Financial

Responsibility for

UST Owners

2016 New England Storage Tank Conference - October 5, 2015

What is Financial Responsibility (FR)?

Acceptable Forms of FR

21J - Massachusetts State Fund FR Mechanism

21J Mechanics: COC Eligibility Reimbursement

The LSP’s Role in Balancing the MCP and 21J

Planning Response Actions with 21J

…..the ability to pay for cleanup or third-party liability compensation

that results from a release from an UST.

1984-1986 1988 1988 2015

Congress enacts & amends

Subtitle I of the Resource

Conservation and Recovery Act to

address USTs.

September 8, 1988 - EPA promulgates UST reg’s

including provisions for O/Os to demonstrate FR (40 CFR 280).

January 2, 2015 - MassDEP promulgates FR requirements into its reg’s 310 CMR 80.51

through 80.63

Massachusetts adopts FR requirements under the

Fire Prevention regulations 527 CMR 9.00

Per Occurrence:

Petroleum marketers (e.g. service stations)

$1 Million per occurrence

Petroleum non-marketers (e.g. car dealership, trucking fleet, etc.)

$500K per occurrence < 10,000 gal/month

$1 Million per occurrence >10,000 gal/month

Minimum coverage:

Annual Aggregate

$1 Million - own or operate 100 or fewer USTs

$2 Million - own or operate more than 100 USTs

Failure to maintain FR

could lead to a Delivery

Prohibition!

Private Insurance or Risk Retention Group

Self-Insurance Surety Bond

Corporate Guarantee

Letter of Credit

Trust Fund

EPA-approved State Financial Assurance Fund

Combination of the above

A bond rating test: A local government owner or operator may demonstrate (or guarantee) FR by passing a bond rating test.

A financial test: A local government owner or operator may demonstrate (or guarantee) FR by passing a financial test.

A guarantee: A local government owner or operator may obtain a guarantee from another local government or the state.

A dedicated fund: A local government owner or operator may demonstrate (or guarantee) FR by establishing a fund.

Requires the endorsement

document to mirror the

EPA/State Endorsement

Model language.

Cancellations require 60

day notification prior to

cancellation.

Must find replacement

coverage within 60 days of

cancellation notification.

“I hereby certify that

the wording of this

instrument is

identical to the

wording in 40 CFR

280.97(b)(1)…”

The firm must have a tangible net worth

of at least $10 million; and

The firm must have a tangible net worth

of a least 10 times the amount of

aggregate coverage that it is required to

demonstrate plus any other liability

coverage for which your firm is using the

test to demonstrate financial responsibility

to EPA; and

The firm must file the firm's annual

financial statements with the Securities

and Exchange Commission(SEC), or

annually report the firm's tangible net

worth to Dun and Bradstreet and receive a

rating of 4A or 5A. Utilities may file

financial statements with the Energy

Information Administration, or the Rural

Electrification Administration instead of

the SEC; and

The firm must have audited financial

statements that do not include an adverse

auditor's opinion or disclaimer of opinion.

The firm must have a tangible net worth

of at least $10 million; and

The firm must have a tangible net worth

of at least 6 times the amount of

aggregate coverage that it is are required

to demonstrate; and

Have U.S. assets that are at least 90

percent of total assets or at least 6 times

the required aggregate amount; and

Have net working capital at least 6 times

the required aggregate amount, or a bond

rating AAA, AA, A, or BBB from Standard

and Poor's, or Aaa, Aa, A, or Baa from

Moody's; and

The firm must have audited financial

statements that do not include an adverse

auditor's opinion or disclaimer of opinion.

* TEST 1 * * TEST 2 *

OR

A new financial test must be

submitted within 120 days of

the end of the fiscal year.

An owner or operator must

obtain alternate assurance in

the following circumstances:

Within 150 days of the end of the

fiscal year, if the owner or operator

finds that it is no longer qualified to

use a financial test.

Within 30 days after receiving notice

of a finding by the Director of the

implementing agency that

disqualifies use of the financial test

because the owner or operator no

longer meets financial test

requirements.

A surety bond is a three-party agreement

A surety bond is a guarantee by a surety company that it will meet the financial responsibility obligations in the event the owner fails to perform the corrective action or satisfy third-party compensation obligation.

Must find replacement coverage with 60 days of notification of cancelation or within 30 days of receiving notice of the incapacity of the surety or the suspension or revocation of its authority to issue bonds

A UST owner may secure a written guarantee for the coverage amount from another party. The provider of the guarantee has to pass one of the financial tests for self-insurance.

Guarantor company needs to be a related firm or a firm that has a "substantial business relationship" with the owner or operator

Cancellations require 60 day notification to the owner/operator prior to cancellation.

