EPA Proposes First Financial Assurances Rule

On December 1, 2016, following decades of inaction and a court order establishing a deadline by which the proposed rule was to be released, the United States Environmental Protection Agency (“EPA”) announced that it would publish a proposed rule regulating financial assurances required for parties conducting remediation projects in the hardrock mining industry. Section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) directed EPA to develop rules requiring “that classes of facilities establish and maintain evidence of financial responsibility consistent with the degree and duration of risk associated with the production, transportation, treatment, storage, or disposal of hazardous wastes.” 42 U.S.C. 9608(b)(1). Although these rules were required to be promulgated by 1985, EPA never published any rules, which led to a deadline of December 1, 2016 being set by court order in response to a lawsuit complaining that EPA failed to comply with the statute. See In re Idaho Conservation League, 811 F.3d 502 (D.C. Cir. 2016). In the absence of such rules, EPA required financial assurance through negotiated settlements, orders, and guidance.

CERCLA requires that EPA create regulations mandating that certain responsible parties conducting remediation activities establish that they have the ability to fund all necessary remediation costs associated with those actions, otherwise known as financial assurances. For years, EPA made no progress in developing and promulgating such rules. Our previous article detailing the legal and regulatory history leading up to EPA’s announcement is available here. Importantly, the newly proposed financial assurance rule is limited to the hardrock mining industry, and EPA estimates that some 221 facilities throughout the country would be subject to the rule.

The proposed rule includes a detailed explanation of financial assurance mechanisms that will be permitted under the rule and provides that the amount of financial assurance must be sufficient to pay for estimated environmental remediation actions, as well as natural resource damages. The proposal allows a responsible party to demonstrate it has the financial wherewithal to cover the cost of a remediation through the use of approved financial assurance mechanisms, which would include trust funds, insurance policies, letters of credit, surety bonds, or a combination of those instruments.

In addition, EPA has included in the proposed rule the potential use of self-insurance or a corporate guarantee to satisfy a facility’s financial assurance obligation. The draft rule specifically states that EPA prefers that parties not be allowed to use a financial test or a corporate guarantee, but EPA has included these mechanisms as an option “to fully evaluate this issue, and to gather as much information as possible to inform its ultimate decision on whether the financial test and corporate guarantee mechanisms are appropriate for use by hardrock mining facilities under CERCLA …” Pre-Publication Notice of Financial Responsibility Requirements for Facilities in the Chemical, Petroleum and Electric Power Industries, No. EPA-HQ-SFUND-2015-0781 (Dec. 1, 2016), at 162. Under the proposed rule, self-guarantees would be subject to a “financial test” to determine the likelihood of a responsible party’s future solvency. Those parties unable to satisfy the financial test would be required to establish a trust fund or acquire one (or more) of the aforementioned instruments.

The proposed financial test would be based on a responsible party’s credit rating. The party seeking to satisfy the financial test would be required to submit an annual verification that it holds a minimum rating established by an approved credit-rating agency. In addition, a party seeking to meet the financial test would also be required to have a net worth of at least six times the amount of its environmental obligations and U.S. assets of at least 90 percent of its total assets, or six times the amount of its environmental obligations. Additionally, EPA notes that the CERCLA financial assurances requirement applies in addition to other federal and state requirements that might exist.

Alongside the hardrock mining rule proposal, EPA announced it would be developing financial assurance rules for the chemical manufacturing industry, the petroleum and coal products manufacturing industry and the electric power generation, transmission, and distribution industry. The proposed hardrock mining industry rule serves as a harbinger of these future financial assurance rules.

In sum, the current proposal expresses a preference for mechanisms such as trust funds which provide dedicated funds for remedial projects. The use of self-guarantees is likely to be one of the most controversial aspects of the rule that EPA will need to consider in finalizing the rule. Significantly, the final rule promulgated by EPA may very well serve as a template for the additional industry rules under development.

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