N.J. Admin. Code § 7:1F-6.2

Current through Register Vol. 56, No. 21, November 4, 2024

Section 7:1F-6.2 - Financial responsibility

(a) As part of a decommissioning plan submitted pursuant to N.J.A.C. 7:1F-6.1, the owner or operator of an underground storage cavern system shall demonstrate and maintain a financial responsibility assurance mechanism for decommissioning activities in the amount of at least $ 1 million per permit. The amount determined necessary is based on the scope of the decommissioning plan. If the owner or operator demonstrates that an amount less than $ 1 million is sufficient to protect the environment and public health, safety, and welfare, the Department may accept evidence of financial responsibility in such lesser amount. Decommissioning activities includes any activity conducted, in accordance with the decommissioning plan and/or pursuant to N.J.A.C. 7:1F-6.1.

(b) In determining the sufficiency of the amount of financial responsibility, the Department will consider factors including, without limitation, the nature and quantity of regulated substance that is present at the system; estimated costs, with inflation considerations, to evacuate substances and residuals, confirm cavern integrity, seal wells, address ground water intrusion, long-term maintenance considerations; and other similar factors.

(c) The demonstration of sufficient financial responsibility does not limit the liability of the owner and operator.

(d) Financial responsibility may be demonstrated by any one, or by any combination, of the following:

1. Financial test of self-insurance;

2. Guarantee;

3. Insurance or risk retention group coverage;

4. Surety bond; or

5. Letter of credit.

(e) An owner or operator may use self-insurance in combination with a guarantee only if, for the purposes of meeting the requirements of the financial test under this section, the financial statements of the owner or operator are not consolidated with the financial statements of the guarantor.

(f) To pass the financial test of self-insurance, the owner or operator or guarantor must meet the criteria at (f)1 or 2 below based on the year-end financial statements of the latest completed financial reporting year. The owner and operator must maintain, onsite, a letter signed by the chief financial officer worded as specified in section A.1 of Appendix A, incorporated herein by reference. This letter shall be updated within 120 days of the close of each financial reporting year.

1. The owner or operator or guarantor must have a tangible net worth of at least $ 10 million, and the owner or operator or guarantor must:

i. Have a tangible net worth of at least 10 times the required aggregate amount at (a) above plus any other liability coverage for which the owner or operator is using a financial test to demonstrate financial responsibility to the State;

ii. Either file financial statements annually with the U.S. Securities and Exchange Commission, the Energy Information Administration, the Rural Utilities Services, or the Board of Public Utilities; or report annually the firm's tangible net worth to Dun and Bradstreet, and Dun and Bradstreet must have assigned the firm a financial strength rating of 4A or 5A; and

iii. Have year-end financial statements that, if independently audited, do not include an adverse auditor's opinion, a disclaimer of opinion, or a "going concern" qualification;

2. The owner or operator or guarantor must have a bond rating of AAA, AA, A, or BBB as issued by Standard and Poor's, or Aaa, Aa, A, or Baa as issued by Moody's, or net working capital of at least six times the required amount at (a) above plus any other liability coverage being provided by a financial test, and the owner or operator, or the guarantor, must have:

i. A tangible net worth of at least six times the applicable amount at (a) above;

ii. U.S. assets that are at least 90 percent of total assets or at least six times the required amount at (a) above plus any other liability coverage being provided by a financial test; and

iii. Fiscal year-end financial statements filed with the U.S. Securities and Exchange Commission, the Energy Information Administration, Rural Utilities Services, or the New Jersey Board of Public Utilities, or a special report by an independent certified public accountant stating that the data specified in the letter from the chief financial officer have been compared to the data in the latest financial statements and that no matters have come to his or her attention that cause him or her to believe that the data should be adjusted.

(g) If an owner or operator, or guarantor, using the financial test to provide financial responsibility finds that it no longer meets the requirements of the financial test based on the year-end financial statements, the owner or operator must obtain alternative coverage within 150 days of the end of the year for which financial statements have been prepared.

(h) The Department may require reports of financial condition at any time from the owner or operator, or guarantor. If the Department finds, on the basis of such reports or other information, that the owner or operator, or guarantor, no longer meets the financial test requirements at (f) above, the owner or operator shall obtain alternate coverage within 30 days after notification of such a finding.

(i) If the owner or operator fails to obtain alternate coverage within 150 days of finding that it no longer meets the requirements of the financial test based on the year-end financial statements, or within 30 days of notification by the Department that it no longer meets the requirements of the financial test, the owner or operator shall notify the Department of such failure within 10 days.

(j) To demonstrate financial responsibility through a guarantee:

1. Within 120 days of the close of each financial reporting year, the guarantor must demonstrate that it meets the financial test criteria set forth at (f) above by completing the letter from the chief financial officer as specified in section A.1 of the Appendix and must deliver the letter to the owner and operator and the Department. If the guarantor fails to meet the requirements at (f) above, within 120 days of the end of the financial reporting year the guarantor must send by certified mail, before cancellation or nonrenewal of the guarantee, notice to the owner and operator and the Department. If the Department notifies the guarantor that he or she no longer meet the requirements at (f) above, the guarantor must notify the owner and operator within 10 days of receiving such notification from the Department. In both cases, the guarantee will be deemed as terminated, no less than 120 days after the date the owner and operator receives the notification, or 120 days after the date the Department receives the notification, whichever is later, as evidenced by the return receipt. The owner or operator must obtain alternate coverage within 30 days; and

2. The guarantee must be worded as specified in section A.2 of the Appendix, and a copy of the guarantee maintained at the facility at all times.

