ILLINOIS POLLUTION CONTROL BOARD
April
6,
1989
iN
THE MATTER OF:
)
UST FINANCIAL ASSURANCE
)
R89-4
USEPA REGULATIONS
(10/26/88)
PROPOSAL FOR PUBLIC COMMENT
PROPOSED OPINION
OF
THE
BOARD
(by J.
Anderson):
By
a separate Order, pursuant to Section 22.4(e) of the Environmental
Protection Act
(Act),
the Board
is proposing
to add
to the UST underground
storage
tank regulations.
Section
22.4 of the Act governs adoption of regulations establishing the
RCRA program in
Illinois.
Section 22.4(e) provides
for quick adoption of
regulations which
are °identicalin substance~to federal
regulations.
Section 22.4(e)
provides that Title VII
of the Act
and Section
5
of the
Administrative Procedure Act
(APA) shall
not apply.
Because
this rulemaking
is not subject
to Section 5 of the APA,
it
is
not
subject
to first
notice or
to
second notice review by the Joint Committee on Administrative Rules
(JCAR).
The federal UST rules
are found
at
40 CFR
280.
This rulemaking
updates
Illinois’
UST
rules
to add financial assurance
rules
to the UST
program, corresponding to USEPA financial
assurance rules adopted
at
53 Fed.
Peg. 43370, October
26,
1988.
HISTORY OF UST RULES
The UST rules
are contained
in
35
Ill.
Adm. Code 731.
They were adopted
and
amended
as
follows:
R86-1
71
PCB 110, July 11,
1986;
10 111.
Reg.
13998, August
22,
1986.
R86-28
75 PCB 306, February
5,
1987;
and
76 PCB
195, r~arch5,
1987;
11
Ill.
Reg.
6017,
April
3,
1987.
Correction
at
77
PCB 235,
April
16,
1987;
11
Ill. Peg. 8684,
Ilay
1,
1987.
R88—27
Proposed
on February 2,
1989;
13
Ill.
Peg.
2650,
tlarch
3,
1989.
On February
2,
1989 the Board proposed
to adopt
regulations which
are
identical
in substance to the major
revisions to the USEPA UST
rules which
appeared at
53
Fed.
Reg. 37194, September 23,
1988.
This proposal
assumes
that the P88-27 proposal
will
be
adopted prior
to
or
at the
same time as the
financial
assurance
rule
in
this
Docket.
The Board
separated the financial
assurance rules
from the September 23
rules
in
order
to avoid delaying adoption of the
latter.
Addressing the
financial assurance
rules separately appears
to
be more consistent with the
USEPA procedure.
98—157
—2—
Until
R88-27 the UST rules were addressed in the RCRA update Dockets.
The Board
separated the September 23, 1988 rules
from the RCRA update process
because of the size and timing of the rulemaking,
and because
of the
desirability of developing
a separate mailing list for persons interested only
in tanks.
The Board will consider
reconibining the RCRA and UST updates after
initial adoption of
the new program
STATUTORY AUTHORITY
The February
2, 1989 Opinion
in R88-27
included
a lengthy discussion
of
Section 22.4(e) of the Act,
and other provisions of P.A.
85-861,
the statutory
basis
of the UST
program.
The Board will
reference that discussion
here,
and
will
only surnarize
it
in
this Opinion.
Section 22.4(e)
of the Act requires the Board
to adopt
regulations which
are “identical
in
substance” with USEPA’s UST regulations.
Ill.
Rev.
Stat.
1987,
ch.
127 1/2,
par.
154(b)(i) requires the Office of
the Illinois State
Fire t1arsh~l to adopt
regulations which are also to
be
“identical
in
substance”
to the same USEPA UST
regulations.
While the Fire tlarshal
is
to
adopt regulations only through
“corrective action”,
the Board
is
to adopt the
entire set of
rules.
In R88—27 the Board has proposed regulations which,
among other things,
reflect
the delineation between
regulations
before
and
after “corrective action”.
The financial
assurance regulations bridge the corrective action gap.
Operators are required to provide financial assurance imediately
or
in
the
near future.
This will
mainly be for
tanks which are not known
or suspected
to
be
leaking.
However,
if a tank
leaks,
and
the operator fails
to take
sufficient corrective action, the
financial
institutions will
pay funds for
corrective action which will
be under the direction
of the Agency.
Thus the
Fire
Marshal
will
be
responsible
for
receiving
the
financial
assurance
documents,
but
the
Agency
will
be
the
recipient
of
any
funds.
Ill.
Rev.
Stat.
1987,
ch.
127
1/2,
par. 154(b)(ii) allows the
Fire
Marshal
to adopt
“additional
requirements”.
Section 22.4(e)
of the Act
allows
the Board,
upon receiving notice
of
such requirement,
to adopt
further Board
requirements
which
are
“identical
in
substance”
to
the
additional
Fire
Flarshal
requirements.
The R88-27 proposal
followed the USEPA rules
closely.
The
Board will
consider adopting “additional
requirements” following notice from
the Fire Marshal.
HISTORY
OF
FINANCIAL
ASSURANCE
RULES
The Board has adopted
two
other
federally-derived
financial
assurance
systems:
with the RCRA hazardous waste rules
in
35 Ill. Adm. Code 724.240 and
725.240
et
seq.,
and
with
the
UIC underground injection
control
rules
in
35
1The
phrase
“identical
in
substance”
has
recently
been
defined
in
Section
7.2
of
the Act,
adopted
in
P.A.
85-1048.
This
Section
may
be
subject
to
renumbering,
since
another
Section
7.2,
concerning
fees,
was
adopted
in
the
same
Session.
98—158
-3—
Ill. Adm. Code 704.210 et
seq.
The UST financial assurance requirement
is
closely linked with these programs at the
federal
level.
The UST requirement
arises out of the
same federal
statute
as
the hazardous waste rules, the
Resource Conservation
and Recovery Act.
Furthermore,
at the federal
level
the
regulations
are explicitly
linked.
For example,
40 CFR 280.95(b)(1)
pegs the
financial test to the sum of the
financial
assurance amounts
required under
the three
programs.
The complete history
of the RCRA and UIC rulemakings
are contained
in
the
most recent RCRA update
(R88-16, November
17,
1988).
The following
rulemakings were important in the
adoption and amendment of the RCRA and UIC
financial
assurance
rules:
P82-19
53 PCB 131, July 26,
1983;
7 Ill. Reg.
13999,
October
28,
1983.
R35-23
70 PCB 311, June 20,
1986;
10 Ill. Peg.
13274,
August
8,
1986.
P86-46
July 16 and August
14,
1987;
11
Ill.
Peg.
13435.
R87-39
June
14,
1988;
12 Ill.
Reg.
12999, August
12, 1988.
The
RCRA
hazardous
waste
financial
assurance
rules
were
originally
adopted
in
P82—19,
the
UIC
financial
assurance
rules
in
P85-23.
The
RCRA
financial
assurance
rules
were
recently
amended
in
P86-46
and
in
R87-39.
These
amendments
are closely related
to some of
the
issues discussed below.
The Board
has
also adopted, pursuant to State
law, closure
and
post-
closure care and financial
assurance requirements for non-hazardous waste
landfills:
R84-22C
66
PCB
463;
November
21,
1985
As
is
discussed
below,
the
USEPA
rules
include
a
number
of
provisions
which
need
to
be
interpreted
in
light
of
R84-22C.
STATE
FINANCIAL
ASSURANCE
REQUIREMENTS
The financial
assurance requirements will
be discussed below
in
detail.
These
rules
have
a
number
of
broad
issues
concerning
the
place
of
the
financial
assurance
requirements
in
State
law.
These
concern
the
State
laws
which
govern
the
financial
assurance
instruments,
State
agencies
which
regulate
the
financial
institutions
and
corporate
guarantors,
and
the
possibility
of
special
State
financial
mechanisms.
As
noted
above,
Section
22.4(e)
requires
the
Board
to
adopt
regulations
which are
“identical
in substance” with USEPA UST rules.
This term has
recently been defined
in Section 7.2 of the Act
in
a manner which codifies the
Board’s longstanding
intepretations of
it.
(See P85-23,
June 20,
1986,
70 PCB
311,
320;
P86-44, December
3,
1987,
pages
14 and 19.)
Generally the
“identical
in substance” mandate
is
to adopt
the verbatim text
of the USEPA
rules
so
as
to effect
a program which
requires
the same actions
by the same
group
of
affected persons
as would
the USEPA rules
if USEPA administered the
program
in Illinois.