If a guarantor finds that it is no longer eligible or qualified to use a financial test, the owner or operator must obtain an alternate mechanism within 150 days of the end of the guarantor's fiscal year.

A letter of credit is a contract involving the UST owner, an issuer (usually a bank), and a third party/beneficiary (such as the implementing agency) that obligates the issuer to help the UST Owner demonstrate FR.

Cancellations or non-renewal require a 60 day notice.

Must find alternative FR within 30 days of receiving notice of the incapacity of the issuer or the suspension or revocation of its authority to issue letters of credit

Establish a fully-funded trust fund administered by

a third party.

Cancellations require 120 day notification prior to

cancellation.

Must find replacement coverage with 60 days of

notification.

UST Petroleum Product Cleanup Fund was established in 1991 under M.G.L. c. 21J.

Provides reimbursement to eligible claimants for:

Up to $1.5 Million for response action costs ($500K for non-marketers with thoughput ≤10,000 gallons/month.);

up to $1.0 million for Third Party and Natural Resource damages

21J DOES NOT cover all regulated tanks!

+

Whenever the required amount of coverage increases

If the mechanism requires annual updates

When money drawn from a third-party mechanism and must be replenished

Whenever the existing mechanism is no longer valid

21J Program is governed by a 9-Member Board and administered by DOR’s UST Program.

UST Board is the only entity authorized under the statute to make regulations, policy, and obligate funds.

Board meets monthly (generally the last Thursday of the month. Schedule is posted at the UST Program website (www.mass.gov/ust)

Facility

Eligibility STEP 1

Compliance STEP 2

Release

Eligibility STEP 3

Claim

Submittal STEP 4

Claim

Processing STEP 5

UST

Board STEP 6

$ Payment $ STEP 7

APPROVED

DENIED

Complying with the MCP is paramount! 21J is only a funding mechanism to assist in reaching cleanup.

Understand the 21J rules, the process, and limitations so you can inform your client ahead of time. No surprises.

Make sure your client is fully informed about 21J – Before and during the cleanup.

After a release has occurred, understand where the site is starting from:

Is there an ongoing release? If yes, what is the 21J available balance?

Is new RTN an actual Release or is a Threat of Release?

Is the release eligible? (product, source, cause, etc)

Understand that 21J may not reimburse for all MCP requirements

Only for response actions directly related to the eligible release

Cannot reimburse for gov’t related costs (e.g. details, public transportation, permit fees, gov’t oversight, etc.)

Make sure the facility owner stays in compliance and the COC is not revoked during the cleanup.

Evaluate your SOW for alignment with 21J task codes before you execute your work.

21J should not be an afterthought. Call for assistance if you are not sure what 21J box

the work fits into.

Understand task code maximums as they apply to the planned work.

Record costs to the applicable 21J task code as it is incurred or when it is invoiced to

your client. Don’t try to fit it in months later during the preparation of the claim

submittal.

Record field tasks to match 21J task codes (daily work sheets, field logs, etc)

Maintain detailed field records.

Ensure subcontractors understand 21J requirements and make them submit all

required documentation before you pay their final invoice.

File the claim within the prescribed deadlines. Make sure you and your client are

registered with eUST. Take advantage of delegation of authority options if the UST

owner or claimant is a small business and doesn’t want to be involved with online

submissions

Ability to file Direct Pay claims.

Understand that not all response actions are eligible for reimbursement!

Use eUST to submit and track all your claims, applications for eligibility, and COCs.

√It’s a web-based application. You can prepare

and submit applications from anywhere you

have internet access.

√All electronic applications and supporting

documents are stored and accessible to you

electronically on the eUST website.

√All certification signatures are done electronically.

√Facility owners can authorize claims electronically.

√Your organization can delegate and manage the employees within your

company that have access to eUST and their level of authority.

√You can delegate signature authority to individuals of another company.

√You can track the status of your organization’s applications, or as a

facility owner, you can check the status of any application filed for your

facility.

Remember 21J is a reimbursement program.

21J is not a pre-approval program.

Cannot claim costs reimbursed from another source.

Know the priority status of the claimant. Claims are processed in order

of date submitted and by priority status. (Direct Pay claimants are

assigned the priority status of the party they are under contract to.)

Current processing time is about 3-6 months for HIGH priority claims

and 10-14 months for LOW priority claims (assuming there are no issues

with the claim).

Understand the rules and $$ limits for each task code

Know the available balance remaining for each task limit AND the

overall Release.

Know the program’s funding status when you submit a claim.

Ensure the owner stays in compliance to avoid COC revocation and

denial of claims

Use eUST to submit and track all your claims

SCENARIO 1 – THE UNKOWN SOURCE

A 40-year old active gas station site that has had a COC since

21J began. NAPL (gasoline) is discovered in GW. USTs and

ancillary equipment tested tight so the source of the gasoline is

not known.

