401 KAR 101:020. Financial requirements

Link to law: http://www.lrc.ky.gov/kar/401/101/020.htm
Published: 2015

      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.)
Read Entire Law on www.lrc.ky.gov