However, there are certain situations enumerated
in
Section 7.2
in which the Board
is
to depart
from the verbatim text of the
98—159
—4—
USEPA rules.
Several
of
these
are
relevant
to the financial
assurance rules.
Several
provisions
in
the USEPA rules appear
to
be
requirements for
program approval
or directives from USEPA as
to the types
of rules
the states
are
to adopt,
rather than “pattern” rules which the states are supposed to
adopt verbatim.
For example, 40 CFR 280.94 restricts the use of bonds unless
the Attorney General
has certified that bonds
are
a
legally valid and
enforceable obligation
in the state.
This appears
to be
a
requirement for
program approval.
For another example, 40 CFR 280.100 and 280.101
contain
“prescriptions”
and approval
requirements
for state
insurance funds and
alternative financial
assurance mechanisms.
Section 7.2 of
the Act
also requires
the Board to modify the text as
necessary to
accommodate the requirements
of State
law.
Several
provisions
need to
be modified
to correctly
state
the requirements
of State
law.
Indeed,
these provisions may also be construed
as directives from USEPA to
insert
the
correct State
law.
For example,
40 CFR 280.99 limits letters of credit
to
those
from institutions
“with authority to
issue
letters
of credit
in each
state where used”,
and which
are “regulated and examined by
a
state
or
federal
agency”.
In Illinois,
as determined
in R84-22C, this means that the issuing
institution must
be regulated and examined by
the Illinois Commissioner of
Banks
and Trust
Companies.
These complexities
arise out
of the nature of the financial assurance
mechanisms.
Although
the use of
the mechanisms
is mandated
by federal
law,
the mechanisms themselves are
a matter
of state
law.
Operators subject
to the
federally—mandated environmental
regulations must contract, pursuant to
state
law, with financial institutions
which are created and mainly regulated
under
state law,
and which are not themselves usually the subject
of environmental
regulation.
This
is further complicated
by balancing the need for
a national
financial assurance system versus
the necessity for
state administration
and
enforcement,
given the national
policy
of delegating
to the
states.
Many of
the issues
have been discussed
in connection with
the RCRA and UIC financial
assurance rules, most recently in P87-39.
ILLINOIS REGULATORY AGENCIES
The State agencies which regulate the financial
institutions and other
providers include:
Commissioner of Banks
and Trust Companies;
Department of
Insurance;
and, Secretary of State, Corporation
Division.
The Board will
send each
a
copy of this Opinion
and Order,
together with
a
cover letter
specifically requesting comment.
CHOICE
OF LAW AND JURISDICTION
IN MULTISTATE SITUATIONS
In P86—46 and P87—39 the Board
has addressed multistate problems with
respect
to hazardous waste financial assurance.
The following
is
a
hypothetical
which
illustrates some of the problems with multi-state financial
assurance
as
apparently
contemplated
under
the
USEPA
rules.
Suppose
a
Delaware
corporation,
with
headquarters
in
New
Jersey,
operates
a
tank
located
in Illinois.
The financial
institution
is
a Nevada corporation
with
headquarters
in
Connecticut.
The
financial
assurance
documents
are
drafted
at
the
financial
institution’s
office
in
New
York,
and
mailed
to
the
98—160
-5-
operator’s
corporate headquarters
in New Jersey.
Whose law applies?
Which
State has jurisdiction
to decide?
The Board suggests that the following are
general
legal
rules which govern the
choice of law governing financial
assurance documents.
The financial institution must have the power
to issue the document.
This mainly depends
on the law of
the
state
of incorporation,
and the terms
of
the charter
or articles of incorporation.
In addition,
the institution
needs
to
be licensed by
at
least some state
to engage
in
the activity.
The validity of
a corporate guarantee
is
similar.
The corporation
must
have the
power
to
make
the
guarantee
under
the
laws
of
the
state
of
incorporation,
and under
its articles of
incorporation.
Generally the validity of
an instrument
is
governed by the
law of the
state
in which
the instrument
is
executed.
However, the parties
can agree
that
the
law
of
another
state
governs
the
instrument.
There
may
be
limitations
on
this,
especially
if
the
instrument
violates
some
law
of
the
state
in which
it
is executed.
The
financial
institution
certainly
has
to
be
licensed
in
the
states
in
which
it
has
its
offices.
it
is
not
clear
whether
licensure
is
required
in
all
states
in which
instruments
are executed
or
in
which
tanks
are
located.
(53 Fed. Peg. 43353, October
26,
1988)
A business entity which
guarantees the
debts
of
an
operator may be
“doing business” in the operator’s
State, and may
have to
register with
the Corporation Division.
There are constitutional
limitations as
to where the providers of
financial
assurance can be
sued.
Licensing
and registration would allow the
financial
institution
or guarantor to
be
sued in the State
in which the
facility
is
located.
Otherwise,
they
can
generally
be
sued
in
the
state
courts
or U.S. District Courts
in the
states
in which they
are organized or
do
business.
There
are ways to
obtain jurisdiction in Illinois,
but none appear
to
be
generally
applicable.
This
may
not
be
important
to
USEPA,
which
maintains
a presence
in
all
states.
However,
for Illinois
it
is important
to
be able to
sue
in
Illinois courts
pursuant to Illinois
law.
Otherwise,
the
State would have to have experts
on the financial
laws of many states
to
review documents,
and would have to set up
regional
collection offices
around
the country.
CERTIFICATION
BY
THE
ATTORNEY
GENERAL
40 CFR 280.94(b) allows
an operator
to use
a corporate guarantee
or
surety bond only
if:
the
Attorney(s)
General
of
the
state(s)
in
which
the
...
tanks
are
located
has
(have)
submitted a written
statement to the implementing
agency that
a guarantee or surety bond
is
a
legally valid and enforceable
obligation
in
that
state.
In addition, 40 CFR
281.25 and 281.37
require
an Attorney General’s statement
that
all
of the mechanisms
are valid
and enforceable.
The Board
notes
in passing that the specific certification requirement
98—161
—6-
probably misses the point.
As discussed above,
the validity of
the guarantee
or bond
is probably governed by the law of the State of incorporation or
chartering of the guarantor or
surety, and the
law of the place where the
guarantee or bond
is executed, rather than the law of the places
where the
tanks are located.
The Board faced
a similar question with respect
to Attorney General
certification of hazardous waste corporate guarantees
in P86-46 and R87-39.
There
are
a number of ways
of
interpreting this requirement.
For the
reasons
discussed above,
the validity of the financial mechanisms
under the USEPA
rules
may
be determined under the laws
of several
states.
If the
certification
requirement
is
asking
the
Attorney
General
of
Illinois
to
make
a
generic certification at the time of application for program approval,
it
is
asking for
a certification that mechanisms
are valid
under the laws of other
states.
It
is
not right
to
even ask the Illinois Attorney General
to make
this certification.
The Board
discussed
a number
of other interpretations
in R86-46 and R87-
39.
One possibility would
be
to limit
multistate
combinations
to
those
involving
a small
number of neighboring states,
and ask the Attorneys General
in each to certify.
Another possibility would
be
to
require each operator
using
a multistate combination
to
obtain individual Attorney General
certifications with respect
to each of the states
involved
in
the
combination.
The Board
rejected these
possibilities as
unworkable.
The Board
instead
limited hazardous waste corporate guarantees
to those which were
governed entirely
by Illinois law,
so
as
to allow the Illinois Attorney
General
to certify alone that the guarantees were valid and enforceable.
The
Board received no adverse
comment
to this interpretation.
The Board has proposed
to follow the
same course
in this matter.
As
is
discussed
in greater detail
below, the Board
has proposed
to limit
financial
mechanisms
to those which are governed entirely by Illinois law.
Financial
institutions will
have to
obtain approval
from Illinois regulatory authorities
before they
can issue
financial
assurance which will
be acceptable under the
proposal.
Corporate guarantors will
have to
register with the Secretary of
State.
And,
the guarantors
and trustees will
have to agree that Illinois
law
governs.
SHOULD FINANCIAL ASSURANCE DOCUMENTS BE
DEPOSITED WITH THE STATE?
40 CFR 280.106, discussed
below, appears
to contemplate that
the operator
keep
the financial
assurance documents until
after
a
release.
This
is much
different than
the hazardous waste and UIC
financial
assurance
rules,
and the
Part
807 rules
adopted
in R84-22.