1) Are response actions covered under 21J where the source is not

confirmed to be the current UST System?

Yes – because of the long term history of gasoline storage at the site,

and the station has been in the 21J program since 1991, the release

is initially presumed to be a historical release coming from a prior

UST system.

2) Subsequent investigations show the gasoline plume is coming from

the gas station across the street and a DPS is filed with MassDEP. Are

ongoing response actions covered under 21J?

No - because it has been confirmed that there has been no release at

the gas station that is covered under 21J. In addition, unfortunately,

21J will be requiring all reimbursements be returned.

3) Will the response actions at the DPS site be covered if the

responsible gas station is covered under 21J?

Maybe – If the release is determined to be eligible, subsequent

response actions would be covered subject to the facility owner

authorizing claims to be submitted.

SCENARIO 2 – THE REOPENER(?):

A 21J –eligible facility had a release that was closed with a

Permanent Solution with No Conditions. Two years later, the

owner remodels the station and during excavation of a new

building footing encounters MCP-defined contaminated soils

requiring response actions.

1) Are response action costs associated with managing and disposing of

these soils covered under 21J?

Yes – as long as these soils are associated with the original RTN that

was closed with the PS-NC. [The UST Program is not making a

judgment as to how this reportable condition affects the PS

decision.]

2) During the station remodeling design phase, the LSP anticipates that

excavation will occur in an area that may contain a “hot spot” and

prepares and files a RAM Plan. Will the cost of preparing and executing

the RAM Plan be covered?

Yes – as long as the proposed work is within the prior site boundaries

and the anticipated conditions are consistent with the conditions

that existed when the site was closed with the PS-NC. Note that all

eligible costs are still subject to the remaining task maximum and

ceiling balances from the original release.

SCENARIO 3 – MULTIPLE RELEASES:

A site has an ongoing diesel release cleanup that is being

reimbursed by 21J. A leak at the gasoline dispenser pump has

resulted in a reportable condition in GW.

1) Is the gasoline release also covered under 21J?

Yes – however, this will not be considered a new “Occurrence” and a

new eligibility case number will not be opened. Eligible response

action costs will be reimbursed subject to the task maximums and

ceiling already expended during cleanup of the diesel release. The

actual decision on the Application for Eligibility will be “Denied”, but

the costs will be eligible for reimbursement under the existing

Eligibility case number assigned.

The single “Occurrence” concept is important to understand. If an owner

buys a site with an existing open release, he will not be eligible for a new

reimbursement ceiling until the ongoing release has reached “substantial

completion”. If the new owner has another release before the first release

is cleaned up, all response actions for the new release will be subject to

the remaining balances on the $1.5M/$500K ceiling for the existing release.

This can become very important if the remedial strategy for the first

release is not very aggressive. This may also affect the FR standing if there

is no longer at least $1M worth of FR remaining under 21J.

SCENARIO 4 – TECHNOLOGY CHANGE:

A site has an ongoing gasoline release cleanup with a DP/SVE system

that is covered under 21J. The system has reached a point where

residual contaminants are low but still above cleanup standards. The

owner hires a new consultant to evaluate options and they

recommend changing to a MNA with periodic EFR events.

1) Are the costs for going to the new approach eligible for

reimbursement?

Maybe – If the Remedial Implementation Plan is updated with appropriate

MassDEP filings to reflect the change in technology and remedial approach,

then “yes”, the costs will be covered. If, however, there is not a technical

reason to justify the change, other than a differing consultant opinions, the

costs will not be considered reasonable nor cost effective.

Another gray area is when a new consultant is brought onboard and

recommends upgrading the existing system with “new and improved”

equipment (not new technology). Unless there is a cost-benefit demonstrated

with the equipment upgrades, the costs would not be considered cost

effective.

What is Financial Responsibility (FR)?

Acceptable Forms of FR

21J - Massachusetts State Fund FR Mechanism

21J Mechanics: COC Eligibility Reimbursement

The LSP’s Role in Balancing the MCP and 21J

Planning Response Actions with 21J

Massachusetts Department of Revenue Underground Storage Tank Program 100 Cambridge Street, 7th Floor P.O. Box 9563 Boston, MA 02114-9563 617-626-2600 617-626-2619 (fax) http:/www.mass.gov/ust

EPA OUST website for Financial Responsibility

http://www2.epa.gov/ust/resources-owners-and-operators

Dollars And Sense - Financial Responsibility Requirements For

Underground Storage Tanks - EPA Publication 510-K-95-004

Financial Responsibility For Underground Storage Tanks: A

Reference Manual (PDF) (EPA-510-B-00-003) January 2000.

Federal Regulations for FR: 40 CFR 280 Subpart H

State Regulations for FR: 310 CMR 80.51 through 80.63

21J / UST Program: