401 KAR 101:020. Financial requirements.
RELATES TO: KRS 224.01-410, EO 2008-507, 2008-531
STATUTORY AUTHORITY:
KRS 224.01-410(8), EO 2008-507, 2008-531
NECESSITY, FUNCTION,
AND CONFORMITY: KRS 224.01-410(8)(d) requires the cabinet to promulgate administrative
regulations to establish standards and procedures to certify contractors for
the cleanup of contaminated methamphetamine properties. EO 2008-507 and
2008-531, effective June 16, 2008, abolish the Environmental and Public
Protection Cabinet and establish the new Energy and Environment Cabinet. This
administrative regulation establishes the financial assurance requirements for
certified contractors.
Section 1. Applicability.
(1) This administrative regulation applies to contractors certified by the
cabinet to cleanup methamphetamine contaminated properties after July 15, 2008.
(2) Contractors
certified by the cabinet to cleanup methamphetamine contaminated properties
prior to July 15, 2008, who do not maintain financial assurance shall meet the
requirements of this administrative regulation to continue to be certified to
cleanup methamphetamine contaminated properties.
Section 2. Financial
Assurance Criteria. (1) The financial assurance criteria and bond requirements
apply to each contractor or company certified by the cabinet to engage in the decontamination
of contaminated properties that were used for the production or processing of
methamphetamine.
(2) Prior to the
issuance of a certification to provide decontamination services, financial assurance
shall be:
(a) Submitted;
(b) Reviewed; and
(c) Approved by the
cabinet if the contractor is in compliance with the requirements of this
administrative regulation.
Section 3. Financial Assurance
Amounts. (1) A contractor certified by the cabinet shall provide financial
assurance corresponding to the level of contamination of the inhabitable property.
(a) A contractor applying
for certification to clean up contaminated property assessed as a Tier 1, Tier
2, or Tier 3 level of contamination shall post and maintain financial assurance
in the amount of at least $100,000.
(b) A contractor applying
for certification to clean up contaminated property assessed as a Tier 4 level
of contamination shall post and maintain financial assurance in the amount of
at least $250,000.
(2)(a) A contractor certified
with the cabinet prior to July 15, 2008 shall be required to maintain at least the
$50,000 financial assurance, regardless of the tier level of cleanup.
(b) A contractor certified
with the cabinet prior to July 15, 2008, who does not maintain the $50,000
financial assurance, shall meet the requirements of subsection (1) of this section.
Section 4. Financial
Mechanisms. (1) The mechanisms used to demonstrate financial assurance in
accordance with this administrative regulation shall ensure that the funds
necessary to meet the costs of cleanup of contaminated properties shall be available
within thirty (30) days of the issuance of a cabinet demand letter.
(2) The certified
contractor shall execute and submit a performance agreement, as established in
Section 5 of this administrative regulation, with one (1) or more of the
financial mechanisms established in Sections 6 through 10 of this administrative
regulation that satisfy the following criteria:
(a) The amount of
financial assurance obtained from a single financial institution shall not
exceed the limit of federal insurance if the assurance is provided by a
financial institution that uses federal insurance to guarantee the availability
of funds.
(b) The cabinet shall
demand forfeiture of the financial assurance if the certified contractor fails
to act with reasonable care and judgment in the performance of decontamination
services or is fraudulent or deceitful in the submission of inaccurate data or
qualifications.
Section 5. Performance
Agreement. (1) Before the cabinet issues a certification, the applicant shall:
(a) Complete and
notarize a performance agreement pursuant to subsection (2) of this section; and
(b) Post at least one
(1) of the following financial assurance mechanisms pursuant to KRS 224.01-410:
1. A surety bond as
established in Section 6 of this administrative regulation;
2. A letter of credit
as established in Section 7 of this administrative regulation;
3. An escrow agreement
as established in Section 8 of this administrative regulation;
4. A financial self-insurance
test as established in Section 9 of this administrative regulation; or
5. A corporate
guarantee as established in Section 10 of this administrative regulation.
