Section 2774 - Bond Requirements(a) This section generally applies to Holders. It also applies to importers that do not certify evaporative emission control systems as described in subsection (j) of this section. Before introducing certified engines into California commerce, a Holder shall post a bond to cover any potential compliance or enforcement actions under this Article with respect to evaporative emission control systems certified under this Article unless the Holder demonstrates in an application for certification that the Holder is able to meet any potential compliance- or enforcement-related obligations, as described in this section. A Holder may also need to post bond under this section to meet warranty obligations under section 2760. Any bond posted to meet the requirements of this section shall be obligated to the California Air Resources Board.(b) The bond requirements apply if the Holder does not have long-term assets in the United States meeting either of the following thresholds:(1) A threshold of $3 million applies if the Holder has held an Executive Order of Certification in each of the preceding ten years without failing a compliance test under section 2765 or having been found by the Executive Officer to be out of compliance with any requirement of this Article.(2) A threshold of $10 million applies if the Holder does not qualify for the smaller bond threshold in subsection (b)(1) of this section.(c) For the purpose of establishing the Holder's level of long-term assets under subsection (b) of this section, the Holder must include the values from the Holder's most recent balance sheet for buildings, land, and fixed equipment, but subtract depreciation and related long-term liabilities (such as a mortgage). If the Holder has sufficient long-term assets to avoid bond payments under this section, the Holder must identify the location of these assets in an application for certification.(d) Determine the value of the bond as follows: (1) Calculate a value based on the per-engine bond value of $500 and on the projected California-directed production volume from each displacement grouping for the model year. For example, if the Holder has projected a California-directed production volume of 2,000 engines in 2018, the calculated bond amount is $1,000,000. If the calculated value is less than $500,000, the appropriate bond amount is $500,000. If the calculated value exceeds the applicable threshold value specified in subsection (b) of this section, use the applicable threshold value as the appropriate value of the bond. These values may be adjusted as described in subsections (d)(2) and (3) of this section. A Holder may generally change the projected California-directed production volume under CP-901 or CP-902 during the model year; however, a Holder may not decrease the bond based on new projected California-directed production volumes once the Holder has imported or otherwise introduced into California commerce any engine from that model year.(2) If a Holder's or importer's estimated or actual California-directed production volume increases beyond the level appropriate for that Holder's or importer's current bond payment, the Holder must post additional bond to reflect the increased volume within 90 days after the Holder changes the estimate or determines the actual production volume. A Holder may not decrease the bond in a given year, but may calculate a lower bond value in a later year based on the highest actual California-directed production volumes from the preceding three years.(3) The minimum bond value is $25,000 instead of $500,000 for a Holder with production volume of fewer than 1000 engines or equipment units who has held an Executive Order in each of the preceding five years without failing a compliance test under section 2765 or having been found by the Executive Officer to be out of compliance with any requirement of this Article.(e) The thresholds identified in subsection (b) of this section and the bond values identified in subsection (d) of this section are in 2016 dollars. These values shall be adjusted for 2020 and later, and every 10 years after that, by considering the current Consumer Price Index values published by the Bureau of Labor Statistics relative to 2016. These values shall be rounded for thresholds and total bond obligations as follows: (1) Round calculated values at or below $125,000 to the nearest $5,000.(2) Round calculated values above $125,000 and at or below $2.25 million to the nearest $50,000.(3) Round calculated values above $2.25 million to the nearest $500,000.(f) If a Holder is required to post a bond under this section, the Holder shall get the bond from a third-party surety that is cited in the U.S. Department of Treasury Circular 570, "Companies Holding Certificates of Authority as Acceptable Sureties on Federal Bonds and as Acceptable Reinsuring Companies" (https://fiscal.treasury.gov/surety-bonds/circular-570.html). A Holder shall maintain this bond for every year in which the Holder sells certified engines. The surety agent remains responsible for obligations under the bond for two years after the bond is cancelled or expires without being replaced.(g) If a Holder forfeits some or all of a bond in an enforcement action, the Holder must post any appropriate bond for continuing sale within 90 days after forfeiting the bond amount.(h) A Holder will forfeit the proceeds of the bond posted under this section if the Holder needs to satisfy any California administrative settlement agreement, administrative final order, or judicial judgment against the Holder arising from a violation of this Article, or violation of any other applicable provisions of the California Clean Air Act.(i) If a Holder is required to post a bond under this section, the Holder shall note that in an application for certification as described in CP-901 or CP-902. Certification is conditioned on a Holder's compliance with this section. All Executive Orders held by a Holder shall be suspended if the Holder fails to comply with the requirements of this section. The Executive Officer may also revoke a Holder's Executive Orders if the Holder does not meet the requirements of this section.(j) The following provisions apply to importers of engines or equipment for resale when the importer is not also the Holder:(1) The importer and the Holder are each responsible for compliance with the requirements of this Article. For example, the Executive Officer may require the importer to comply with the warranty requirements in section 2760.(2) The importer does not need to post bond if the importer or the Holder complies with the bond requirements in this section. The importer also does not need to post bond if the Holder complies with the asset requirements of this section and the warranty requirements in section 2760.Cal. Code Regs. Tit. 13, § 2774
1. New section filed 11-13-2017; operative 1-1-2018 (Register 2017, No. 46).
2. Change without regulatory effect amending subsection (f) filed 5-6-2019 pursuant to section 100, title 1, California Code of Regulations (Register 2019, No. 19). Note: Authority cited: Sections 39600, 39601 and 43013, Health and Safety Code. Reference: Section 43013, Health and Safety Code.
1. New section filed 11-13-2017; operative 1/1/2018 (Register 2017, No. 46).
2. Change without regulatory effect amending subsection (f) filed 5-6-2019 pursuant to section 100, title 1, California Code of Regulations (Register 2019, No. 19).