USEPA indicates that the rules
are written
this
way
out
of
concern
that
the
states
may
not
be
able
administer
a
system
of
receiving financial assurance documents, because
of the large number
of
tanks.
(53 Fed. Peg.
433.57, October
26, 1988)
However, there
is
a
question
as
to
whether
this
adequately
secures
the
State
under
State
law.
The Board
sped
fi cally
solicits
con~:ienLs on
this,
and
the following discussion.
Consider
a familiar example.
Most
banks
require that
a
homeowner have
fire insurance before they will
lend money
to buy
a house.
tiost
require
evidence of insurance before they will
loan
the money.
The federal
rules
place the State
in the position of
a
bank which
lends money,
requiring
98162
—7—
evidence
of
insurance within
30 days after the house burns down.
If the owner
didn’t get the insurance, the
bank can
sue him, but probably won’t
be able to
collect,
since the homeowner will likely
be
bankrupt.
With the UST
rules there
is also a possibility
of fraud and collusion
between the
financial
institution
and the operator.
Suppose the operator
establishes
a trust
fund at
a bank which
is also his business and
personal
lender.
A release occurs which
is
likely to bankrupt
the operator’s
business.
The operator and
bank would
have an
incentive to destroy the trust
documents,
and apply the proceeds
of the trust
to the operator’s other debts
prior
to
the bankruptcy.
Since the State never received copies
of the trust
documents,
it
would
have
no
way
of
proving
that the trust ever existed.
Beyond that,
it would
have to guess which financial
institution provided the
financial
assurance
before
it could even sue and attempt discovery of
records.
There
is
also a question as to whether the State acquires
any legally
enforceable
rights
in the absence
of delivery of
the documents.
For example,
some
of
the
rules
make
the
State
the
beneficiary
of
an
insurance
policy.
Generally
the
beneficiary
of
such
a
policy
acquires
no
rights
absent
notification:
the insured
and insurer
can agree to modify the terms without
consulting the beneficiary.
Although
the policy has provisions
limiting
cancellation,
the
parties
to
the
contract
would
be
free to modify these
provisions.
As
a practical matter,
the beneficiary cannot
enforce
its
rights
unless
it knows they exist and
has
a copy
of the policy.
The Board suggests that
it might
be
advisable to exercise the discretion
allowed
in 40 CFR 280.106(c)
by adopting a rule which requires delivery of the
financial assurance documents
to the State,
in
order to ensure that the
mechanisms are enforceable under State
law.
The Board specifically solicits
comment
on
this.
STATE MECHANI St4S
The USEPA rules allow for two types
of
state mechanisms.
40 CFR 280.100
allows State mechanisms
in
general.
40 CFR
280.101 allows
a State fund for
financial
assurance.
(53
Fed.
Peg.
43354,
October
26,
1988)
The
Board
has
not proposed to adopt
rules
pursuant to these
prescriptions.
Section 7.2 of the Act
allows the Board to craft
rules meeting this type
of federal
prescription only with respect
to essential
parts of the program.
The
state
mechanisms
are
not
essential
to
the
UST
program.
They
are
not
required for program approval
and not necessary for
the program to function.
The Fire Marshal may adopt State
mechanisms.
If so,
the Board may
consider adopting these pursuant
to Section 22.4(e), following notification
from the Fire Marshal.
Section 22.18
of the Act arguably sets
up
the Underground Storage Tank
Fund
as
a
State
Fund
which
could
be
used
to
meet
a
portion
of
the financial
assurance requirement.
However, the fund cannot
be used to pay third-party
damage claims,
and hence would not
reduce the total
amount of
financial
assurance, which
is
required to meet either clean-up costs
or damages under
Section 731.193.
In that this use of the fund ends
in
1991,
it
is
best
interpreted
as
an interim measure intended to provide
funds for tanks which
98—163
-8-
are unable to obtain financial
assurance because they are found
to
be leaking
at the time they first apply.
CONDITIONS OF DEFAULT
The conditions
of default are discussed in detail
below
in connection
with Section 731.208.
The financial assurance system provides funds
for corrective action and
third party liability claims
in the event there
is
a release from the tank
and
the operator
is
unable or
unwilling to provide corrective action and pay
damages.
The
release does
not necessarily have to be caused by
a violation
of
the regulations.
And, the
financial
assurance
is
used only
if the operator
fails
to take action himself.
Rather than directly ensuring compliance with
the regulations,
the financial
assurance
is mainly directed
at
providing
a
pool of money
in
the event the operator becomes
insolvent.
The insolvency
could
result
from
the
expenses
associated
with
a
release,
or
it
could
he
a
simple business failure.
FINANCIAL ASSURANCE FORMS
The USEPA rules set out
the forms
at
length.
Section 3.09 of the APA
excludes standardized forms from the definition of “rule”.
The Code Unit
prefers that forms
not
be placed
in rules.
At
a minimum the
forms would have
to be moved
to appendices, since
it would
be impossible to comply with some
format
requirements
with
these
forms.
In the hazardous waste
and
UIC rules,
the Board incorporated the USEPA
forms rules
by
reference,
and directed the Agency
to promulgate forms based
on
the USEPA forms, with
such changes
as
are necessary under State
law.
(35
Ill.
Adm. Code 724.151).
In R84-22, the Board promulgated forms,
in
an
Appendix
to
the
rules,
to
be used until
the Agency forms
became available.
In
this
proposal,
the
Board
has
incorporated
the
USEPA
forms
by
reference,
and required the operator to prepare the
forms
based
on the federal
rules,
with
required
changes
in
wording.
If
the
Board
actually
adopts
the
rules with this approach,
it should
be
only an interim measure.
If possible,
the Board would prefer to have forms promulgated
by the implementing
agencies.
USEPA has indicated that
it expects
the
states
to make minor
changes
in wording of the instruments to
assure their validity under state
law.
(53
Fed.
Peg.
43340,
October
26,
1988)
The
financial
assurance forms may pose difficulties.
The rules
and forms
refer
to the “Director of
the implementing agency”.
As discussed
in R88—27,
and elsewhere
in this Proposed Opinion,
in Illinois this could
refer
to the
Fire Marshal
or the Agency.
The Illinois financial assurance forms need to
be
promulgated
by one of these agencies, with the proper agency spelled out
in
the
forms.
The
choice
may
be
too
complex
to
he
left
to
the
operators
to
decide
on
a case-by—case basis.
It
also
opens
the
door
to loophole~whic!i
might
be
used
to
prevent application
of
proceeds to
a clean-up.
In the Order the Board
has proposed to
replace “Director of
the
implementing agency”
in the text of the rules with “Fire Marshal”.
An
operator initially deals with the Fire Marshal’s Office, which
is
responsible
98—164
-9-
for ascertaining that the financial assurance
is
sufficient.
Once
a leak
is
confirmed, responsibility for the
site passes
to the Agency.
One approach
would
be to provide that responsibility for administration
of financial
assurance also passes
to the Agency.
However,
there
is
a major drafting
problem with this approach.
The main ambiguity arises with respect
to maintenance of the financial
assurance documents between the time
a
leak
is
confirmed
and the time
a
default
occurs.
For example, suppose
an operator initiates corrective action,
but becomes bankrupt before completing
it.
The
bankruptcy
would
be
a
form
of
default which would render the operator incapable of completing corrective
action,
and
would
result
in
application
of
the
proceeds
of
the
financial
assurance.
Which agency should
be
responsible for the routine maintenance
of
the
financial
assurance documents during the
interval
between confirmation
of
the
leak and the
default?
For example, who would receive and
review
a self-
insurance
financial
test
if
the
operator’s
fiscal
year
ended
during
this
interval
?
The drafting problem arises
because,
if the Agency
is
to take over
routine
administration
following
a
release,
each
of
the
numerous
routine
provisions
of
the
rules
and
instruments
have
to
be
edited
to
allow
for
this
possibility.
This might
open
the door to
loopholes created by
situations
in
which the
rules were ambiguous
as to which agency was
in charge.
The Board
therefore suggests that the entire financial
assurance system needs
to
be
under the control
of one agency.
As drafted, the
statute
places the Fire Marshal
initially
in control.
Hopefully releases will
be
rare,
such that most operators will always
be
under
the Fire Marshal’s control.
The Board
has therefore proposed that
the Fire
Marshal
have
complete
control
of
the
financial
assurance
process.
