2. Deferral  state would make determination that state cleanup will satisfy RCRA CA requirements and completely defer CA requirements to state program.

We strongly support that EPA defer the cleanups under the alternate state cleanup programs. Postponement of determination of RCRA specific CA will not only create unnecessary confusion, but will be inherently inefficient.

EPA also seeks comment ( pages 52234 to 52236) on two approaches to determining that a state program will satisfy RCRA requirements. One is outlined in the " VCP Guidance Criteria" ( 11/ 96). The other is in the 10/ 22/ 98 final Post Closure rule.

The only significant difference between the " VCP Guidance Criteria" and " Post Closure Rule" is that the former does not require facility wide assessment. Texas Risk Reduction Program is neutral on the requirement of facility wide assessment and relies on the RCRA definition of the facility. Therefore, the state program will not conflict with either of the two approaches.

On pages 52234 to 52236, EPA solicits comments on whether it is necessary for EPA to review and approve an alternate program before a State authorized for CA defers to that program in a permit, or postpones CA under a permit pending a cleanup conducted under the alternate program. Texas promulgates state cleanup regulations through a comprehensive public participation process. Comments are solicited from all the stakeholders including the respective EPA regional offices. The rule promulgation process incorporates review and approval by the EPA. A second round of review and approval by the EPA is redundant and unnecessary. ( Texas Natural Resources Conservation Commission, RCRA 2001 0029 0072)

Response: The Agency appreciates TNRCC's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

63. How would EPA and the authorized States address the alternate authority cleanup provisions in the RCRA permit? ( X. A. 2) 217 Comment: Missouri would handle all cleanups under RCRA corrective action. There are alternative programs in the state. However, RCRA facilities are ineligible for these programs. ( Missouri Department of Natural Resources, RCRA 2001 0029 0065)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: p. 52233, col. 2  p. 52234, col. 2   The preamble describes two methods of addressing, within the RCRA permit, the cleanups conducted pursuant to alternate state authorities. Under the first method, referred to a " postponement," postpone the determination of RCRA specific corrective action provisions until after a cleanup under an alternate State authority is completed. Under the second method, referred to as " deferral," the permit issuing agency would make a determination that a cleanup conducted under an alternate authority will satisfy the corrective action requirements at the site, then completely defer corrective action requirements to the alternate program. EPA requests comment on whether the Agency should, as a general matter, recommend use of either method.

DOE believes it would be appropriate for EPA to recommend use of the " deferral" method of addressing cleanups conducted pursuant to alternate state authorities, if such alternate state authorities have been reviewed in advance by EPA using an authorization approach ( see Specific Comment X. A. 3, item 1, below). ( Thomas T. Traceski, Director, RCRA/ CERCLA Division, DOE, RCRA 2001 0029 0039)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: The proposed Deferral Method ( id. at 52234) is clearly the preferred approach to incorporating a state alternate cleanup authority into the RCRA Program. Indeed, USWAG opposes the Postponement Method as contrary to the objective of facilitating clean ups. Corrective Action is a complex planning process that generally encompasses state of the art environmental science and engineering, extended public outreach, and complex financial planning. It can be accomplished in a timely, cost effective, and satisfactory manner only in a climate of regulatory certainty ( or minimal uncertainty). Deferral of corrective action to the authority of a state implementing an adequate alternate cleanup program would optimize cleanup decisions and lead to sooner and better remediations. EPA would have the opportunity, as discussed below, to determine the adequacy of state alternate programs to satisfy corrective action requirements. The site specific permit should then simply 218 require the cleanup to meet the alternate program requirements and defer to the substance and procedures of that program.

The Postponement Method would create undue uncertainty through continued, overlapping regulatory authority and the threat of EPA veto of state approved corrective action measures many months or years after initiation of a project. EPA should specifically avoid periodic or milestone review of the adequacy of corrective action. The benefit of relying on state alternate cleanup authorities is the streamlined process and the accompanying increased degree of certainty. Continued active supervision by EPA would defeat the purpose. Those pursuing corrective action under state alternate cleanup authorities need the assurance that EPA will not later second guess the states and require additional or different measures. ( Utility Solid Waste Activities Group ( USWAG) et al., RCRA 2001 0029 0041)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: EPA requested comments on whether the Agency should use the postponement or deferral method if a state alternate program is an effective method to meet the RCRA corrective action measures. Dominion recommends that the EPA institute the deferral method , which would mean the facility would be considered closed in accordance with the state alternate program requirements. The deferral method supports the fact that states have developed effective corrective action programs that address site specific issues, but are not part of a regulation or a guidance document. Further, the deferral method would remove the need for the permit issuing agency to re evaluate the cleanup process after the cleanup is declared complete in accordance with the state alternate program.

Dominion disagrees with the postponement method, which allows the permit issuing agency to determine if the site is closed in accordance with the authorized RCRA specific corrective action provisions after the owner or operator has conducted the cleanup based upon the state alternate requirements. This action would increase the closure costs and prolong the closure process because the permit issuing agency is not defining the specific cleanup measures the site must follow to close the site prior to the start of the cleanup process. ( Pamela F. Faggert, Dominion, RCRA 2001 0029 0049)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking. 219 Comment: The " deferral" method as described in this proposed rule making is appropriate. ( Joe Hoover, Manager, Active Sites Branch, Arkansas Department of Environmental Quality, RCRA 2001 0029 0053)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: EPA asked how it and the authorized states would address the alternate authority cleanup provisions in the RCRA permit.