(2) A performance
agreement, guaranteeing performance of cleanup to allowable limits, shall be
completed and notarized on Performance Agreement, DEP 6079D, January 2009.
Section 6. Surety
Bond. (1) A surety bond shall be completed and notarized on Surety Bond, DEP
6079B, January 2009.
(2)(a) To be eligible
to issue a surety bond, a surety shall be listed as acceptable in the current
edition of U.S. Treasury Circular 570.
(b) The penal sum of
the bond shall not exceed the amount of the surety's underwriting limitation.
Section 7. Letter of
Credit. A letter of credit shall be completed and notarized on Irrevocable
Letter of Credit, DEP 6079C, January 2009.
Section 8. Escrow
Agreement. (1) An escrow agreement shall be completed on Escrow Agreement, DEP
6079E, January 2009.
(2) If a certificate
of deposit is used in conjunction with the escrow agreement, it shall be made
payable to the financial institution as the escrow agent.
Section 9. Financial Self-Insurance
Test. (1) A financial self-insurance test shall be completed and notarized on Financial
Self-Insurance Test, DEP 6079F, January 2009.
(2) The applicant may
satisfy the requirements of this administrative regulation by passing a
financial test as established in this section. The applicant shall meet the following
criteria:
(a) Less than fifty
(50) percent of the applicants personal gross revenues shall be derived from
contaminated methamphetamine cleanup operations, and the applicant shall:
1. Satisfy at least
two (2) of the following ratios:
a. A ratio of total
liabilities to net worth less than two and zero tenths (2.0);
b. A ratio of the sum
of net income plus depreciation, depletion, and amortization to total liability
greater than one-tenth (0.1); or
c. A ratio of current
assets to current liabilities greater than one and five-tenths (1.5);
2. Have net working
capital and tangible net worth each at least six (6) times the amount of
financial assurance required in Section 3 of this administrative regulation; or
(b) The applicant
shall have tangible net worth of at least three (3) million dollars.
(3) To demonstrate
that requirements of this test are met, the applicant shall submit the
following items to the cabinet:
(a) A letter signed by
the applicant, notarized, and worded as specified on Financial Self-Insurance
Test, DEP 6079F, January 2009;
(b) A copy of a report
by an independent certified public accountant examining the applicant’s
financial statements for the company’s most recently completed fiscal year; and
(c) A special report
from the applicant’s independent certified public accountant to the applicant
stating that:
1. The auditor has
compared the data that the letter from the applicant specified as having been
derived from the independently audited year-end financial statements for the
most recent fiscal year with the amounts in financial statements; and
2. In connection with
the procedure established in subparagraph 1 of this paragraph, if matters did
not come to the auditor’s attention that caused the auditor to believe that the
specified data should be adjusted.
(4)(a) After the initial submission of the items specified in
subsection (3) of this section, the applicant shall send updated information to
the cabinet not later than ninety (90) days after the close of each succeeding
fiscal year.
(b) This information
shall include all three (3) items specified in subsection (3) of this section.
(5)(a) If the
applicant no longer meets the requirements of subsection (2) of this section,
notice shall be sent to the cabinet of the intent to establish alternate
financial assurance, as specified in this administrative regulation.
(b) The notice shall
be sent by certified mail not later than ninety (90) days after the end of the
fiscal year for which the year-end financial data show that the owner or
operator no longer meets the requirements.
(c) The applicant
shall provide the alternate financial assurance not later than 120 days after
the end of that fiscal year.
(6)(a) The cabinet
may, based on a reasonable belief that the applicant no longer meets the
requirements of this section, require reports of financial condition from the
applicant in addition to those specified in subsection (2) of this section.
(b) If the cabinet
finds, on the basis of these reports or other information, that the applicant
no longer meets the requirements of subsection (2) of this section, the
applicant shall provide alternate financial assurance as specified in this
administrative regulation not later than thirty (30) days after notification of
this finding.
(7)(a) The cabinet may
disallow use of the financial self-insurance test on the basis of
qualifications in the opinion expressed by the independent certified public
accountant in the accountant's report on examination of the applicant's
financial statements.
(b) An adverse opinion
or disclaimer of opinion by the independent certified public accountant shall
be cause for disallowance.
(c) The applicant
shall provide alternate financial assurance as established in this
administrative regulation not later than thirty (30) days after notification of
the disallowance.
(8) The applicant
shall no longer be required to submit the items specified in subsection (2) of
this section if the applicant substitutes alternative financial assurance as
established in this administrative regulation.
Section 10. Wording of
a Corporate Guarantee. (1) A corporate guarantee shall be completed and
notarized on Corporate Guarantee, DEP 6079G, January 2009.
(2) The applicant may
satisfy the requirements of this administrative regulation by passing a
financial test to offer a corporate guarantee sufficient to provide the
financial assurance as established in this section, in which case the applicant
shall meet the following criteria:
(a) Less than fifty
(50) percent of the applicants corporate gross revenues shall be derived from
contaminated methamphetamine cleanup operations; or
(b) The applicant
shall:
1. Satisfy at least
two (2) of the following ratios:
a. A ratio of total
liabilities to net worth less than two and zero tenths (2.0);
b. A ratio of the sum
of net income plus depreciation, depletion, and amortization to total liability
greater than one-tenth (0.1); or
c. A ratio of current
assets to current liabilities greater than one and five-tenths (1.5);
2. Have net working
capital and tangible net worth each at least six (6) times the amount of financial
assurance required in Section 3 of this administrative regulation; or
3. Have tangible net
worth of at least ten (10) million dollars.
4. Have assets in the
United States amounting to at least ninety (90) percent of total assets or at
least six (6) times the amount of financial assurance required in Section 3 of
this administrative regulation.
5.a. Have a current
rating for a most recent bond issuance of AAA, AA, A, or BBB as issued by
"Standard and Poor's" or AAA, AA, A, or BAA as issued by
"Moody's";
b. Have tangible net
worth at least six (6) times the amount of financial assurance required in
Section 3 of this administrative regulation;
c. Have tangible net
worth of at least ten (10) million dollars; and
d. Have assets located
in the United States amounting to at least ninety (90) percent of total assets
or at least six (6) times the amount of financial assurance required in Section
3 of this administrative regulation.
(3) To demonstrate
that requirements of this test are met, the applicant shall submit the
following items to the cabinet:
(a) A letter signed by
the applicant's chief financial officer, notarized, and worded as specified on
DEP Form 6079G;
(b) A copy of a report
by an independent certified public accountant examining the applicant’s
financial statements for the most recently completed fiscal year; and
(c) A special report
from the applicant's independent certified public accountant to the applicant
stating that:
1. The auditor has
compared the data that the letter from the chief financial officer specified as
having been derived from the independently audited year-end financial
statements for the most recent fiscal year with the amounts in those financial
statements; and
2. In accordance with
this paragraph, if matters did not come to the auditor’s attention that caused the
auditor to believe that the specified data should be adjusted.
(4)(a) After the
initial submission of the items established in subsection (3) of this section,
the applicant shall send updated information to the cabinet not later than
ninety (90) days after the close of each succeeding fiscal year.
(b) This information
shall include all three (3) items established in subsection (3) of this
section.
(5)(a) If the applicant
no longer meets the requirements of subsection (2) of this section, notice
shall be sent to the cabinet of the intent to establish alternate financial
assurance, in accordance with this administrative regulation.
(b) The notice shall
be sent by certified mail not later than ninety (90) days after the end of the
fiscal year for which the year-end financial data show that the applicant no
longer meets the requirements.
(c) The applicant
shall provide the alternate financial assurance not later than 120 days after
the end of that fiscal year.
(6)(a) The cabinet
may, based on a reasonable belief that the applicant no longer meets the
requirements of subsection (2) of this section, require reports of financial
condition from the owner or operator in addition to those established in
subsection (3) of this section.