In
the
event
of
a release,
the Agency and Fire Marshal
will have to work together to
make
certain
that
financial
assurance
is
available
if
the
operator
is
unable
to
provide
corrective
action.
The Board
notes, however, that
the Agency has an ongoing financial
assurance
program with
respect
to
the
related
hazardous
waste
and
UIC
programs.
Would
it
not
make
more
sense
to
direct
all
financial
assurance
to
the Agency?
The Agency contended
in R84-22,
and
in connection with the hazardous
waste rules,
that
it
is impossible
to administer the
financial
assurance
system with operators preparing forms
based
on
the rules, whether federal
or
state.
The
Agency
insists
on
th~use of preprinted forms.
If
operators
were
left to prepare their own forms, the Agency would
be forced
to compare
them
word by word with the rules
to
assure
that
the
documents
conform
with
the
rules.
Typographical errors
could render the legal
obligations
unenforceable.
Worse, operators could deliberately introduce subtle changes
in wording which would
benefit them in the event
of
an
occurrence.
The Board
suggests
that
the UST financial
assurance
rules
need
eventually
to
require
the
use of
preprinted forms,
and specifically solicits comment
as
to which agency
should
promulgate
the
forms.
GENERAL ORGANIZATION
OF
THE PROPOSAL
98—165
-10-
The proposal
is
to add
a
new Subpart
H
to the proposal
in R88-27.
Although there
is actually very little cross-referencing,
to
be completely
understood the proposal
needs to be
read alongside the Order
in P88-27.
The following Sections are numbered from the USEPA rule according to
a
simple correspondence rule:
USEPA
Section
number
280.90
Insert zeros
to right
of decimal
point
so
there
are
3
digits
after
decimal
280.090
Add
constant
451.100
Section number
in
35
Ill. Adm. Code
731.190
In
the
following
discussion
the
Board
will
avoid
unnecessary
repetition
of
the
CFR
and
Ill.
Adm.
Code
numbers
for
Sections.
In some cases
a reference to
the
Board
Section
number
should
be
taken
as
a
reference
to
the
underlying
CFR
number,
and
vice versa.
DETAILED
DISCUSSION
Section 731.190
This
is
an applicability Section, which
is drawn from 40 CFR 280.90,
as
adopted
at
53 Fed. Reg.
43370, October
26,
1988.
The financial
assurance
requirements
do not apply
to UST’s which
are excluded
or deferred from
regulation
under
Section
731.110(b)
or
(c),
or
to
State
and
federal
entities.
There
is
a question
as
to the interpretation of
40 CFR 280.90(c).
Is the
federal
rule
intended
to
exempt
all
state
government,
or
only
the
State
in
which
the facility
is
located?
When shrunk
to
a State rule,
should
“liabilities
of
a
state”
become
“liabilities
of
the
State”
or
“liabilities
of
any
state”?
For
purposes
of the Illinois program,
are
governmental
subdivisions
of
other
states
subject
to
the
financial
assurance
requirement
if
they own
a UST in Illinois?
Whether this
is
a
real
problem depends
on whether
any
such facilities exist.
The Board
specifically solicits comment
as
to
whether
any
such
exist.
This
ambiguity
arises
because
the
USEPA
rules
are
regulating
many
states.
In most cases
“state” means “the State which
is
applying for the
program”.
This could
be
a contrary example.
Another
is discussed below
in
Section
731.195.
The
Board
believes the rationale for the exemption in the federal
rules
is
to avoid
requiring servicing fees for
financial
assurance for facilities
which
are
ultimately
statC
taxpayer
responsibilities
anyway.
However,
when
this
is
shrunk
to
a
State
rule
it
could
shift
responsibility from
the
taxpayers
of
one state
to
the
taxpayers
of
Ill
inoi s.
Furthermore,
in
a
USEPA-
administered
program,
USEPA
can
sue
any
state.
However,
it
could
be
very
difficult
for
one
state
to
force
another
to
pay
clean
up
costs,
since
this
might
involve
an
original
action
before
the
United
States
Supreme
Court,
and
the
other
state
might
be
able
to
claim
sovreign
immunity
for
damage
actions.
Therefore,
a provision exempting other
states makes
no sense
at the
State
98—166
—11—
level.
The Board specifically solicits comment
on this interpretation.
Units
of
local
government are
subject to the
financial
assurance
requirement, although the date
is delayed.
Section 731.190(a) provides that financial
assurance
is
required only for
petroleum UST’s.
Hazardous substance tanks
are
not required to provide
financial assurance.
Section
731.191
This Section sets dates through October 26,
1990,
for compliance with the
financial
assurance requirements.
One of these dates
has
already passed.
Operators with 1000 or more
tanks,
or
with
a
tangible
net
worth
in
excess
of
$20 million, were required
to provide financial
assurance by January
26,
1989.
In
Illinois these
operators face practical
problems
as
to how to comply
with this
requirement
in
the absence
of
an authorized agency with regulations
and
forms
in place.
There
is
a question as
to whether Section 22.4(e),
and
federal
law,
require the Board
to adopt
a
retroactive
requirement
as State
law,
or whether
it
is sufficient
to
simply make the requirement immediately
effective upon filing
of
the State
rule.
The Board suggests that
it would
be
a waste
of enforcement
resources to
attempt enforce
a
retroactive requirement
which may have been impossible
to comply with,
and that any enforcement during
this period should
be under federal
law.
The Board has proposed to follow the
latter
course
and
require
financial
assurance
by
the
time
these
rules
are
filed, but specifically solicits comment.
It
is
arguable that even the immediately—effective requirement would
be
unduly burdensome.
However,
the affected public
has had notice
by way of the
federal
rules,
and will have
had
notice by way
of this proposal, well
in
advance of the effective date.
There may be practical
problems with compliance with the immediately-
effective
State rules.
There may
not
be time between
the time the Board
adopts the
final
rule
and its filing and effective date
for persons to obtain
financial assurance
in
conformity with State
law.
There nay be
a need for
a
transitional
rule which deems persons
in compliance with the federal
financial
assurance requirements
to
be
in compliance with State requirements for
a
period
of time.
As was discussed
in R88-27,
the Board
has proposed
to repeal
the delayed
compliance
date
for
the UST program in Illinois.
The
result
of
this will
be
a
State
UST
program
which
will
operate
in
parallel
with
the
federal
program
pending authorization.
The transitional
rule for financial
assurance may need
to
extend
up
to the
point
of authorization of the Illinois program, to avoid
requi ring separate State and
federal
financial
assurance while the
federal
program continues
in
Illinois.
The Board specifically solicits comment
on
this
also.
40 CFR 280.91(c)
requires
financial assurance from “local
government
entities” by October
26,
1990.
The Board has substituted the Illinois term
“units
of
local
government”,
which
is defined below.
Section 731.192
Definitions
98—167
-12—
The introductory paragraph,
and several
definitions,
provide that terms
“shall
have” the meanings given.
This
has been edited
to “have”.
“Shall”
is
surplusage,
in that there
is
no future date associated with the definitions,
and there
is
no
sanction if the terms
fail
to take the meanings given.
The
Board has generally restricted the use of “shall”
in
the rules
to situations
where
a
person
“shall”
do
something,
or
else
a
sanction
will
happen.
The definition
of “accidental
release” provides that
it
means
a
release
which
results
in
a need for corrective action
“and/or” compensation
for bodily
injury.
The Administrative Code Unit discourages
the use of “and/or”.
In
normal English
“A or
B” may mean “A or
B or both”.
The Board
has followed
the
Code Unit’s convention,
and shortened “and/or” to
“or’.
In these rules,
if
the Board means “either A or B
(not both)”,
the Board will
so specify.
The next definition
is “bodily
injury”.
This is
related
to the
definition
of “property damage”, which
is
discussed below.
Section
731.193
requires operators
to have financial assurance
“for taking corrective
action
and for compensating third parties
for bodily
injury and property damage
caused by accidental
releases.”
The terms
“bodily
injury” and
“property
damage” therefore define
the
scope of
a portion
of the
financial
assurance
requirement.
They will
also appear
in the text of
insurance policies used to
satisfy the insurance requirement.
The USEPA definition
of
“bodily injury”
is
that it
has
the meaning given
by “applicable state
law”.
Since
these rules will
apply
to tanks
in the
ground
in
Illinois, the applicable state
law will
always
be Illinois
law.