In general, Ecology supports proposed policies for postponement and deferral outlined in the federal register, but believes the policies do not go far enough in removing the unnecessary administrative burden of requiring a permit from the RCRA corrective action process.

In the matter of postponement, more detail is needed on the nature of the schedule of compliance that would be incorporated into the permit. Cleaning up contamination at corrective action sites is difficult, complex, and protracted because the nature and extent of contamination must be assessed and investigated before actual implementation of the cleanup occurs. Implementing and monitoring cleanup can also be protracted, especially if bioremediation and natural attenuation are the preferred methods. If the schedule of compliance is overly detailed and prescriptive, modifying the permit to reflect schedule changes will take away time and staff resources away from active cleanup processes.

Ecology supports complete deferral to state cleanup programs in lieu of a permit, especially in cases where the facility is not actively receiving wastes and corrective action is scheduled to take place under a corrective action permit or post closure permit. ( Greg Sorlie, Manager, Hazardous Waste and Toxics Reduction Program, Washington State Department of Ecology ( Ecology), RCRA 2001 0029 0054)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: Regulatory agencies should have the option of " postponing" or " deferring" the decision as to whether or not HSWA specific corrective action provisions must be included in the RCRA permit when alternate state cleanup authorities are addressing one or more SWMUs. At this time, postponement is the preferable option, because it will allow time to gain experience with and thoroughly evaluate the differences or gaps between RCRA and the applicable state authority. 220 ( Augusta Posner, Senior Assistant General Counsel, Florida Department of Environmental Protection, RCRA 2001 0029 0059)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: Perhaps the best way to do this is to have a general statement saying that other cleanups conducted with federal or state oversight and acceptance may be acceptable to satisfy a company's RCRA Corrective Action requirements in part or in whole. Then have a review period to assess the equivalency of these approaches to the goals of the RCRA corrective action program, preferably during the initial assessment phase of corrective action. Realistically, with concurrent cleanups going on at one facility, this assessment could also occur at any time during the process or when requested by the facility. ( Jim Sygo, Chief of the Waste Management Division, Michigan Department of Environmental Quality, RCRA 2001 0029 0060)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Comment: " Deferral" of Corrective Action to an Alternate State Cleanup is the Only Acceptable Option; " Postponement" of Corrective Action is Unworkable.

The Agency proposes two options for how to address the alternate authority cleanup provisions in a RCRA permit:

° Postponement, in which the agency issuing the RCA permit would postpone determination of RCRA specific corrective action requirements until after a cleanup is completed under an alternate state authority.

° Deferral, in which EPA or the authorized state would completely defer corrective action requirements to an alternate cleanup program.

We strongly suggest that deferral is the only acceptable option.

Postponement poses fatal issues. The postponement option presents a scenario in which the certainty that a given cleanup effort is sufficient is delayed until the very end of the cleanup. The regulated community must have a single authority with which to conduct a remedial program without the prospect of second guessing at the completion of the process. Postponement could 221 stifle cleanup efforts if, after years of effort and use of considerable resources, a cleanup could be determined insufficient, even though the state alternate program was reasonably anticipated to meet RCRA program requirements. We expect that very few facility owners would opt to assume the significant risks associated with the postponement approach, and these risks could prove to be a disincentive to pursuit of an alternate cleanup program.

Deferral, in contrast, results in a clear, up front understanding that the appropriate corrective action at the site would be taken by the state pursuant to its alternate program. The permit would clearly state that the State alternate program is the sole implementer of the cleanup and these cleanup requirements would become an enforceable part of a RCRA permit. ( American Chemistry Council, RCRA 2001 0029 0067)

Response: This final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities, and thus the Agency is not responding to comments on that issue. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

64. How would EPA or the authorized State determine that cleanups conducted under an alternate cleanup program would satisfy the requirements of section 264.101? ( X. A. 3)

Comment: p. 52236, cols. 1 & 2   According to the preamble, EPA believes that, as a general matter, the Agency should review state alternate programs in advance of relying on them at individual sites in the state. EPA requests comment on two options for up front review of a state alternate program: ( 1) EPA could use an authorization approach where the State would submit, among other things, copies of the statutes and regulations for the alternate cleanup authority to demonstrate that the program would result in protective cleanups; or ( 2) EPA and the State could enter into an YOU, or other agreement, regarding permit determinations and the use of a particular alternate authority for RCRA corrective action facilities.

