclosure Assurance, including the formal certification of acknowledgment, shall be executed on DEP Form 6035A incorporated by reference in Section 4 of 401 KAR 34:080. Schedule A of the Trust Agreement for Closure and Postclosure Assurance shall be updated within sixty (60) days after a change in the amount of the current closure cost estimate covered by the agreement.

      (3) Payments to the trust fund shall be made annually by the owner or operator over the term of the initial permit or over the remaining operating life of the facility as estimated in the closure plan, whichever period is shorter; this period is hereafter referred to as the "pay-in period." The payments into the closure trust fund shall be made as follows:

      (a) For a new facility, as defined in 401 KAR 34:005, the first payment shall be made before the initial receipt of hazardous waste for treatment, storage, or disposal. A receipt from the trustee for this payment shall be submitted by the owner or operator to the cabinet before this initial receipt of hazardous waste. The first payment shall be at least equal to the current closure cost estimate (see Section 1 of this administrative regulation), except as provided in Section 10 of this administrative regulation, divided by the number of years in the pay-in period. Subsequent payments shall be made no later than thirty (30) days after each anniversary date of the first payment. The amount of each subsequent payment shall be determined by this formula:

      Where CE is the current closure cost estimate, CV is the current value of the trust fund, and Y is the number of years remaining in the pay-in period.

      (b) If an owner or operator established a trust fund as specified in Section 3 of 401 KAR 35:090, and the value of that trust fund is less than the current closure cost estimate when a permit is awarded for the facility, the amount of the current closure cost estimate still to be paid into the trust fund shall be paid in over the pay-in period as defined in this subsection. Payments shall continue to be made no later than thirty (30) days after each anniversary date of the first payment made pursuant to 401 KAR Chapter 35. The amount of each payment shall be determined by this formula:

      Where CE is the current closure cost estimate, CV is the current value of the trust fund and Y is the number of years remaining in the pay-in period.

      (4) The owner or operator may accelerate payments into the trust fund or he may deposit the full amount of the closure cost estimate at the time the fund is established. However, he shall maintain the value of the fund at no less than the value the fund would have been if annual payments were made as specified in subsection (3) of this section.

      (5) If the owner or operator establishes a closure trust fund after having used one (1) or more alternate mechanisms specified in this administrative regulation or in 401 KAR 35:090, his first payment shall be at least the amount that the fund would have contained if the trust fund were established initially and annual payments made according to specifications of this section and Section 3 of 401 KAR 35:090, as applicable.

      (6) After the pay-in period is completed, whenever the current closure cost estimate changes, the owner or operator shall compare the new estimate with the trustee's most recent annual valuation of the trust fund. If the value of the fund is less than the amount of the new estimate, the owner or operator, within sixty (60) days of the change in the cost estimate, shall either deposit an amount into the fund so that its value after this deposit at least equals the amount of the current closure cost estimate, or obtain other financial assurance as specified in this section to cover the difference.

      (7) If the value of the trust fund is greater than the total amount of the current closure cost estimate, the owner or operator may submit a written request to the cabinet for release of the amount in excess of the current closure cost estimate.

      (8) If an owner or operator substitutes other financial assurance as specified in this administrative regulation for all or part of the trust fund, he may submit a written request to the cabinet for release of the amount in excess of the current closure cost estimate covered by the trust fund.

      (9) Within sixty (60) days after receiving a request from the owner or operator for release of funds as specified in subsections (7) and (8) of this section, the cabinet shall instruct the trustee to release to the owner or operator such funds as the cabinet specifies in writing.