(53
Fed. Reg. 43334, October
26,
1988)
However, so
far as
the Board
has
been able
to determine, there
is
no definition of these
terms
in Illinois law.
The
Board specifically solicits cornent
on whether this
is true.
The
effect
of adopting the USEPA definition
in
Illinois would
be
equivalent
to leaving these terms undefined.
However,
these definitions are
essential
to the UST program.
If the terms
are not
defined,
the
insurers
might
issue policies covering “bodily
injury”
and “property damage” with
restrictions which would defeat
the purpose
of the financial
assurance
requirement.
For example,
an insurer might
limit
“bodily
injury”
to
one which
is manifested within
a short period of time,
or
limit
“property damage”
so
as
to
not
compensate
for
loss
of
use
of
property
which
is
rendered
unihabitable
by pollution.
If these
terms are not defined
in the rules,
the
State
would
be
obliged
to accept the policies
as meeting the
regulatory
requirement.
Since these definitions are essential
to the program, Section
7.2 of
the
Act
requires
the
Board
to
craft
a
definition
to
fill
the
hole.
In
the
preamble
USEPA
refers
to
the
definitions
of
these
terms
as
prescribed
by
the
Insurance
Services
Office
(ISO),
a
private
entity
which,
among other things, drafts
standard forms used by many insurance conpanier.
(53
Fed.
Peg.
43333,
October
26,
1988)
Com~entersurged
USEPA
to
adopt
t~
ISO definitions
so
as
to make the regulations conform with insurance industry
practices.
USEPA refused
to
do
so,
and instead referenced
state
law, out
of
fear that some states would have conflicting definitions
in their
insurance
regulations.
In
such states confusion would
have resulted from having the
ISO
definition
in
the UST rules,
and an
insurance regulatory
definition
in the
98—168
—13—
policy.
However,
since
Illinois has no definitions
in
its insurance
regulations,
no conflict should result from using the standard industry terms
in
the text of the rules.
The Board has therefore proposed to use the
ISO
definitions
of
“bodily injury”
and “property damage”,
but specifically
solicits comment.
The Board
has reviewed the text of these definitions,
and finds
no
problems with
the language of these two definitions themselves.
However,
the
Board
specifically solicits comment as
to whether these definitions omit
damages which should
be covered, or include damages which should not be
covered.
The ISO definition
of “property damage” depends
on two other ISO
definitions:
“property damage” includes loss of use of property because of a
“pollution
incident”, which includes
a release, provided such release
results
in
“environmental damage”.
The Board
has proposed
to adopt
definitions of
these
ISO
terms
also.
However,
there
may
be
problems
associated
with
these
terms.
First,
the
terms
are
not
specifically
directed
at
storage
tanks.
Second,
the
terms
may
conflict
with
the
USEPA
terms
“occurrence”
and
“accidental
release”.
The
ISO
definition
of
“environmental
damage”
requires
that
a
release
be
“injurious”.
In
the
context
of
financial
assurance
for
petroleum
UST’s,
this
limitation
is
unnecessary.
Any
release
of petroleum from
a UST
is
“injurious”.
There
is
no
reason
to
leave
the
insurer
the
option
of
arguing
that
a release
of gasoline to groundwater
is
not
“injurious”
so
long
as
you
don’t
try to drill
a well
or smoke
in the basement.
The
ISO definition of “pollution incident”
is much broader than needed
for
UST
coverage,
including releases of caustics
and wastes.
However,
it
does
not
specifically
include
release
of
petroleum.
This
would
leave
insurers
free
to
argue
that
the
coverage
applies
to
releases
of
“bads”,
but
not
“goods”
such
as
gasoline.
USEPA
specifically
rejected
the
ISO
definition
of
“pollution
incident”,
instead
retaining
its
definitions
of
“occurrence”
and
“accidental
release”.
However,
USEPA
added
language
specifically
authorizing
the
use
of
alternative
terms,
including
the
ISO
terms,
in policies.
(53
Fed.
Peg.
43334,
October
26,
1988)
Of
course,
this
tends
to
defeat
the
goal
of
having
the
regulatory
and
policy
language
the
same.
The
Board
has
proposed
to
resolve
these
problems
by
adding
the
following
sentence
to
the
ISO
definition
of
“pollution
incident”:
“The
term
‘pollution
incident’
includes
an
‘accidental
release’
or
‘occurrence’”.
This
allows
an
insurer
to
bring
the
ISO
policy
form
into
line
with
the
USEPA
regulations by
adding
a
simple
rider.
If
the
insurer
fails
to
do
so,
the
policy
would
be
amended
by
paragraph
(2)
of the endorsement form of
40
CFR
280.97(b)(1),
incorporated
by
reference
in
Section
731.197(b).
Since
this
amendment
would
be
simple,
it
is
unlikely that any
confl ict would
result between the language
of an ISO policy form and the
regulations.
The
above
discussion
assumes
that
the
“applicable
state
law”
is
Illinois
law.
As
is discussed
in general
above, the USEPA rules
contemplate that
in
a
federal program an operator might
purchase insurance
in one
state
to
cover
98—169
-14-
tanks
in another state.
In such
a
situation the “applicable state law” might
not be
the law of the state
in which the tanks
are located.
The Board has
above
rejected this possibility
in Illinois.
40 CFR 280.92
includes
a definition
of “Director of the implementing
agency.”
The
financial assurance
rules and instruments give certain
rights
to
the Director.
This
is apt to
cause some problems
in the
Illinois
rules,
since,
as discussed above,
two different agencies
are responsible
for aspects
of the program.
The Board has provided cross
references
to the definition of
“implementing agency”
in Section 731.112,
and to Section 731.114, which are
in
the R88—27 proposal.
The effect of this
is
to defer the question of the
division of authority to R88-27.
The definition
of “owner
or operator” specifies
that, when they are
separate “parties”,
the term refers
to
the one which
is
obtaining
the
financial assurance.
Section 731.190(e)
allows either to obtain
financial
assurance,
but provides that both are liable
in
the event
of failure.
The
Board
has
replaced
“party”
with
the
defined
term
“person”.
In
the
Board’s
procedural
rules,
a
“party”
is
a
person
involved
in
a
contested
case.
“Pollution
incident”
is
an
ISO
definition
inserted,
and
modified,
as
discussed
above.
“Property
damage”
has
been
modified
to
insert
the
ISO
definition,
also
as
discussed above.
In
40 CFR
280.92, “provider of financial
assurance” includes the
issuer
of
a
state-required
mechanism
or
the
state.
These
relate
to
40
CFR
280.100
and
280.101, which allow for state-required mechanisms
or for the State itself
to provide
financial
assurance.
Since the Board
has not proposed to use these
mechanisms,
the references
have been deleted from the definitions.
40
CFR
280.92 defines
“substantial
business
relation”
as the extent
of
a
business
relationship
necessary
under
state
law
to
make
a
guarantee
contract
enforceable.
This
appears
to
be
a
directive
from
USEPA
to
write
a
definition
which
limits guarantees
to those which are
valid
in
Illinois.
(53
Fed.
Reg.
43345, October
26,
1988)
There
are
two
types
of
guarantees.
One
is
a
performance
bond
written
by
a
regulated
financial
institution.
The
other
is
a
guarantee
by
one
business
entity, which
is
not
a financial
institution, but which meets the
financial
test,
that
it will
pay any
clean
up costs
if another entity
fails
to
do
so.
The
latter
type
of
guarantee
is
subject
to
the
objection
that
the
guarantee
may be invalid
unless
the guarantor
is
regulated
as
a
financial
institution.
It may also be subject
to consumer protection legislation,
since the
relationship
is
rather
like
a
teenager
getting
his
aged
aunt
to
cosign
a
loan
for
a car.
The question is, what
is
the extent
of the relationship between
the guarantor and operator such that the guarantee
is valid?
The RCRA hazardous waste
and UIC
rules
limit these
guarantees
to those
from
a
parent corporation
to
a
subsidiary.
A
subsidiary
is
defined
as
a
corporation which
is more than
50
owned
by
the
parent
guarantor.
(See
40
CFR
264.
141
and
264.143(f).)
This
is probably
a sufficient
relationship
to result
in
a valid guarantee anywhere.
The Board addressed this question
in R84-22C.
Since
the 50
ownership
98—170
—15—
requirement appeared
to
be rather restrictive, the Board proposed
to allow
guarantees from any entity with any ownership interest
in the operator.