DOE agrees that EPA should, as a general matter, review state alternate programs in advance of relying on them at individual sites in the state. In this regard, DOE believes the most efficient way for EPA to review state alternate programs in advance would be the first approach. Under this approach, EPA could identify inadequacies in state alternate cleanup authorities and the inadequacies could be corrected before any consideration is given to relying on them to meet RCRA corrective action requirements at individual sites. If EPA has already reviewed alternate cleanup authorities in a state ( e. g., during the authorization of the State RCRA program for the Post Closure rule), DOE would support not requiring that they be evaluated again for the purpose of authorizing them to be used to meet RCRA corrective action requirements. DOE recognizes, however, that regardless of whether state alternate cleanup authorities are found acceptable, the decision about whether to defer or postpone corrective action requirements in the RCRA permit 222 for any particular facility will be made on a case by case basis, after the responsible regulatory agency has determined whether cleanups conducted at that facility under the authorized state cleanup authorities would satisfy the RCRA corrective action requirements in 40 CFR 264.101. ( Thomas T. Traceski, Director, RCRA/ CERCLA Division, DOE, RCRA 2001 0029 0039)

Response: The Agency appreciates DOE's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: EPA's guidance should include a streamlined approach for evaluating the adequacy of state alternate cleanup authorities for RCRA corrective action purposes. EPA should pre approve state authorities according to a specific list of general criteria. However, EPA must be careful not to weigh down the procedure in time consuming paperwork and must avoid fundamental reshaping of state designed programs. EPA should recognize that existing authorizations for state implementation of corrective action and state federal memoranda of agreement ( MOA) and memoranda of understanding ( YOU) establish the foundation for a streamlined approval procedure.

As discussed above, USWAG recommends that EPA should develop this procedure with stakeholder input. The stakeholder process need not be prolonged, and we urge EPA to develop the guidance as quickly as possible. In the interim, EPA should proceed to accept state programs on a state by state basis, on the basis of existing YOU, MOA, and guidance. ( Utility Solid Waste Activities Group ( USWAG) et al., RCRA 2001 0029 0041)

Response: The Agency appreciates USWAG's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: Utilization of State program controls and traditional program oversight by EPA of the authorized State program is adequate. ( Joe Hoover, Manager, Active Sites Branch, Arkansas Department of Environmental Quality, RCRA 2001 0029 0053) 223 Response: The Agency appreciates ADEQ's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: EPA asked how it or the authorized state would determine that cleanups conducted under an alternate cleanup program would satisfy the requirements of section 264.101.

Washington State is already using an alternative authority for Section 3004( u) corrective action. The use of MTCA results in cleanups that are protective of human health and the environment   as required by 40 CFR 264.101. Any policy or regulation issued by EPA should not conflict with Washington State's existing authorization. EPA should allow Ecology's 1994 authorization to serve as authorization for any regulation developed under this proposed policy. Because of the time and staff effort spent to receive Ecology's 1994 alternative authorization, Ecology would prefer the use of a MOA process rather than an authorization process to allow the use of the postponement or deferral policies in Washington State. A more detailed level of authorization is onerous   consuming time and staff resources that could be spent actively cleaning up corrective action sites. ( Greg Sorlie, Manager, Hazardous Waste and Toxics Reduction Program, Washington State Department of Ecology ( Ecology), RCRA 2001 0029 0054)

Response: The Agency appreciates WSDE's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: There must be a complete and thorough comparison of state statutes, rules, forms, policies, guidance documents and implementation practices, as well as a comparison of corrective action objectives based on actual monitoring data. The states should be encouraged to perform this evaluation, and to submit to EPA for review. ( Augusta Posner, Senior Assistant General Counsel, Florida Department of Environmental Protection, RCRA 2001 0029 0059)

Response: The Agency appreciates FDEP's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of 224 alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: Regardless of the cleanup authority, the basic premise remains the same: do an assessment ( did we find all of the releases?), investigate them ( are all releases defined in three dimensions?), and implement appropriate measures to cleanup or contain contamination, including any necessary institutional controls and legally enforceable agreements ( will anyone/ thing be harmed?). The criteria for any program should be to protect people and the environment from exposure and then cleanup and restore the resource, where possible. This should be handled on a site specific basis, because a general requirement would not adequately cover some sites and may be too burdensome at others. ( Jim Sygo, Chief of the Waste Management Division, Michigan Department of Environmental Quality, RCRA 2001 0029 0060)

Response: The Agency appreciates MDEQ's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: Missouri would handle all cleanups under RCRA corrective action. There are alternative programs in the state. However, RCRA facilities are ineligible for these programs. ( Missouri Department of Natural Resources, RCRA 2001 0029 0065)

Response: The Agency appreciates MDNR's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues. 225 Comment: Voluntary Cleanup Program ( VCP) Guidance Criteria are Appropriate for Assessing Alternate State Programs.

The Agency discusses two existing assessment tools that may be appropriate for evaluating alternate state cleanup programs:

° Voluntary Cleanup Program ( VCP) Guidance   November 14, 1996 memorandum entitled " Interim Approaches for Regional Relations with State Voluntary Cleanup Programs". The criteria include:

° Opportunities for meaningful public involvement ° Response actions that are protective of human health and the environment ° Adequate resources to ensure that response actions are conducted in an appropriate and timely manner, and that both technical; assistance and streamlined procedures, where appropriate, are available ° Mechanisms for the written approval of response action plans and a certification or similar documentation indicating that response actions are complete ° Adequate oversight to ensure that response actions are conducted in such a manner to assure protection of human health and the environment ° Capability, through enforcement or other authorities, of ensuring completion of response actions if the party conducting the response action fails or refuses to complete the necessary response actions, including operation and maintenance or long term monitoring and activities ° Post Closure Rule Criteria   Criteria established in the October 22, 1998 rule ( see 63 FR 56710 at 56792). An alternate cleanup program must demonstrate, at a minimum, that the authority is sufficiently broad to:

° Require facility wide assessments ° Address all release of hazardous wastes or constituents to all media for all SWMUs within the facility boundary as well as off site releases to the extent required under RCRA section 3004( v) ( to the extent that releases pose a threat to human health and the environment)

° Impose remedies that are protective of human health at the environment 226 EPA states that regardless of which criteria are selected, it does not believe that the level of overall review of the alternate program would be the same level as an authorization review. We strongly agree. EPA should strive for an appropriate balance between the time and resources it dedicates to its review ( and approval or disapproval) of an alternate state program and its stated goal of leveraging the potential offered by alternate authorities in achieving more streamlined, yet nonetheless protective, cleanups. This is nowhere more important than when EPA is reviewing alternate cleanup programs in states already authorized for the RCRA Corrective Action program.