      (10) After beginning partial or final closure, an owner or operator or another person authorized to conduct partial or final closure may request reimbursements for partial or final closure expenditures by submitting itemized bills to the cabinet. The owner or operator may request reimbursements for partial closure only if sufficient funds are remaining in the trust fund to cover the maximum costs of closing the facility over its remaining operating life. Within sixty (60) days after receiving bills for partial or final closure activities, the cabinet shall instruct the trustee to make reimbursements in those amounts as the cabinet specifies in writing, if the cabinet determines that the partial or final closure expenditures are in accordance with the approved closure plan, or otherwise justified. If the cabinet has reason to believe that the maximum cost of closure over the remaining life of the facility will be significantly greater than the value of the trust fund, he may withhold reimbursements of such amounts as he deems prudent until he determines, in accordance with Section 12 of this administrative regulation, that the owner or operator is no longer required to maintain financial assurance for final closure of the facility. If the cabinet does not instruct the trustee to make such reimbursements, he shall provide the owner or operator with a detailed written statement of reasons.

      (11) The cabinet shall agree to termination of the trust when:

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

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

 

      Section 4. Surety Bond Guaranteeing Payment into a Closure Trust Fund. (1) An owner or operator may satisfy the requirements of this administrative regulation by obtaining a surety bond which conforms to the requirements of this section and submitting the bond to the cabinet. An owner or operator of a new facility shall submit the bond to the cabinet at least sixty (60) days before the date on which hazardous waste is first received for treatment, storage, or disposal. The bond shall be effective before this initial receipt of hazardous waste. The surety company issuing the bond shall, at a minimum, be among those listed as acceptable sureties on federal bonds in Circular 570 of the U.S. Department of the Treasury.

      (2) The Finance Guarantee Bond to Demonstrate Closure and/or Postclosure Care shall be executed on DEP Form 6035B incorporated by reference in Section 4 of 401 KAR 34:080.

      (3) The owner or operator who uses a Financial Guarantee Bond to Demonstrate Closure and/or Postclosure Care to satisfy the requirements of this administrative regulation shall also establish a standby trust fund. Under the terms of the bond, all payments made thereunder shall be deposited by the surety directly into the standby trust fund in accordance with instructions from the cabinet. This standby trust fund shall meet the requirements specified in Section 3 of this administrative regulation, except that:

      (a) An originally signed duplicate of the trust agreement shall be submitted to the cabinet with the Finance Guarantee Bond to Demonstrate Closure and/or Postclosure Care; and

      (b) Unless the standby trust fund is funded pursuant to the requirements of this administrative regulation, the following are not required by these administrative regulations:

      1. Payments into the trust fund as specified in Section 3 of this administrative regulation;

      2. Updating of Schedule A of the Trust Agreement for Closure and Postclosure Assurance to show current closure cost estimates;

      3. Annual valuations as required by the Trust Agreement for Closure and Postclosure Assurance; and

      4. Notices of nonpayment as required by the Trust Agreement for Closure and Postclosure Assurance.

      (4) The bond shall guarantee that the owner or operator will:

      (a) Fund the standby trust fund in an amount equal to the penal sum of the bond before the beginning of final closure of the facility; or

      (b) Fund the standby trust fund in an amount equal to the penal sum within fifteen (15) days after an order to begin final closure issued by the cabinet becomes final, or within fifteen (15) days after an order to begin final closure is issued by a circuit court or other court of competent jurisdiction pursuant to KRS 224.46-520, or within fifteen (15) days after issuance of a notice of termination of the permit pursuant to 401 KAR Chapter 38; or

      (c) Provide alternate financial assurance as specified in this administrative regulation and obtain the cabinet's written approval of the assurance provided, within ninety (90) days after receipt by both the owner or operator and the cabinet of a notice of cancellation of the Financial Guarantee Bond to Demonstrate Closure and/or Postclosure Care from the surety.

      (5) Under the terms of the Financial Guarantee Bond to Demonstrate Closure and/or Postclosure Care, the surety shall become liable on the bond obligation when the owner or operator fails to perform as guaranteed by the bond.

      (6) The penal sum of the bond shall be in an amount at least equal to the amount of the current closure cost estimate, except as provided in Section 10 of this administrative regulation.

      (7) Whenever the current closure cost estimate increases to an amount greater than the amount of the penal sum, the owner or operator within sixty (60) days after the increase, shall either cause the penal sum of the bond to be increased to an amount at least equal to the current closure cost estimate and submit evidence of such increase to the cabinet, or obtain other financial assurance as specified in this administrative regulation to cover the increase. Whenever the current closure cost estimate decreases, the penal sum may be reduced to the amount of the current closure cost estimate following written approval by the cabinet.