(See
35 Ill. Adm. Code 807.666(h).)
This was accepted by the State regulatory
agencies.
Since this
is
sufficient
to ensure enforceability of the guarantee,
Board has proposed to follow the R84—22C formulation
in this definition.
The UST rules mainly affect petroleum marketers.
This industry is
quite
a bit different than the waste industry in that
it
is
involved
in
selling
a
product
to
the public.
Specifically, there may be
a “substantial
business
relationship” arising from the sale of petroleum by manufacturers to
wholesalers, and by wholesalers
to
retailers.
It
is possible that
a
supplier
of
petroleum
may
want
to
guarantee
the
clean
up
costs
of
its
customers,
even
though they are independent entities.
However,
the normal
business practice
in
the
industry
is
for
the
buyer
to
indemnify the seller.
(53
Fed.
Peg.
43345, October 26, 1988)
The Board
finds
in the hazardous waste
rules
or R84-
22C
no
guidance
on
this
question
of
whether
such
guarantees
would
be
valid
in
Illinois,
and
has
hence
proposed
no
language.
The
Board
specifically solicits
comment
from
any
persons
who may be
interested
in this
form
of
financial
assurance.
As
noted above
in Section 731.191,
local
government
units
do not have to
get
financial
assurance
until
October
26,
1990.
The
Board
has
proposed
to
add
a definition
of
“unit
of local
government”,
a term used
in the Illinois
Constitution,
and to use this term above
in
relation to the delayed
requirement.
Section
731.193
This
Section
sets
the
amount
of
financial
assurance
required.
Unlike
the
hazardous
waste
and
UIC
rules,
the
amounts
are
set
by
rule,
rather than
by
a
cost estimate
and plan.
The
required amounts represent the total
for
corrective
action
and
third
party
liability.
While
Section
731.193(a)
sets
limits
on
a
per-ocurrence
basis,
Section
731.193(b)
sets
annual
aggregate
limits.
Petroleum marketing facilities and
other large throughput facilities
are
required
to
have
at
least
$1
million
per
occurrence.
Smaller
facilities
which
do
not
market
petroleum
must
have
at
least
$500,000
per
occurrence.
Operators
of
100
or
fewer
tanks
must
have
an
annual
aggregate
of
$1
million.
Larger
operators
must
have
an
annual
aggregate
of
$2
million.
USEPA
expects
an
annual
probability
of
11.8
that
a
tank
will
leak during
the
first
five
years
of
the
program.
The
annual
aggregates
are
set
at
a
level
which
is
well
below
the
levels
which
the
expected
leak
rate
implies.
USEPA
has
done
this
out
of
concern
that
annual
aggregate
coverage
in
excess
of
$2
million
may
be
unavailable.
USEPA
has
justified
this
on
the
basis
that
the
per
occurrence
amount
has
been
set
high
enough
that
99
of
occurences
will
be
covered.
(53
Fed.
Reg.
43337,
October
26,
1988)
Section
731.194
This
Section
specifies
the
allowable
mechanisms
and
combinations
of
mechanisms
by
which
the
operator
provides
financial
assurance.
40
CFR
280.94(b) allows
guarantees or
surety
bonds
only
if
the
Attorney
General
certifies that the mechanism
is
a
legally valid
and enforceable obligation.
This
is
related
to
the
definition
of “substantial
business relationship”
98—171
-16-
discussed above.
The Attorney General
certification
is
also discussed in
general
above.
In this situation the
rules will
be
in the definitions,
discussed above,
and
in the provisions
governing the guarantee
and bonds,
which
are
discussed
below.
The
Board
will
seek
to
comply
with
40
CFR
280.94(b),
but will
not
adopt
its
text.
There will
be
a hole left
in
the subsection
lettering at this point.
The
Board will
not reletter the subsections,
so
as
to preserve the
close
correspondence with the USEPA Section numbers.
The Code Unit will
not allow
the
insertion
of
“reserved”
to
mark
the
hole,
so this
is apt to cause
some
confusion.
However,
this
is
less than would
result from relettering.
40 CFR 280.94(c) refers
to the
financial
test under “this
rule”.
In
the
Administrative Code this would probably
be construed to mean
“this
Section”.
However,
the
financial
test
is
not
in
this
Section.
The reference
is probably
intended
to
be
to
the
entire
Subpart,
i.e.
the
entire
“rule”
which
appeared
in
the
October
26
Federal
Register.
The
financial
test
applies
only
to
business
entities.
USEPA
has
indicated
that
it
intends
to
propose
a
financial
test
for
units
of
local
government.
(53
Fed.
Reg.
43343,
October
26,
1988)
Section
731.195
This Section governs
the financial
test which the owner or
operator, or
guarantor, must meet to avoid
providing hard financial assurance.
40 CFR
280.95 refers
to the
“owner
or
operator, and/or
guarantor.”
For the reasons
discussed above,
the Board has replaced “and/or” with the shorter and more
correct “or”.
The operator
is
allowed
to meet the financial
test of either subsection
(b)
or
(c).
40 CFR 280.95(b) and
(c) contain subsections, but there
is
no text
following
the
main
subsection
label
(“(b)”
or
“(c)”).
This
is
prohibited
by
the
Code
Unit.
The
Board
has
inserted
headings
to
comply
with
Code
Unit
requi rements.
The
Board
speci fically
sol icits
cornent
as
to
whether
these
headings
are
properly
descriptive
of
the
contents.
To
meet
the
financial
test
of
subsection
(b)
the
operator,
among
other
things,
must
have
a tangible
net worth
of
at
least
ten times
the
total
required
financial
assurance
under
the
UST
program,
the
RCRA
hazardous
waste
program
and
the
UIC
program.
This
raises
a
question
as
to
the
meaning
of
“state”,
similar
to
that
discussed
in
connection
with
Section
731.190
above.
There
are
probably
many
multistate
UST
operators.
As
the
Board
understands
the
UST
program,
the
multistate
operators will
have
to
provide
separate
financial
assurance
to
each
authorized
state
in
which
they
have
tanks.
In
other
words,
after
the
program
has
been
delegated
Lu
the stci~es,
there
appears
to
be
no
mechanism
by
which
a
multistate
operator
could
provide
national
financial
assurance
to
USEPA
covering
all
tanks
nationwide.
However,
with
respect
to
the
financial
test,
the
financial
multiple
appears
to
be based
on
all
required financial assurance nationwide.
This makes
sense
in that
it
is compared
to
nationwide tangible net worth
of the guarantor.
(53 Fed. Peg.
98—172
-17—
43341, October
26, 1988)
40 CFR 280.95 cites
to the USEPA financial
assurance rules,
and to
the
rules which
govern authorization of states.
The Board has proposed to
reference the USEPA rules,
the corresponding Illinois
rules,
and the USEPA
approval
rules.
This will
require aggregation
of:
amounts
required to
be
supplied to USEPA in states where USEPA administers the program;
amounts
to
be
supplied to Illinois;
and, amounts
to
be supplied to other states with
approved programs.
With respect to financial
assurance
for U1C wells, petroleum production
injection wells
are
regulated
in Illinois by
the Department
of Mines
and
Minerals.
The
Board has
cited to
these
rules
as well
as
its own U1C
rules,
which apply
to hazardous waste injection and other types
of wells.
Note that
petroleum marketers are
more likely to have petroleum injection wells than
hazardous
waste
wells.
40 CFR
280.95
is
quite
specific
in
citing
to
the
USEPA
financial
assurance requirements.
These provisions would
become very lengthy
if the
Board provided
exact citations to
all
of the USEPA, Board
and Mines and
Minerals Sections which require
financial
assurance.
Instead, the Board has
shortened
these
to reference only the Parts.
There
is
no change
in meaning,
since USEPA cites
all
of the Sections which require
financial assurance.
The financial
assurance provided
to other states
is
identified by
referencing the USEPA rules
governing approval
of the UIC,
hazardous waste
and
UST programs.
These are 40 CFR
145,
271 and 281.
These references
to federal
regulations are
not incorporations by
reference.
The Board
is not, for example, requiring persons
to comply with
these federal
regulations.
These
references
serve
to identify the various
types
of financial assurance by citing
to
the federal
regulations which
require that
it
be provided,
or which govern approval of
state programs which
require
that
it
be
provided.
These
references
therefore
do
not
need
to
be
placed
in
the
incorporations
by
reference
Section
(Section
731.113
in
P88-27),
and
there
is
no
limitation
on
future
amendments.