In general, we believe the VCP guidance criteria to be more appropriate for assessing alternate state cleanup programs.

VCP Guidance As EPA states, many of the VCP criteria are the same as those used in the authorization process for state RCRA Corrective Action programs. The VCP criteria correctly address general criteria associated with the process by which the base RCRA requirements are achieved. While the criterion of " Response actions that are protective of human health and the environment" is redundant with the § 40 CFR 264.101( a) corrective action requirements for protection of human health and the environment, we are not troubled by this redundancy, as we welcome recognition that the primary objective of any corrective action cleanup is " protection of human health and the environment."

We respectfully suggest that the VCP criterion relating to " opportunity for meaningful public involvement" should be considered in the context of that state program and should not necessarily be equated with corresponding EPA national policy. A state authorized public involvement process is indicative of what the people of the state support, and may therefore differ from what EPA desires on a national level.

Post Closure Rule The Post Closure Rule criteria largely track the RCRA Corrective Action program regulatory requirements of 40 CFR § 264.101. As stated above, even those RCRA sites cleaned up under alternate authorities would have to meet the 40 CFR § 264.101 requirements. The Post Closure rule criteria ( devised to allow closing of RCRA waste management units as part of a broader corrective action effort) are therefore redundant with the base RCRA Corrective Action requirements.

We believe that the Post Closure Rule criterion requiring site wide assessments could be a significant disincentive to the use of alternate state cleanup programs. As the Agency recognized in the November 30, 1998 final HWIR Media rule, facility wide corrective action requirements are considered by many as a disincentive to cleanups ( See 63 FR 65874 at 65883). The Agency took the important step in the HWIR Media rule of clarifying that facility wide corrective action requirements are not triggered at remediation only facilities. We recommend that the Agency not consider requirements for site wide assessments when evaluating alternate state cleanup programs as it may further fuel the misinterpretation that remediation only facilities subject to RCRA are 227 likewise subject to site wide assessments. Further, EPA already has authority for site wide assessments under 40 CFR § 264.101; it is not needed as an additional criterion for alternate state cleanup programs. ( American Chemistry Council, RCRA 2001 0029 0067)

Response: The Agency appreciates ACC's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

Comment: Memoranda of Understanding ( YOU) are the Appropriate Process for Review of Alternate Cleanup Programs EPA notes its belief that, as a general matter, it should review alternate state programs in advance of relying upon them at individual sites in a state. Two options are presented:

° Authorization approach, in which states submit extensive supporting materials to document that its cleanup program would result in protective cleanups.

° Memorandum of Understanding ( YOU) approach, in which EPA and the state enter into an agreement regarding the use of alternate authority for RCRA Corrective Action.

We strongly urge the Agency to employ a YOU approach, rather than an authorization process. The very process of establishing a YOU appropriately forces EPA and the states to focus on and resolve key issues, rather than become burdened by a process heavy authorization exercise. EPA and the states have growing experience in establishing MOUs, as evidenced by MOUs already in place ( e. g., Illinois, Michigan). ( American Chemistry Council, RCRA 2001 0029 0067)

Response: The Agency appreciates ACC's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues. 228 Comment: Oversight and Reassessment of Alternate Cleanup Programs The Agency solicits comment on the extent to which EPA should participate in review and assessment of alternate state cleanup programs in states authorized for RCRA Corrective Action. The Agency also seeks comment on whether review and assessment of alternate programs should be considered part of the Agency's oversight responsibility for authorized states.

If EPA already entrusts a state   through formal authorization   with the responsibility of ensuring that RCRA Corrective Action cleanups are protective of human health and the environment, EPA should likewise give great deference to the state in determining the suitability of alternate cleanup programs. The state is in the best position to determine which program, on a site specific basis, is best for the particular needs of that site, the local community and the people of that state.

A more in depth and broader EPA review is appropriate for states that have not applied for RCRA Corrective Action authority. For such states, EPA should provide general guidance to the state as to what is expected and required under statute and perhaps develop a memorandum of agreement ( MOA) or memorandum of understanding ( YOU) clearly outlining the understanding for use of the alternate cleanup program in the non authorized state. States that have applied for RCRA Corrective Action authority, but authorization is still pending, should be subjected to a more limited EPA review and YOU/ MOA requirements, determined on a state specific level.

Once the determination has been made that an alternate state program may be employed, EPA reassessment is not necessary unless the alternate cleanup program is changed significantly so that protection of human health and the environment is called into question. States employing alternate programs should have an obligation to communicate to EPA any significant changes to their programs, after which EPA may elect to reassess. We do not recommend a blanket " reassess every X years" process. We suggest that the YOU process recommended for states may be an appropriate vehicle to identify the appropriate reassessment process, if any, for a particular state. ( American Chemistry Council, RCRA 2001 0029 0067)

Response: The Agency appreciates ACC's comments on use of alternate authorities to address corrective action. However, this final rule does not include provisions related to the use of alternate authorities to address corrective action needs at RCRA facilities. The Agency continues to explore the use of alternate authorities, but would prefer to do so in the broader context of all facilities, rather than just permitted facilities and, therefore, believes it is more appropriate to do so outside of this rulemaking.

Because issues related to alternate authority use are not addressed in this final rule, the Agency did not respond to comments related to those issues.

65. Financial Assurance ( X. B) 3 The term " fully funded", as applied to NEIC, means that NEIC has set aside loss reserves in an amount ( certified by an actuary) approximating the expected cost of closure of its insured's ( RISI's) facility, performed in compliance with all applicable regulations.

4 In its letter, OEPA apologized for inconvenience caused RISI and NEIC, which expended much time, effort and legal expenses in responding to OEPA's intense scrutiny.

229 Comment: This office and I represent Ross Incineration Services, Inc. (" RISI"), a privately owned hazardous waste treatment facility located in Northeast Ohio, and Northeast Indemnity Company (" NEIC"), a Vermont captive insurance company. RISI has been in business at the same location for over fifty years, and takes pride in its state of the art equipment and diligent compliance with the letter and spirit of applicable environmental laws. NEIC has been in business since 1988. NEIC and RISI are separately owned by different parent companies, and are financially independent. However, far up the corporate ladder, the parent companies in part are owned by the same shareholder. NEIC, which has fully funded loss reserves3, is the insurer under an insurance policy that provides RISI's financial assurance for closure of RISI's facility, as required by the Resource Conservation and Recovery Act of 1976, as amended (" RCRA"). Both RISI and NEIC are deeply concerned about many of the conclusions set forth in the March 30, 2001 Audit Report (" OIG Report") of the Office of Inspector General. Quite frankly, RISI and NEIC are surprised that the United States EPA (" Agency") is considering taking actions that in effect would ban the use of captive insurance to provide financial assurance for closure/ post closure care. Just three years ago, the Ohio EPA (" OEPA"), authorized to administer RCRA's financial assurance requirements, thoroughly reviewed RISI's use of an insurance policy issued by NEIC. After detailed scrutiny of RISI and NEIC by the Compliance Assurance Section of the OEPA's Division of Hazardous Waste Management, RISI was informed that " OEPA believes the insurance policy ( issued by NEIC) is legal and valid to demonstrate financial assurance in Ohio." 4 NEIC and RISI are now compelled to again respond to concerns, many of which are misguided, about the use of captive insurance for closure/ post closure financial assurance.

GENERAL COMMENTS As a general comment, it is the opinion of RISI and NEIC that the Agency's consideration of taking action ( through the use of required ratings, continuing to require assignable policies, or otherwise) to eliminate captive insurance companies should not be its focus when reviewing financial assurance. Rather, the issue that the Agency should consider is whether risk ( of funds being available for closure/ post closure care) is being managed. As stated in the OIG Report, some facilities do not even have financial assurance mechanisms in place. Others have established closure cost estimates that are questionable in the adequacy of the amounts. These circumstances place RISI and similarly situated companies at a competitive disadvantage. More important from an environmental standpoint, lack of financial assurance and unrealistic closure cost estimates, not the issuance of insurance by well operated captive insurance companies, may negatively impact human health and the environment. 230 RISI and NEIC inquire as to why captive insurance companies appear to be targeted by the Agency. A lot of questions need to be answered. Has the Agency or OIG documented actual damages to human health and the environment as a result of failed captive insurance mechanisms? What are the relative failure rates of the various financial assurance mechanisms? How many enforcement referrals have the Agency and authorized states made concerning the various types of financial assurance mechanisms? Has the Agency or any authorized state ever been required to pay for closure/ post closure care as a direct result of the failure of a financial assurance mechanism issued by a captive insurance company   or as a direct result of the failure of other mechanisms? To reiterate, is the Agency focusing on the correct issue: is risk being managed?

Despite the concerns of RISI and NEIC regarding the appropriateness of the Agency's focus upon captive insurance companies, RISI and NEIC are not opposed to guidance or regulations which disallow situations where independence between facility failure and failure of a financial assurance mechanism is not maintained. However, they urge the Agency not to disallow the use of all captive insurance, but rather to condition the use of insurance issued by captive insurance companies that meet certain standards ( such as the requirements of Vermont law, discussed below). The captive insurance industry serves a critically important role in the strategies of companies around the world. Captive insurance is a sophisticated and legitimate mechanism that benefits large and medium sized companies by providing to them greater control over their risk programs, the ability to achieve cost savings and efficiencies, and the ability to customize types of insurance coverages. Barring the use of captive insurance will force companies to purchase costly traditional insurance. This will create an additional pressure on the commercial insurance market, which already has limited capacity to cover types of risks such as closure/ post closure and, in fact, little interest in providing such coverage. Such a situation, in fact, creates more risks to human health and the environment.