      (8) Under the terms of the Financial Guarantee Bond to Demonstrate Closure and/or Postclosure Care, the surety may cancel the bond by sending a notice of cancellation by certified mail to the owner or operator and to the cabinet. Cancellation shall 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 cabinet, as evidenced by return receipt.

      (9) The owner or operator may cancel the Financial Guarantee Bond to Demonstrate Closure and/or Postclosure Care if the cabinet has given prior written consent. The cabinet shall provide such written consent when:

      (a) An owner or operator substitutes alternate financial assurance for closure as specified in this administrative regulation; or

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

 

      Section 5. Surety Bond Guaranteeing Performance of Closure. (1) An owner or operator may satisfy the requirements of this administrative regulation by obtaining a surety bond which conforms to the requirements of this section and by submitting the Performance Bond to Demonstrate Closure and/or Postclosure Care to the cabinet. An owner or operator of a new facility shall submit the Performance Bond to Demonstrate Closure and/or Postclosure Care to the cabinet at least sixty (60) days before the date on which hazardous waste is first received for treatment, storage, or disposal. The bond shall be effective before this initial receipt of hazardous waste. The surety company issuing the bond shall, at a minimum, be among those listed as acceptable sureties on federal bonds in Circular 570 of the U.S. Department of the Treasury.

      (2) The Performance Bond to Demonstrate Closure and/or Postclosure Care shall be executed on DEP Form 6035C incorporated by reference in Section 4 of 401 KAR 34:080.

      (3) The owner or operator who uses a Performance Bond to Demonstrate Closure and/or Postclosure Care to satisfy the requirements of this administrative regulation shall also establish a standby trust fund. Under the terms of the Performance Bond to Demonstrate Closure and/or Postclosure Care, all payments made thereunder shall be deposited by the surety directly into the standby trust fund in accordance with the instructions of the cabinet. This standby trust shall meet the requirements specified in Section 3 of this administrative regulation, except that:

      (a) An originally signed duplicate of the Trust Agreement for Closure and Postclosure Assurance shall be submitted to the cabinet with the Performance Bond to Demonstrate Closure and/or Postclosure Care; and

      (b) Unless the standby trust fund is funded pursuant to the requirements of this administrative regulation, the following are not required by these administrative regulations:

      1. Payments into the trust fund as specified in Section 3 of this administrative regulation;

      2. Updating of Schedule A of the Trust Agreement for Closure and Postclosure Assurance to show current closure cost estimates;

      3. Annual valuations as required by the Trust Agreement for Closure and Postclosure Assurance; and

      4. Notices of nonpayment as required by the Trust Agreement for Closure and Postclosure Assurance.

      (4) The bond shall guarantee that the owner or operator shall:

      (a) Perform final closure in accordance with the closure plan and other requirements in the permit for the facility whenever required to do so; or

      (b) Provide alternate financial assurance as specified in this administrative regulation and obtain the cabinet's written approval of the assurance provided, within ninety (90) days after receipt by both the owner or operator and the cabinet of a notice of cancellation of the Performance Bond to Demonstrate Closure and/or Postclosure Care from the surety.

      (5) Under the terms of the Performance Bond to Demonstrate Closure and/or Postclosure Care, the surety shall become liable on the bond obligation when the owner or operator fails to perform as guaranteed by the bond. Following a final administrative determination pursuant to KRS 224.46-520 that the owner or operator has failed to perform final closure in accordance with the approved closure plan and other permit requirements when required to do so, under the terms of the Performance Bond to Demonstrate Closure and/or Postclosure Care the surety shall perform final closure as guaranteed by the bond or shall deposit the amount of the penal sum into the standby trust fund.

      (6) The penal sum of the Performance Bond to Demonstrate Closure and/or Postclosure Care shall be in an amount at least equal to the amount of the current closure cost estimate.

      (7) Whenever the current closure cost estimate increases to an amount greater than the amount of the penal sum of the bond, the owner or operator, within sixty (60) days after the increase, shall either cause the penal sum of the bond to be increased to an amount at least equal to the current closure cost estimate and submit evidence of such increase to the cabinet, or obtain other financial assurance as specified in this administrative regulation. Whenever the current closure cost estimate decreases, the penal sum may be reduced to the amount of the current closure cost estimate following written approval by the cabinet.

      (8) Under the terms of the Performance Bond to Demonstrate Closure and/or Postclosure Care, the surety may cancel the bond by sending notice of cancellation by certified mail to the owner or operator and to the cabinet. 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 cabinet, as evidenced by the return receipts.

      (9) The owner or operator may cancel the Performance Bond to Demonstrate Closure and/or Postclosure Care if the cabinet has given prior written consent. The cabinet shall provide such written consent when:

      (a) An owner or operator substitutes alternate financial assurance as specified n this administrative regulation; or

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

      (10) The surety shall not be liable for deficiencies in the performance of closure by the owner or operator after the cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

 

      Section 6. Closure Letter of Credit. (1) An owner or operator may satisfy the requirements of this administrative regulation by obtaining an irrevocable standby letter of credit which conforms to the requirements of this section and by submitting the letter to the cabinet. An owner or operator of a new facility shall have submitted the letter of credit to the cabinet at least sixty (60) days before the date on which hazardous waste is first received for treatment, storage, or disposal. The letter of credit shall be effective before the initial receipt of hazardous waste. The issuing institution shall be an entity which has the authority to issue letters of credit and whose letter of credit operations are regulated and examined by a federal or state agency.

      (2) The Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care shall be executed on DEP Form 6035D incorporated by reference in Section 4 of 401 KAR 34:080. The owner or operator may use his own document, provided the language is identical to that specified in DEP Form 6035D. However, the Trust Agreement for Closure and Postclosure Assurance required to be filed with the letter of credit shall be executed on DEP Form 6035A incorporated by reference in Section 4 of 401 KAR 34:080.

      (3) An owner or operator who uses the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care to satisfy the requirements of this administrative regulation shall also establish a standby trust fund. Under the terms of the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care, all amounts paid pursuant to a draft by the cabinet shall be deposited by the issuing institution directly into the standby trust fund in accordance with instructions from the cabinet. The standby trust fund shall meet the requirements of the trust fund specified in Section 3 of this administrative regulation, except that:

      (a) An originally signed duplicate of the Trust Agreement for Closure and Postclosure Assurance shall be submitted to the cabinet with the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care; and

      (b) Unless the standby trust fund is funded pursuant to the requirements of this administrative regulation, the following are not required by these administrative regulations:

      1. Payments into the trust fund as specified in Section 3 of this administrative regulation;

      2. Updating the Schedule A of the Trust Agreement for Closure and Postclosure Assurance to show current closure cost estimates;

      3. Annual valuations as required by the Trust Agreement for Closure and Postclosure Assurance; and

      4. Notices of nonpayment as required by the Trust Agreement for Closure and Postclosure Assurance.

      (4) The Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care shall be accompanied by a letter from the owner or operator referring to the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care by number, issuing institution, and date, and providing the following information: the EPA identification number, name, and address of the facility, and the amounts of funds assured for closure of the facility by the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care.

      (5) The Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care shall be irrevocable and issued for a period of at least one (1) year. The Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care shall provide that the expiration date will be automatically extended for a period of at least one (1) year unless, at least 120 days before the current expiration date, the issuing institution notifies both the owner or operator and the cabinet by certified mail of a decision not to extend the expiration date. Under the terms of the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care, the 120 days shall begin on the date when both the owner or operator and the cabinet have received the notice, as evidenced by the return receipts.

      (6) The Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care shall be issued for at least the amount of the current closure cost estimate except as provided in Section 10 of this administrative regulation.