Section
731.195(c)
allows
operators
which
meet
the
RCRA
financial
assurance test for third—party
liability insurance to qualify for the UST
test.
The UST amounts
are substituted
into the RCRA formula.
The Board has
referenced the Board equivalent
of
40 CFR
264.147, which
is
35
Ill. Mm. Code 724.247.
The way this provision
is worded,
the operator
demonstrates
that
it
meets
this
test,
as
opposed
to
demonstrating
that
it
has
met this test
as determined
by
another agency.
A reference to
the USEPA rule
at this point would
be
an incorporation by reference,
in
that the
rule would
be
defering
to
the
federal
rule
for
the
contents
of
the
test,
as
opposed
to
defering to
a
federal
action.
The problems associated with incorporations
by
reference
are avoided by
referencing
the equi valent State
rule.
40
CFR
280.95(c)(5)(i)
has
an
apparent
typographical
error
which
could
lead to
a misreading of the rule.
“Letter form” should
read “letter from”.
Compare the similar language in 40 CFR 264.147.
98—173
-18-
As
is discussed
in general
above, Section 731.195(d)
incorporates
the
federal
forms by reference, and requires the operator to use the federal
forms, with appropriate changes.
Section 731.196
This Section
governs “guarantees”.
This
is
a mechanism in which another,
non—financial
business entity promises that it will
pay any corrective action
or damage claims
if the operator fails to
do
so.
(53 Fed. Reg. 43343, 43345
and 43355, October
26,
1988)
40 CFR 28O.96(a)(1)
and
(2) allow guarantees from parent corporations
to
subsidiaries,
and from firms
“engaged
in
a
substantial business relationship”
with the operator.
This
is
related
to the definition
of “substantial
business
relationship”,
and to 40 CFR
280.94(b), which are discussed above.
In P84-22
the
Board
determined
that,
under
Illinois
law, any ownership interest
in the
operator
is
sufficient
to
support
an
enforceable
guarantee.
The
Board
has
edited
this
provision
to
be
consistent
with
the
discussion
above.
The
Board
has
also
solicited
comment
as
to
other
business
relationships
which
might
support
the
guarantee.
40
CFR
280.96(b)
requires
the
guarantor
to
submit
financial
statements
within
“120
days
of”
the
close
of
the
fiscal
year.
From
the
context
it
is
clear
that
this
means
“120
days
after”.
Section
731.196(c)
incorporates
the
federal
form
by
reference,
and
requires
the
operator
or
guarantor
to
prepare
and
execute
a
form
based
on
the
federal
rule,
with
appropriate
changes
in
wording.
The
problems
associated
with
this
are
discussed
in
general
above.
The Board
has proposed to add Section
731.196(e)
to
limit
guarantees
to
those
governed
by
Illinois
law,
as
discussed
in
general
above.
Before
making
a guarantee satisfying the
financial
assurance requirement,
the corporation
must register with the Secretary of State.
The guarantor must include
a
letter
identifying
its
registered
agent
in
Illinois,
state
that
the
guarantee
was executed
in
Illinois and
agree that Illinois law governs the guarantee.
In R86—44 the Board criticised
the federal
hazardous waste guarantee
forms
as being weak on the guarantor’s obligation and the conditions
under
which the guarantor
has
to
pay.
Although USEPA
has addressed some of these
concerns
in the forms
in
40 CFR 280.96(c), the UST
forms are still
weak.
There
is
no clearly
stated obligation
of
the operator to pay a sum certain.
Rather than being
a guarantee,
the form is more like an original
undertaking
of the “guarantor”
to pay the clean-up costs.
To collect,
the Fire Flarshal
may have to
prove that the operator failed
to carry out the clean-up.
The
Board
is concerned
that
the guarantor may have
a
defense
in
that the title
of
the document
is
legally m.isleading,
and wishes
to avoid this type
of
construction.
The Bodrd
snecifically solicits comment
on
this.
The Board suggests that forms similar to
those contained in
35
Ill.
Adri.
Code 807.App
A,
Illustration
H,
adopted
in R86—44C, would
be more effective.
An operator
using
a parent corporation
financial
guarantee under Part 807
has
to execute
a bond with the
parent
as
a surety.
The operator
is
obligated to
pay unless
it meets
the conditions.
The primary obligation
is worded
as
a
93—174
—19—
bond,
which places
the burden
on the operator to show that
it met the
conditions.
tJSEPA has rejected this as unnecessary,
but acknowledges that
states may need to change forms
to meet state
law.
(53 Fed.
Reg. 43344 and
43345, October 26, 1988)
The Board specifically solicits comment on this.
Section 731.197
This Section allows the operator to
obtain financial assurance by
obtaining liability insurance from an insurer
or
risk retention group.
40 CFR 280.97(c) limits acceptable insurance to that which is
issued
by
an
insurer
or group which
is
“licensed to transact
the business of insurance
or eligible
to provide insurance
as
an excess
or surplus
lines
insurer
in one
or more states.”
As
far as
the
federal
rule
is concerned, licensing in one
state
is
sufficient to qualify an
insurer
in
all
states.
For the reasons
discussed above,
the Board
has proposed to limit
insurers
to those which are
licensed
by
the
Illinois
Department
of
Insurance.
Section
731.198
This Section
allows the operator to meet
the financial
assurance
requirement
by
providing
a
surety
bond.
In
the
event
there
is
a
release
which
the operator fails
to correct,
the surety
funds
a standby trust, which
is then
available to
pay for the clean
up.
40 CFP 280.98 limits sureties to those which are acceptable under the
latest Circular 570 of the U.S. Treasury.
For the
reasons discussed above,
the
Board
has
proposed
to
limit
sureties
to
those
which
are
licensed
by
the
Illinois Department of Insurance.
In P84-22 the Department
of Insurance
indicated that most sureties
on Circular 570 are licensed in Illinois,
so that
this will
not
restrict
the availability of sureties.
Unlike the hazardous waste
and UIC
rules, UST rules
do
not include
a
“performance bond”
as
such.
The
bond allowed
by
this Section
is
a forfeiture
bond
in
which
the
surety
does
not
have
the
option
of
performing
the
corrective
action
instead
of
paying
the
penal
sum.
Section 731.199
This Section allows
the operator to meet the
financial assurance
requirement
by delivering
a letter of
credit
to the Fire Marshal.
In
the
event
of
a
default,
the
Fire
Marshal
writes
a
sight
draft,
which
it
presents
to
the
financial
institution
through
banking
channels.
The
institution
pays
the
amount
of
the
draft
into
a
standby
trust
fund.
The
institution
then
has
to
try
to
collect
the
amount
of
the
draft
from
the
operator
as
though
it
were
a
loan.
For
the
reasons
discussed
in
general
above,
the
Board
has
proposed
to
limit
letters
of
credit
to
those
from
financial
institutions
which
are
regulated
and examined
by the
Illinois Commissioner of Banks and Trust
Companies.
This provision also limits
letters of credit
to those from
institutions with authority to
issue them.
In addition to
regulatory approval
in
Illinois, institutions must have authority to
issue
letters of credit under
the laws of the
state
in which they were organized, and this authority must be
98—175
-20-
reflected in their charter.
The Board
has proposed no equivalents
for 40 CFR 280.100 and 280.101,
which allow for
financial
assurance by way of alternative State—required
mechanisms,
or
by
a State fund.
The merits
of
a State fund are discussed
in
general
above.
Section 731.202
This Section allows the operator to satisfy the financial
assurance
requirement
by establishing
a trust
fund.
USEPA indicates
in the preamble
that states
are free to limit
trusts
to those established
in their
jurisdictions.
(53 Fed. Peg. 43356, October 26,
1988)
In P84-22 the Board
determined
that trustees must either
be regulated by the Illinois Commissioner
of Banks and Trust Companies,
or comply with the Foreign Corporations as
Fiduciaries Act
(Ill.
Rev.
Stat.
1987, ch.
17,
par. 2801 et
seq.).
For the
reasons discussed
above,
the Board has proposed to so limit trusts.
In
addition, operators and trustees will
be
required to
agree that the trust
is
governed by Illinois
law.
Section
731.203
This Section
requires that an operator using certain mechanisms establish
a
standby
trust to
receive the proceeds of certain financial
assurance
mechanisms.
In the
event
of
a default, the financial
institutions pay the
proceeds into the standby trust.