There are many situations where there is independence between the risk of failure of an insured facility and the financial assurance issued by a captive insurance company. Many insured facilities and captive insurance companies are financially independent. Further, the use of a fully funded captive insurance company to provide financial assurance perhaps provides the least risky form of financial assurance. Additionally, as further discussed below, RISI and NEIC submit that the Agency's requirement that insurance policies must be assignable ( a requirement that may be impossible for some captive insurance companies to meet) should be revisited by the Agency. RISI and NEIC jointly submit to the Agency this letter which sets forth their comments upon the OIG Report, and respectfully request that the Agency consider the comments and address the many questions raised before it takes any action to revise the current regulations that govern closure/ post closure financial assurance mechanisms.

INDEPENDENCE BETWEEN FACILITY FAILURE AND FAILURE OF A FINANCIAL ASSURANCE MECHANISM The OIG Report, as well as the Agency's request for comments, concludes that there is not corporate separateness between a captive insurance company and the insured facility. They assume that the captive insurance company is a subsidiary of the insured facility or, at least, that the 4 As stated above, far up the corporate ladder, the parent companies in part are owned by the same shareholder.

5 For the purpose of this letter, affiliates are companies that, far up the corporate ladder, are owned in whole or in part by the same corporate parent.

6 In fact, approximately three years ago, an affiliate of NEIC became financially insecure and eventually went out of business. No monies from any of the affiliated companies, including NEIC, were used to assist the financially insecure company.

231 captive insurance company and the insured facility are not financially separate. This is not true in situations involving all captives, and certainly is not the case with respect to RISI and NEIC. RISI, the insured facility, is not the parent of NEIC, the captive insurance company that issues financial assurance. As stated above, RISI and NEIC are separately owned by different parent companies and operate financially independent. 4 They do not exchange or intermingle monies other than the insurance premiums ( the amount of which are approved by the State of Vermont) paid by RISI to NEIC. Vermont law precludes the captive insurance company from diverting funds set aside as a reserve for losses to pay for unrelated expenses not covered by the insurance policy or incurred by an insured affiliate. 5 If an affiliated company ( such as RISI) of NEIC were to become financially insecure, NEIC's monies, under Vermont law, cannot be used to subsidize the affiliate. 6 In other words, there is independence between risk of failure of RISI's facility and risk of failure of NEIC. Therefore, the conclusion set forth in the OIG report that it finds no independence between facility failure and failure of the mechanism simply is not correct in the case of all captive insurance companies. This fact should be taken into consideration by the Agency if and when it considers amending its regulations regarding financial assurance mechanisms.

THE CAPTIVE INSURANCE INDUSTRY The OIG's Report provides little in the way of understanding the regulatory oversight in the performance of the captive insurance industry. Indeed, captive insurance is a responsible financial assurance mechanism.

As stated above, RISI's financial assurance for closure is issued by NEIC, a captive insurance company located in the State of Vermont, the largest captive domicile in the United States. The State of Vermont, through its Department of Banking, Insurance, Securities and Health Care Administration, by law, regulates captive insurance companies in a responsible manner. It provides substantial oversight over capitalization requirements. Certified actuaries must annually certify the adequacy of the loss reserves. Vermont law requires each captive to be a separate corporation and have a board of directors, as well as audited financial statements. The Vermont Department of Banking, Insurance, Securities Health Care Administration, accredited by the National Association of Insurance Commissioners, employs technical staff who carefully monitor Vermont captive insurance companies. Vermont's approach to solvency regulation of captive has performed better than traditional insurance regulation. The State of Vermont's thoroughness and constancy of oversight 7 The Agency is considering requiring that each insurer, in addition to being " licensed to transact the business of insurance" in one or more states, have a certain rating ( typically, no less than an A rating from a rating agency such as Moody, Standard & Poor's or A. M. Best Company.

232 over captive insurance companies demonstrates its desire to maintain an unblemished reputation in this regard.

The validity of captive insurance companies is embraced outside of Vermont's borders. Over twenty states have endorsed the captive concept by passing legislation allowing for the establishment and operation of captive insurance companies.

In short, captive insurance companies are legitimate insurers. There is detailed and strict oversight of their businesses. Further, there is financial separateness between captive insurance companies and the facilities insured by captives.

RISK OF FINANCIAL ASSURANCE PROVIDED BY CAPTIVE INSURANCE COMPANIES NEIC's reserves are fully funded. The use of a captive insurance company that has fully funded reserves to issue closure/ post closure insurance provides a very low risk form of financial assurance mechanism. It perhaps is the safest type of financial mechanism, from the standpoint of availability of monies for closure/ post closure care in the event that the insured becomes insolvent.

In fact, financial assurance provided by a fully funded captive is less risky than other forms of financial assurance that are allowed by the Agency. A trust fund mechanism, for example, has a pay in period over at least a part of the life of the facility, and therefore may not be fully funded. What would happen if a facility that has a partially funded trust were to become insolvent? Obviously, there would not be sufficient monies to cover financial assurance requirements.

Further, the strength, from a risk standpoint, of a surety bond or a letter of credit depends upon the financial strength of the surety company or the issuer of the letter of credit. Both carry risk that such companies will remain financially viable. Will the Agency require these companies to obtain ratings? Has the Agency reviewed failure rates of sureties or issuers of letter of credit? Because a fully funded captive insurance company has money immediately set aside, legally protected, and dedicated exclusively for financial assurance, risk of unavailability of monies for closure/ post closure care is slight. RISI and NEIC submit to the Agency that the risk of unavailability of monies may be greater if a trust fund, surety bond, or letter of credit, as opposed to captive insurance, is used as a financial assurance mechanism.