      (7) Whenever the current closure cost estimate increases to an amount greater than the amount of the credit, the owner or operator, within sixty (60) days of the increase, shall either cause the amount of the credit to be increased so that it at least equals the current closure cost estimate and submit evidence of such increase to the cabinet, or obtain other financial assurance as specified in this administrative regulation to cover the increase. Whenever the adjusted closure cost estimate decreases, the amount of the credit may be reduced to the amount of the current closure cost estimate following written approval by the cabinet.

      (8) Following a final administrative determination pursuant to KRS 224.46-520 that the owner or operator has failed to perform final closure in accordance with the approved closure plan and other permit requirements when required to do so, the cabinet may draw on the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care.

      (9) If the owner or operator does not establish alternate financial assurance as specified in this administrative regulation and obtain written approval of such alternate assurance from the cabinet within ninety (90) days after receipt by both the owner or operator and the cabinet of a notice from the issuing institution that it has decided not to extend the letter of the credit beyond the current expiration date, the cabinet shall draw on the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care. The cabinet may delay the drawing if the issuing institution grants an extension of the term of credit. During the last thirty (30) days of any such extension, the cabinet shall draw on the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care if the owner or operator has failed to provide alternate financial assurance as specified in this administrative regulation and obtain written approval of such assurance from the cabinet.

      (10) The cabinet shall return the Irrevocable Standby Letter of Credit for Closure and/or Postclosure Care to the issuing institution for termination when:

      (a) An owner or operator substitutes alternate financial assurance as specified in this administrative regulation; or

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

 

      Section 7. Closure Insurance. (1) An owner or operator may satisfy the requirements of this administrative regulation by obtaining closure insurance which conforms to the requirements of this section and by submitting a certificate of such insurance to the cabinet. An owner or operator of a new facility shall submit the certificate of insurance to the cabinet at least sixty (60) days before the date on which hazardous waste is first received for treatment, storage, or disposal. The insurance shall be effective before this initial receipt of hazardous waste. Except as KRS 304.11-030 provides otherwise. Each insurance policy providing primary coverage shall be issued by an insurer who is authorized to transact insurance in Kentucky. Each insurance policy providing excess coverage shall be issued by an insurer who is authorized to transact insurance in a state.

      (2) The Certificate of Insurance for Closure or Postclosure shall be executed on DEP Form 6035E incorporated by reference in Section 4 of 401 KAR 34:080.

      (3) The closure insurance policy shall be issued for a face amount at least equal to the current closure cost estimate, except as provided in Section 10 of this administrative regulation. Actual payments by the insurer shall not change the face amount, although the insurer's future liability shall be lowered by the amount of the payments.

      (4) The closure insurance policy shall guarantee that funds will be available to close a facility whenever final closure occurs. The policy shall also guarantee that once final 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 cabinet to such party or parties as the cabinet specifies.

      (5) After beginning partial or final closure, an owner or operator or any other person authorized to conduct closure may request reimbursements for closure expenditures by submitting itemized bills to the cabinet. 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 sixty (60) days after receiving bills for closure activities, the cabinet shall instruct the insurer to make reimbursements in such amounts as the cabinet specifies in writing, if the cabinet determines that the partial or final closure expenditures are in accordance with the approved closure plan or otherwise justified. If the cabinet has reason to believe that the maximum cost of closure over the remaining life of the facility shall be significantly greater than the face amount of the policy, he may withhold reimbursements of such amounts as he deems prudent until he determines, in accordance with Section 12 of this administrative regulation, that the owner or operator is no longer required to maintain financial assurance for final closure of the facility. If the cabinet does not instruct the trustee to make such reimbursements, he shall provide the owner or operator with a detailed written statement of reasons.

      (6) The owner or operator shall maintain the policy in effect until the cabinet consents to termination of the policy by the owner or operator as specified in subsection (10) of this section. Failure to pay the premium, without substitution of alternate financial assurance as specified in this administrative regulation, shall constitute a significant violation of these administrative regulations, warranting such remedy as the cabinet deems necessary. Such violation shall be deemed to begin upon receipt by the cabinet 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) Each policy shall 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) The policy shall 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 shall, 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 cabinet. 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 cabinet and the owner or operator, as evidenced by the return receipts. Cancellation, termination, or failure to renew may not occur and the policy shall remain in effect in the event that on or before the date of expiration:

      (a) The cabinet deems the facility abandoned; or

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

      (c) Closure is ordered by the cabinet or a circuit court or other court of competent jurisdiction; or

      (d) The owner or operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy), U.S. Code; or

      (e) The premium due is paid.