The Fire Marshal
then directs the trustee
to
pay claims.
The Board
has proposed to
adopt the standby trust.
However,
in R84-22
the Board determined that the standby trust was
not necessary in Illinois,
since Section 21.1 of the Act created
a fund
in the State Treasury to receive
the proceeds of
financial
assurance.
The financial mechanisms
of
35 Ill.
Adni.
Code 807 therefore provide
for payments directly
to
the State.
This avoided
imposing
on the regulated community the
costs
associated with maintaining the
standby trust,
and placed
the State
in
a
more
secure
position
in
the event of
a
default.
(53 Fed. Peg. 43355, October
26,
1988)
Section
22.13
of the Act creates the “Underground Storage Tank Fund”.
The Board
specifically solicits comment
as
to whether the proceeds of the
financial
assurance mechanisms could
or should
be made payable
to
this,
or
another
fund,
avoiding the necessity of
a standby trust fund.
Section 731.204
This Section allows the operator to substitute financial
assurance
mechanisms,
so long
as the
total
amount
satisfies the requirements
of Section
731.193 as
to
amounts.
Section 731.205
This Section
allows the provider of financial
assurance to
cancel
by
giving
60
to
120 days notice
to the operator, depending on
the type.
The
operator has 60 days to obtain alternate financial
assurance.
If the operator
fails,
he must notify the Fire Marshal.
(53 Fed. Reg. 43356, October
26,
98—176
—21—
1988)
Section 731.206
This Section
governs reporting by the operator with respect
to financial
assurance.
The operator has to submit forms documenting current evidence of
financial
responsibility within
30 days after
a release from
a tank,
and after
receives notice
of
incapacity
by
a
provider of financial
insurance.
Incapacity
of the provider may be caused
by
bankruptcy,
revocation of
authority or failure
to meet
a financial
test.
Section
731.206(b)
requires the operator to certify compliance with
the
financial
assurance
requirements
as
a
part
of
the
notification
form
for
a
new
tank.
40 CFR 280.106(c)
allows the implementing agency
to require the operator
to
submit evidence of
financial assurance
at other tines.
The
rule does not
specify whether this
is
to
be done on
a
case-by—case
basis,
or by
rule.
As
discussed
in general
above, the Board suggests that the rules need to
require
actual
prior
filing
of financial assurance documents with the State,
and
specifically solicits comment.
(53 Fed. Peg. 43357, October
26,
1988)
Section 731.207
This Section
requires
the operator to maintain the financial
assurance
documents
at the site or
at
its place
of
business.
This
is
subject
to
the
discussion
of Section 731.206(c) above.
Apart from the problems noted above,
this Section
appears
to allow
a
multi-state
operator to maintain the financial
assurance documents outside
of
Illinois.
The system under which
the operators keep the instruments
depends
on the Fire Marshal
conducting inspections
to make sure operators actually
have the documents.
This may not
be feasible
if the documents can be kept out
of State.
USEPA does
not address
the question
of whether documents can be
kept out of
state.
(53 Fed. Reg. 43358, October
26,
1988)
The Board
specifically solicits comment
as
to whether
it might
be necessary to
require
Illinois documents to
at least
be kept in the State.
40 CFR 28O.207(b)(5) includes
a reference
to documents concerning
a
State-required mechanism.
Since this
is
not being proposed,
the reference has
been dropped.
The Board will
leave
a hole
in
the subsection numbering,
so
as
to avoid disrupting the
simple correspondence between Board and USEPA
numberi ng.
Section
731.208
40 CFR 280.108(a) prcvides that the implementing
agency
is
to
require
financial
institutions
to fund the standby
trust
if the operator
fails
to
establish alternate financial
assurance within
60 days
after cancellation
“and”
if the agency determines
or suspects that
a
release
has occurred from
the tank,
or
if
there
is
a
final
determination that payment out of the fund
is
needed,
as discussed below.
There are
several problems with this language.
First,
40 CFR 28O.108(a)(1) has subparagraphs, but
no language at the
98—17 7
—22-
(a)(1)
level.
This
is prohibited by the Code Unit.
The Board has proposed to
insert the conjunction
“Both:”
at
the
(a)(1) level
to
satisfy this Code Unit
requirement.
This assumes that
the conjunction
“and”
at the end of
subsection
(a)(1)(i)
is correct.
As discussed
in the following paragraph,
“Either:
or” may be what USEPA intended.
(53 Fed. Reg. 43359, October 26,
1988)
Second, the USEPA rules
frequently
use
“and”
to mean
“or”,
and vice
versa.
As worded, the USEPA
rule requires funding
of the standby trust
on
cancellation of instruments only if the implementing agency suspects
a
release.
This makes
some sense
in that
one would
not want to trigger a
default
in the absence
of
a
leak.
On the other hand, the cancellation
of the
instrument and the operator’s
failure to
obtain alternative financial
assurance may be sufficient
reason
to
suspect
a leak.
As
discussed above,
there may
be situations
in which
it would
be
to the operator’s
and financial
institution’s advantage
to
cancel
the financial assurance once they know about
a
release.
They might withhold this information from the agency until
after
the cancellation was effective.
Also,
it
is possible that financial
institutions
in this business will
establish an information
sharing network
to
warn each other of suspected
losses.
If
an
institution found
independent
evidence
of
a
release,
it
would
cancel
and
warn
other
financial
institutions.
In this situation
an operator without knowledge of the release
might
be making
a good faith effort
to obtain alternate assurance.
in either
of these situations the implementing agency should have authority to
require
the standby trust
to
be
funded,
even though
it had no direct evidence of
a
leak.
The
Board specifically solicits comment
on the above discussion.
Since the agency can require the standby trust
to
be
funded on
suspicion
of
a leak,
there
is
a possibility that the suspicion will
be unfounded.
Section
(4)
of the trust document, specified by 40 CFR 280.103(b),
allows for
refunds
in such
a case.
As discussed
above,
the
rules differentiate the funding of the standby
trust from the application of proceeds from the standby trust
to
pay claims.
Section
731.208(b)
concerns when
the implementing agency draws
on the standby
trust.
These could
occur
at
the
same time.
The implementing
agency draws
on the standby trust under one
of three
circumstances.
Section 731.2O8(b)(1) allows the agency to
draw on the trust
when the agency makes
a
“final
determination” that
a release has occurred,
that corrective action
is needed
and that the operator,
after
receiving notice
and the opportunity
to comply,
has not conducted corrective action.
Section
731.2O8(b)(2) allows the agency
to draw from the standby trust:
if
it
receives certi fication from the operator that
a claim should
be paid
to a
third
party;
or,
if
a
third
party
has
a
final
judgment
against
the
operator
and
the
agency
determines
that
it
has
not
been
satisfied.
This Section assumes~that
a
standby trust will
be
used.
As discussed
above,
there are arguments against the necessity of standby trusts
at the
State
level.
This Section would
require
substuritial
revision
if
a State
fund
were to
be used to receive proceeds directly.
Section 731.209
This Section releases the operator from the financial assurance
98—178
—23—
requirements
after a tank has
been closed, and
any corrective action
completed.
Section 731.210
This Section requires the operator to notify the Fire Marshal within
10
days after
commencement of bankruptcy proceedings naming the operator as the
debtor.
A guarantor
has to
notify the operator within
10
days of the
guarantor’s bankruptcy.
The operator
is
required
to provide alternate
financial
assurance within
30 days after
the bankruptcy,
or loss of authority,
of of the provider of
financial
assurance.
40 CFR 280.110(c)
and
(d)
include provisions concerning State
mechanisms.
Since the Board has not proposed to adopt
any of these,
the
provisions
have been omitted.
Section
731.211
This Section
requires the operator to replinish the financial assurance
after the standby trust
has been funded.
The operator must do this by the
anniversary date of the mechanism from which funds were drawn.
This
proposed
Opinion
supports
the
Board’s
proposed
Order
of
this
same
date.
The
Board will
accept written public comment for
a period
of
45 days
after the date of publication
of the proposed rules
in
the Illinois Register.
I, Dorothy M.
Gunn,
Clerk of the Illinois Pollution Control
Board, hereby
certify
th~,tthe
above
Proposed
Opinion
was
adopted
on the
( ~
day
of
_____________,
1989,
by
a vote of
7~’
17~.
/t~
Dorothy
M.
o41~’,
Clerk
Illinois Po~YutionControl Board
98—179