(k) To demonstrate financial responsibility through liability insurance:

1. Such insurance must be obtained from a qualified insurer or risk retention group. It may be in the form of a separate insurance policy or an endorsement to an existing policy;

2. An existing insurance policy must be amended by an endorsement worded as specified in section A.3(1) of the Appendix or a separate insurance policy must be evidenced by a certificate of insurance worded as specified in section A.3(2) of the Appendix. A copy of this endorsement or certificate must be maintained at the facility at all times;

3. The provisions addressing cancellation or any other termination of the liability insurance by the insurer or group, except for nonpayment of premium or material misrepresentation by the insured, will be effective only upon written notice and only after the expiration of 60 days after the date on which the insured receives the written notice; or 60 days after the date on which the Department receives the written notice, whichever is later. Cancellation for nonpayment of premium or material misrepresentation by the insured will be effective only upon written notice and only after the expiration of a minimum of 10 days after the date on which the insured receives the written notice; or 10 days after the date on which the Department receives the written notice, whichever is later; and

4. Within 60 days of receipt of a notice of cancellation or other termination, the owner or operator shall provide alternative financial assurance, as specified in this section.

(l) To demonstrate financial responsibility through a surety bond:

1. The surety company issuing the bond must be among those listed as acceptable sureties on Federal bonds in the latest Circular 570 of the U.S. Department of the Treasury;

2. The surety bond must be worded as specified in section A.4 of the Appendix, and a copy of the surety bond maintained at the facility at all times;

3. Under the terms of the bond, the surety will become liable on the bond obligation when the owner or operator fails to perform as guaranteed by the bond. In all cases, the surety's liability is limited to the penal sums;

4. The owner or operator who uses a surety bond to meet the requirements at (a) above must establish a standby trust fund when the surety bond is acquired. The trustee shall be an entity which has the authority to act as a trustee and whose trust operations are regulated and examined by a Federal or State agency. Under the terms of the bond, all amounts paid by the surety under the bond will be deposited directly into the standby trust fund, in accordance with instructions from the Department;

5. The surety(ies) may cancel the bond by sending written notice of cancellation by certified mail to the principal and the Department; provided, however, that the cancellation shall not occur during the 120 days beginning on the date of receipt of the notice of cancellation by the principal or the date of receipt of the notice of cancellation by the Department, whichever is later, as evidenced by the return receipt; and

6. Within 60 days of receipt of a notice of cancellation or other termination, the owner or operator shall provide alternative financial assurance, as specified in this section.

(m) To demonstrate financial responsibility through a letter of credit:

1. The issuing agency must be an entity that has the authority to issue letters of credit in this State and whose letter-of-credit operations are regulated and examined by a State agency;

2. The letter of credit must be worded as specified in section A.5 of the Appendix, and a copy of the letter of credit maintained at the facility at all times;

3. The owner or operator who uses a letter of credit to meet the requirements at (a) above must establish a standby trust fund when the letter of credit is acquired. The trustee shall be an entity that has the authority to act as a trustee and whose trust operations are regulated and examined by a Federal or State agency. Under the terms of the letter of credit, all amounts paid pursuant to a draft by the Department will be deposited by the issuing institution directly into the standby trust fund in accordance with instructions from the Department;

4. The letter of credit must be irrevocable with a term specified by the issuing institution and must provide that credit be automatically renewed for the same term as the original term, unless, at least 120 days before the current expiration date, the issuing institution notifies the owner or operator and the Department, by certified mail, of its decision not to renew the letter of credit. Under the terms of the letter of credit, the 120 days will begin on the date when the owner and operator receives the notice or on the date when the Department receives the notice, whichever is later, as evidenced by the return receipt; and

5. Within 60 days of receipt of a notice of cancellation or other termination, the owner and operator shall provide alternative financial assurance as specified in this section.

(n) Within 10 days after commencement of a voluntary or involuntary proceeding under Title 11 (Bankruptcy), U.S. Code:

1. Naming an owner or operator as debtor, the owner and operator shall notify the Department by certified mail of such commencement; or

2. Naming the provider of financial assurance as debtor, the provider shall notify the owner or operator by certified mail of such commencement, and the owner and operator shall then notify the Department.

(o) An owner and operator will be deemed to be without the required demonstration of financial responsibility in the event of commencement of bankruptcy or other incapacity of his or her provider of financial assurance. Within 30 days after receiving notice of such an event, the owner or operator shall submit to the Department an alternate demonstration of financial responsibility.

N.J. Admin. Code § 7:1F-6.2

Adopted by 55 N.J.R. 905(a), effective 5/1/2023