      (9) Whenever the current closure cost estimate increases to an amount greater than the face amount of the policy, the owner or operator, within sixty (60) days of the increase, shall either cause the face amount to be increased to an amount at least equal to the current closure cost estimate and submit evidence of such increase to the cabinet, or obtain other financial assurance as specified in this administrative regulation to cover the increase. Whenever the current closure cost estimate decreases, the face amount may be reduced to the amount of the current closure cost estimate following written approval by the cabinet.

      (10) The cabinet shall give written consent to the owner or operator that he may terminate the insurance policy when:

      (a) An owner or operator substitutes alternate financial assurance as specified in this administrative regulation; or

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

 

      Section 8. Financial Test and Corporate Guarantee for Closure. (1) An owner or operator may satisfy the requirements of this administrative regulation by demonstrating that he passes a financial test as specified in this section. To pass this test the owner or operator shall meet the criteria of either paragraph of this subsection:

      (a) The owner or operator shall have:

      1. Two (2) of the following three (3) 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

      2. Net working capital and tangible net worth each at least six (6) times the sum of the current closure and postclosure cost estimates and the current plugging and abandonment cost estimates; and

      3. Tangible net worth of at least $10 million; and

      4. Assets located in the United States amounting to at least ninety (90) percent of total assets or at least six (6) times the sum of the current closure and postclosure cost estimates and the current plugging and abandonment cost estimates.

      (b) The owner or operator shall have:

      1. A current rating for his most recent bond issuance of AAA, AA, A or BBB as issued by Standard and Poor's or Aaa, Aa, A, or Baa as issued by Moody's; and

      2. Tangible net worth at least six (6) times the sum of the current closure and postclosure cost estimates and the current plugging and abandonment cost estimates; and

      3. Tangible net worth of at least $10 million; and

      4. Assets located in the United States amounting to at least ninety (90) percent of total assets or at least six (6) times the sum of the current closure and postclosure cost estimates and the current plugging and abandonment cost estimates.

      (2) The phrase "current closure and postclosure cost estimates" as used in subsection (1) of this section refers to the cost estimates required to be shown in paragraphs 1 to 4 of the letter from the owner's or operator's chief financial officer. The phrase "current plugging and abandonment cost estimates" as used in subsection (1) of this section refers to the cost estimates required to be shown in paragraphs 1 to 4 of the letter from the owner's or operator's chief financial officer (see 40 CFR 144.70(f)).

      (3) To demonstrate that he meets this test, the owner or operator shall submit the following three (3) items to the cabinet:

      (a) A Letter from Chief Financial Officer executed on DEP Form 6035F or DEP Form 6035G, incorporated by reference in Section 4 of 401 KAR 34:080 provided by the cabinet, signed by the owner's or operator's chief financial officer; and

      (b) 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

      (c) A special report from the owner's or operator's independent certified public accountant to the owner or operator stating that:

      1. He has compared the data which the Letter from 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

      2. In connection with that procedure, no matters came to his attention which caused him to believe that the specified data will be adjusted.

      (4) An owner or operator of a new facility shall submit the items specified in subsection (3) of this section to the cabinet at least sixty (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 subsection (3) of this section, the owner or operator shall send updated information to the cabinet within ninety (90) days after the close of each succeeding fiscal year. This information shall consist of all three (3) items specified in subsection (3) of this section.

      (6) If the owner or operator no longer meets the requirements of subsection (1) of this section, he shall send notice to the cabinet of intent to establish alternate financial assurance as specified in this administrative regulation. The notice shall be sent by certified mail within ninety (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 shall provide alternate financial assurance within 120 days after the end of such fiscal year.