(b) If the cabinet
finds, on the basis of these reports or other information, that the applicant
no longer meets the requirements of subsection (2) of this section, the applicant
shall provide alternate financial assurance as established in this administrative
regulation not later than thirty (30) days after notification of this a
finding.
(7)(a) The cabinet may
disallow use of this test on the basis of qualifications in the opinion
expressed by the independent certified public accountant in the accountant's report
on examination of the applicant's financial statements.
(b) An adverse opinion
or disclaimer of opinion shall be cause for disallowance.
(c) The applicant
shall provide alternate financial assurance as established in this
administrative regulation not later than thirty (30) days after notification of
the disallowance.
(8) The applicant
shall no longer be required to submit the items specified in subsection (3) of
this section if the applicant substitutes alternative financial assurance as
established in this administrative regulation; or
(9)(a)The applicant
may meet the requirements of this section by obtaining a written guarantee, hereafter
referred to as a "parent corporate guarantee".
(b) The guarantor
shall be the parent corporation of the certified contractor.
(c) The guarantor
shall meet the requirements for applicants in subsections (2) to (7) of this
section and shall comply with the terms of DEP Form 6079G.
(d)1. The parent corporate
guarantee shall accompany the items sent to the cabinet as established in
subsection (3) of this section.
2. The terms of the parent
corporate guarantee shall provide that:
a. If the applicant fails
to perform decontamination of a contaminated inhabitable property to the
decontamination standards established in 401 KAR 101:040, the guarantor shall
do so or shall establish a trust fund, in the name of the applicant, as
established in Section 9 of this administrative regulation;
b. The parent corporate
guarantee shall remain in force unless the guarantor sends notice of
cancellation by certified mail to the applicant and to the cabinet; and
c. Cancellation shall
not occur, during the 120-day period beginning on the first day that both the applicant
and the cabinet have received notice of cancellation, as evidenced by the
certified mail return receipts.
(e) If the applicant
fails to provide alternate financial assurance as established in this administrative
regulation, and fails to obtain the written approval of this alternate
financial assurance from the cabinet not later than ninety (90) days after both
the contractor and the cabinet have received notice of cancellation of the parent
corporate guarantee from the guarantor, the guarantor shall provide the
alternate financial assurance in the name of the certified contractor.
Section 11. Use of
Multiple Financial Mechanisms. (1)(a) The applicant may satisfy the
requirements of this administrative regulation by establishing more than one
(1) financial mechanism.
(b) These mechanisms shall
be limited to the following:
1. Surety bonds;
2. Letters of credit;
3. Escrow agreements;
4. Financial self-insurance
test; or
5. A corporate
guarantee.
(2) The mechanisms
shall be as established in Sections 5 through 10 of this administrative
regulation respectively, except that it shall be the combination of mechanisms,
rather than each single mechanism, that shall provide financial assurance for
an amount at least equal to the financial assurance amounts established in Section
3 of this administrative regulation.
Section 12. Incorporation
by Reference. (1) The following material is incorporated by reference:
(a) "Performance
Agreement", DEP 6079D, January 2009;
(b) "Surety Bond",
DEP 6079B, January 2009;
(c) "Irrevocable Letter
of Credit", DEP 6079C, January 2009;
(d) "Escrow
Agreement", DEP 6079E, January 2009;
(e) "Financial
Self-Insurance Test", DEP 6079F, January 2009; and
(f) "Corporate
Guarantee", DEP 6079G, January 2009.
(2) This material may
be inspected, copied, or obtained, subject to applicable copyright law, at
Division of Waste Management, 200 Fair Oaks, 2nd Floor, Frankfort, Kentucky
40601, Monday through Friday, 8 a.m. to 4:30 p.m.
(3) This material may
also be obtained at the division’s Web site at www.waste.ky.gov. (35 Ky.R.
1951; 2735; eff. 7-6-2009.)
