As a result of some highly publicized corporate bankruptcies, some regulators and NGOs are trying to force a change in financial assurance requirements, suggesting to the public that thousands of sites with billions of dollars in liability are on the verge of bankruptcy and will turn over the cost of closure and post closure to the public. As a result, the USEPA is looking into the possibility of removing the corporate self-guarantee for financial assurance, and a number of states have started the process of changing regulations disallowing the corporate guarantee, even though there is no data to support such a change in regulation.
What would be the financial impact to your company if the scope of liabilities requiring financial assurance were increased and as a result you failed to meet the test for a self-guarantee, or a self-guarantee for financial assurance were eliminated and you were required to fund a trust, secure a letter of credit, insurance or surety bond?
What impact do you think it will have on the waste-handling service industry?
While Financial Reporting (FR) has captured attention and headlines in the recent past (Enron, WorldCom, Andersen, Sarbanes-Oxley), concerns over Financial Assurance (FA) have been the subject of numerous studies/reports and could extract additional cost from the regulated community. While FR is a SEC requirement for all publicly traded companies, FA is a requirement of regulatory authorities and applies to all responsible parties whether publicly or privately held. FR is about informing stockholders and potential stockholders of environmental liabilities; FA is financial proof, credit, or insurance that guarantees payment of closure, post-closure and remediation and is about providing assurance that the responsible party/polluter, not the taxpayer, will pay the cost of cleanup. At about the same time the SEC (1982) imposed disclosure requirements for environmental matters, the Environmental Protection Agency (EPA) set its FA requirements as part of the Resource Conservation and Recovery Act (RCRA). Currently the EPA, under RCRA, requires the underground storage tank and injection well programs along with TSDFs to assure for costs of closure and post-closure care through several methods: trusts, surety bonds, letters of credit, insurance, financial test and corporate guarantee, or a combination thereof. EPA has never developed a final rule for the RCRA corrective action program or for the assurance of financial responsibility portion of 40 CFR 264.101.
Over the past few years, EPA and the states, individually and through the Association of State and Territorial Solid Waste Management Officials (ASTSWMO), have voiced strong concerns over FA process and mechanisms. Their concerns surfaced at the turn of the century, when the economy slowed down and a few high-profile bankruptcies occurred. At the same time, national Brownfield reuse and revitalization gained momentum. This all coincided with a general trend toward greater acceptance of risk-based remediation, as it became more apparent that full restoration was technically impracticable and prohibitively expensive at many sites and tended to stand in the way of Brownfield redevelopment. The confluence of state coffers running dry, risk-based remediation increasing in number (due mainly to Brownfield redevelopment) and high-profile corporate bankruptcies caused a near panic over the issue of who will pay for remediation and long-term stewardship of sites in the future.
There are a number of motives behind the 'concerns' over FA, some legitimate and some not so legitimate. Regulators have identified real concerns about how institutional controls and long-term stewardship ensuring protective solutions far into the future will be administered, overseen and funded. Adding to what has almost become a panic among some regulators are situations like Metachem in Delaware. Metachem was a generator of hazardous waste but not a RCRA treatment, storage or disposal (TSD) facility and therefore not subject to FA regulation. Metachem's declaring bankruptcy and immediately closing its doors with tons of hazardous material on-site left the EPA and State of Delaware with tens of millions of dollars in clean up bills. This situation has many, including the Government Accountability Office (GAO), calling for the promulgation of rules requiring 'generator only' status facilities to post FA.
Some regulators are determined to extract as much FA as possible to penalize responsible parties (RPs) at sites where complete restoration to unrestricted use is not the final goal (remember the ever-present 'polluter pays' principle). Some regulators ignore the fact that returning all contaminated properties to pristine conditions is not technically possible for many properties. At other properties, it is impractical from a cost perspective, as well as being unnecessary from the perspective of risk management. But regulators often believe that if the cost of FA and long-term stewardship is high enough and paid up-front, the responsible party would then 'see the light,' with the help of an NPV analysis, and would restore rather than just clean to a restricted-use level.
Unfortunately, different offices within EPA and individual states are trying to 'fix' problems they see with current FA regulation (or lack thereof), even where there is a lack of data suggesting the problem even exists, Metachem being the exception rather than the rule (note it is worth repeating that the Metachem site was not subject to any current Financial Assurance regulations). EPA's Office of Enforcement and Compliance Assurance (OECA) is so concerned with FA issues that in 2005 it listed financial responsibility as its top priority for 2006 and 2007 (see Final FY2006 Update, National Program Managers' Guidance, June 2005, revised October 2005). Adding fuel to the fire was a very critical GAO report submitted to some members of Congress in August 2005 entitled 'Environmental Liabilities: EPA Should Do More to Ensure That Liable Parties Meet Their Cleanup Obligations,' GAO-05-658. The GAO report was followed up by another critical report from the Office of Inspector General (OIG) entitled 'Evaluation Report: Continued EPA Leadership Will Support State Needs for Information and Guidance on RCRA Financial Assurance,' report No. 2005-P-00026, September 26, 2005, which was somewhat of a follow-up to another (OIG) report on FA for closure and post-closure dated March 30, 2001, report No. 2001-P-007.