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

      (8) The cabinet may disallow use of this test on the basis of qualifications in the opinion expressed by the independent certified public accountant in his report on examination of the owner's or operator's financial statements (see subsection (3)(c) of this section). An adverse opinion or a disclaimer of opinion shall be cause for disallowance. The cabinet shall evaluate other qualifications on an individual basis. The owner or operator shall provide alternate financial assurance as specified in this administrative regulation within thirty (30) days after notification of the disallowance.

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

      (a) An owner or operator substitutes alternate financial assurance as specified in this administrative regulation;

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation by terminating the financial requirements in accordance with Section 12 of this administrative regulation.

      (10) An owner or operator may meet the requirements of this administrative regulation by obtaining a written guarantee. The guarantor shall 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 shall meet the requirements for owners or operators in subsections (1) to (8) of this section and shall comply with the terms of the corporate guarantee. The Corporate Guarantee for Closure or Postclosure Care shall be executed on DEP Form 6035H1 incorporated by reference in Section 4 of 401 KAR 34:080. A certified copy of the Corporate Guarantee for Closure or Postclosure Care shall accompany the items sent to the cabinet as specified in subsection (3) of this section. One (1) of these items shall be the Letter from Chief Financial Officer. If the guarantor's parent corporation is also the parent corporation of the owner or operator, the Letter from Chief Financial Officer shall 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 from Chief Financial Officer shall describe this "substantial business relationship" and the value received in consideration of the guarantee. The terms of the corporate guarantee shall provide that:

      (a) If the owner or operator fails to perform final closure of a facility covered by the corporate guarantee in accordance with the closure plans and other permit requirements whenever required to do so, the guarantor shall do so or establish a trust fund as specified in Section 3 of this administrative regulation in the name of the owner or operator.

      (b) The corporate guarantee shall remain in force unless the guarantor sends notice of cancellation by certified mail to the owner or operator and to the cabinet. 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 cabinet, as evidenced by the return receipts.

      (c) If the owner or operator fails to provide alternate financial assurance as specified in this administrative regulation and obtain the written approval of such alternate assurance from the cabinet within ninety (90) days after receipt by both the owner or operator and the cabinet of a notice of cancellation of the corporate guarantee from the guarantor, the guarantor shall provide such alternate financial assurance in the name of the owner or operator.

 

      Section 9. Cash Account and Certificates of Deposit. (1) An owner or operator may satisfy the requirements of this administrative regulation by submitting to the cabinet by certified mail, a bond guaranteeing compliance with KRS Chapter 224 and administrative regulations promulgated pursuant thereto. The bond is to be supported by a cash account or certificate of deposit. The cash account or the certificate of deposit are to be held in escrow pursuant to an escrow agreement. An owner or operator of a new facility shall submit the bond to the cabinet at least sixty (60) days before the date on which hazardous waste is first received for treatment, storage, or disposal. The bank or financial institution holding the cash account or certificate of deposit in escrow shall be regulated and examined by a federal or state agency.

      (2) The Hazardous Waste Site or Facility Bond to Demonstrate Closure and/or Postclosure Care shall be executed on DEP Form 6035I incorporated by reference in Section 4 of 401 KAR 34:080. The Escrow Agreement to Demonstrate Closure and/or Postclosure Care for the cash account or certificate of deposit shall be executed on DEP Form 6035J incorporated by reference in Section 4 of 401 KAR 34:080.

      (3) The cabinet shall be the beneficiary of the Escrow Agreement to Demonstrate Closure and/or Postclosure Care for the cash account or certificate of deposit. The cabinet shall be empowered to draw upon the funds if the owner or operator fails to perform closure or postclosure care in accordance with the closure plan and other permit requirements.

      (4) The sum of the cash account or certificate of deposit shall be in an amount at least equal to the amount of the current closure cost estimate, except as provided in Section 10 of this administrative regulation.

      (5) After each interest period is completed, whenever the current closure cost estimate changes, the owner or operator shall compare the new estimate with the trustee's most recent annual valuation of the cash accounts or the certificate of deposit. If the value of the cash accounts or certificate of deposit is less than the amount of the new estimate, the owner or operator, within sixty (60) days of the change in the cost estimate, shall either deposit an amount into the cash accounts or the certificate of deposit so that its value after this deposit at least equals the amount of the current closure cost estimate, or obtain other financial assurance as specified in this section to cover the difference.

