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

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