      (6) If the value of the cash account or the certificate of deposit is greater than the total amount of the current closure cost estimate, the owner or operator may submit a written request to the cabinet for release of the amount in excess of the current closure cost estimate.

      (7) Under the terms of the cash account or certificate of deposit, the bank or financial institution may cancel the cash account or certificate of deposit by sending a notice of cancellation by certified mail to the owner or operator and to the cabinet. Cancellation cannot 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 cabinet, as evidenced by return receipt.

      (8) The owner or operator may cancel the cash account or certificate of deposit when:

      (a) An owner or operator substitutes alternate financial assurance as specified in this administrative regulation; or

      (b) The cabinet releases the owner or operator from the requirements of this administrative regulation in accordance with Section 12 of this administrative regulation.

      (9) An owner or operator or any other person authorized to perform closure may request reimbursement for closure expenditures by submitting itemized bills to the cabinet. Within sixty (60) days after receiving bills for closure activities, the cabinet shall determine whether the closure expenditures are in accordance with the closure plan or otherwise justified, and if so, the cabinet may instruct the bank or financial institution to make reimbursements in those amounts as the cabinet specifies in writing if the cabinet determines that the closure expenditures are in accordance with the closure plan or otherwise justified.

 

      Section 10. Use of Multiple Financial Mechanisms. An owner or operator may satisfy the requirements of this administrative regulation by establishing more than one (1) financial mechanism per facility. These mechanisms are limited to trust funds, surety bonds guaranteeing payment into a trust fund, letters of credit, insurance, certificates of deposit and cash. The mechanisms shall be as specified in Sections 3, 4, 6, 7, and 9, respectively, of this administrative regulation, except that it is the combination of mechanisms rather than each single mechanism, which shall provide financial assurance for an amount at least equal to the current closure cost estimate. If an owner or operator uses a trust fund in combination with a surety bond or a letter of credit, he may use the trust fund as the standby trust fund for other mechanisms. A single standby trust fund may be established for two (2) or more mechanisms. The cabinet may use any or all of the mechanisms to provide for closure of the facility.

 

      Section 11. Use of a Financial Mechanism for Multiple Facilities. An owner or operator may use a financial assurance mechanism specified in this administrative regulation to meet the requirements of this administrative regulation for more than one (1) facility. Evidence of financial assurance submitted to the cabinet shall include a list showing, for each facility, the EPA Identification Number, name, address, and the amount of funds for closure assured by the mechanism. The amount of funds available through the mechanism shall be no less than the sum of funds that will be available if a separate mechanism had been established and maintained for each facility. In directing funds available through the mechanism for closure of any of the facilities covered by the mechanism, the cabinet may direct only the amount of funds designated for that facility, unless the owner or operator agrees to the use of additional funds available under the mechanism.

 

      Section 12. Release of the Owner or Operator from the Requirements of this Administrative Regulation. Within sixty (60) days after approving certifications from the owner or operator and an engineer that final closure has been completed in accordance with the approved closure plan, the cabinet shall notify the owner or operator in writing that he is no longer required by this administrative regulation to maintain financial assurance for final closure of the facility, unless the cabinet has reason to believe that final closure has not been in accordance with the approved closure plan. The cabinet shall provide the owner or operator a detailed written statement of any such reason to believe that closure has not been in accordance with the approved closure plan. (Recodified from 401 KAR 2:063, Sections 10 and 11, 3-1-83; Am. 10 Ky.R. 92; 551; eff. 12-2-83; 12 Ky.R. 761; eff. 2-4-86; 14 Ky.R. 1397; 1806; eff. 3-10-88; 15 Ky.R. 343; eff. 10-26-88; 17 Ky.R. 310; eff. 9-25-90; 20 Ky.R. 1157; 1901; eff. 3-14-94; 23 Ky.R. 606; eff. 3-12-97.)