RATING SYSTEMS AND RISK A proposed rating system7 for insurers is unworkable, especially for small businesses such as captive insurance companies. Rating systems often favor large companies with diversification of 8 A review of diversity of risk may be appropriate for a larger insurance company that is not fully funded, but for a small fully funded captive insurance company, it is not necessary. Diversity of risk simply translates into more opportunities for loss. If the idea is to assure funding for closure/ post closure care or financial assurance, should a captive be forced to expose itself to other potential claims just to receive a rating?

9 It is extremely expensive to seek and maintain a rating. Costs to obtain a rating may be as high as $ 20,000.00 to $ 40,000.00, plus approximately one half of such costs to annually maintain a rating.

10 For some time, Reliance Insurance Company of Illinois issued financial assurance for Safety Kleen. The Safety Kleen situation is perhaps a prime example of a situation where substantial risk of lack of funds for closure occurred despite the fact that both the facility and its insurer( s) were large. Just because a company is large, or has a high rating, or is insured by a high rated insurer, does not mean that monies will be available for closure/ post closure care. The use of closure/ post closure insurance issued by a fully funded captive insurance company provides minimum risk with respect to the availability of future monies for closure/ post closure care.

233 risk, something that captives generally lack. 8 A fully funded captive insurance company, although without risk in providing adequate financial assurance for closure/ post care, may not be able to obtain a high rating ( due to lack of diversity of risk), or may not be able to obtain any rating simply as a matter of size. 9 Moreover, in this time of instability of financial markets and insecurity in the insurance industry due to national events, it cannot be guaranteed that top rated insurance companies will remain in business. In fact, the material in the Agency's docket relating to the subject proposal supports the conclusion that a good rating does not necessarily mean that a company will not become insolvent. See, e. g., the discussion in the Journal of Risk and Insurance, Volume 66, No. 4, 621 642 ( 1999). The A. M. Best, February, 1999 Special Report describes a situation involving First Central Insurance Co., which initially was rated A by A. M. Best Company, and was rated A as late as 1995. In 1997, the company was placed " into rehabilitation". Perhaps the most noteworthy situation involves the bankruptcy of Reliance Insurance Company of Illinois, 10 discussed in the June 13, 2001 Wall Street Journal article included in the Agency's docket. Because history has demonstrated that there is no guarantee that a company with a high rating will remain in business, and the use of a rating system in effect may prohibit the continuing use of all captive insurance companies ( including those with fully funded reserves), RISI and NEIC request that Agency not rely on a rating system to qualify insurance companies that provide financial assurance for closure/ post closure care. Rather, it would be more appropriate if the Agency consider qualifying insurance companies based upon such factors as corporate separateness, capitalization requirements, and state oversight, such as that required in with respect to Vermont captive insurance companies.

ASSIGNABILITY REQUIREMENT With respect to the concern that insurance policies issued by captive insurance companies are not assignable, the Agency should revisit whether or not such a requirement, as a practical matter, should exist. 234 The issue of assignability is inconsistent with commercial insurance practices. The current regulations require that a seller of a hazardous waste facility keep financial assurance in place until the permitting authority accepts financial assurance by the purchaser. According to the Agency, this will ensure that there will be no lapse in coverage.

As with purchasers of businesses that have other types of insurance coverage ( e. g., liability, fire and extended coverage), no prudent purchaser closes an acquisition without first having its own financial assurance in place. It is unrealistic to presume a purchaser will continue with the same financial mechanism as the seller. Further, a seller will not wish to continue to have financial obligations once a facility and its permit have been transferred to a new owner.

With captive insurance, the insurance would remain in place until the purchaser has its own financial assurance, as is required by the Agency's regulations. The captive insurance program fully meets the intent of the regulations, which is to ensure no lapse of coverage in the event of change of ownership.

SUMMARY OF COMMENTS In light of the foregoing, the Agency, if it determines that it is necessary to revise financial assurance requirements, should keep in mind that there are situations where the independence between the risk of failure of an insured facility and the issuance of financial assurance by a captive insurance company exist. The use of a fully funded captive insurance company perhaps provides the least risky form of financial assurance. Additionally, the Agency should revisit the requirement that insurance policies must be assignable, as such requirement does not meet current commercial practices. ( Marsha Collett, Attorney at Law, Representing Ross Incineration Services, Inc. (" RISI"), and Northeast Indemnity Company (" NEIC"), RCRA 2001 0029 0032)

Response:

This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: The current proposal for changes in financial assurance mechanisms seem to reference studies only for the bond rating and the captive insurance proposals ( which cite the Office of Inspector General Study). EPA should perform studies of all mechanisms and propose changes that would apply to interim status, final status, and standardized permits across the board. The proposed changes in the trust fund mechanism and financial test criteria should be folded into a proposed rule for standardized permits only if they are adopted into interim and final status requirements at the same time. Unless changes are adopted into all three sets of standards at the same time, the details of a specific financial assurance mechanism would differ depending on the 235 type of permit being issued. This added difference would impose a regulatory burden on the applicant as well as on the administering agency, such as Ecology. In the preamble, EPA asks if there should be additional requirements for insurers. The current financial assurance requirements use Standard and Poor and Moody's bond ratings for the financial test. It makes sense to use a similar rating service for insurers who must have sufficient financial stability and soundness just as corporations must have when they must carry out closure. ( Greg Sorlie, Manager, Hazardous Waste and Toxics Reduction Program, Washington State Department of Ecology ( Ecology), RCRA 2001 0029 0054)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Financial Assurance. Page 52237. EPA asked for comments on additional requirements for insurers in general. Ecology recommends that the current financial assurance requirements use Standard and Poor and Moody's bond ratings for the financial test. It makes sense to use a similar rating service for insurers who must have sufficient financial stability and soundness as corporations must have when they must carry out closure. ( Greg Sorlie, Manager, Hazardous Waste and Toxics Reduction Program, Washington State Department of Ecology ( Ecology), RCRA 2001 0029 0054)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: YES. ( Augusta Posner, Senior Assistant General Counsel, Florida Department of Environmental Protection, RCRA 2001 0029 0059)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: The EPA seeks comments and information regarding captive insurers, especially in response to the Office of Inspector General audit report on financial assurance for closure and post closure. However, Michigan already prohibits the use of a captive insurer for closure or post closure insurance, and has additional requirements for the insurer, as specified in Michigan Administrative Code ( MAC) R 299.9708( 3):

The insurer shall satisfy all of the following requirements: 236 ( r) The insurer shall be licensed to transact the business of insurance, or eligible to provide insurance as an excess or surplus lines insurer, in the State of Michigan. ( s) The insurer shall have a minimum of $ 7,000,000.00 of unimpaired surplus funds. ( t) The insurer shall assume financial responsibility for the accepted risk, pursuant to the terms of the policy, using its own pool of resources that is independent, separate, and unrelated to that of the owner or operator.

Michigan supports the addition of a bond rating requirement on the insurer, as discussed in the preamble. ( Jim Sygo, Chief of the Waste Management Division, Michigan Department of Environmental Quality, RCRA 2001 0029 0060)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Safety Kleen believes that EPA has set forth compelling reasons for including minimum ratings for insurers, so we do not oppose the concept that has been proposed. However, we urge that the Agency work very closely with the insurance industry on this proposal so that whatever ratings system emerges has the full input of experts in this highly specialized arena. The Agency should not rely exclusively on comments from the regulated environmental sector in fashioning this requirement. ( Susan L. Prior, Regulatory Programs Manager, Safety Kleen Corporation, RCRA 2001 0029 0061)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Safety Kleen does not use captive insurance at this time, but given the difficulty across the market in obtaining financial assurance generally, the agency should not be reducing the options available, particularly when there is no evidence that any captive insurer has ever failed to honor its financial assurance obligations. We agree with EPA that the coverage provided by captive insurance should be the functional equivalent, from an economic standpoint, with that afforded by the other mechanisms, but rather than completely eliminating this option, EPA should fine tune it, and leave it available, as modified. ( Susan L. Prior, Regulatory Programs Manager, Safety Kleen Corporation, RCRA 2001 0029 0061)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions. 237 Comment: We agree with the Office of Inspector General's ( OIG) evaluation of the apparent limitations of captive insurance, and would not support the use of that financial mechanism for this rulemaking until the issues raised in that OIG report are fully resolved.

We also agree with the recommendation that EPA needs to conduct further investigations with the States in order to determine the need for guidance on this issue.

EPA should adopt minimum ratings for insurance companies and we concur with those ratings and ratings services identified by EPA. ( Jill B. Pafford, Chair of the ASTSWMO Corrective Action and Permitting Task Force, RCRA 2001 0029 0064)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Our citizens ( as beneficiaries of third party liability policies) are entitled to the same level of protection from insolvency of the insurance provider as the regulatory body ( as beneficiary of the closure policy) is entitled to receive. ( Missouri Department of Natural Resources, RCRA 2001 0029 0065)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Pure captive insurance companies should not be treated differently for providing third party liability coverage than for providing closure coverage. The standard should be whether the insurance company demonstrates the financial capacity to pay when required, and it has been demonstrated that captive insurance companies do not meet that standard. ( Texas Natural Resources Conservation Commission, RCRA 2001 0029 0072)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: 1. The Office of Inspector General Audit Report, RCRA Financial Assurance for Closure and Post Closure, is seriously flawed in its analysis of captive insurance and should not be used by EPA as the basis for limiting or eliminating the use of captive insurance. 238 The OIG report's analysis is superficial in the extreme. Having determined that " independence" of risk is critical to the financial assurance mechanism, the report simply assumes that pure captive insurance provides no independence of risk, regardless of the financial strength of the parent company, the asset requirements of the captive, or the state's licensing and regulatory oversight process. Instead, the Report demonstrates a notable misunderstanding of how insurance works, and seems to largely reflect viewpoints, concerns, and fears of state officials whose expertise lies outside insurance law, regulation, and standard practices.

The Report inexplicably provides no analysis or case study on any captive insurance program. The Report fails to review and discuss the track record of captive insurance relative to other financial assurance mechanisms. Most notably, the Report fails to articulate any standards of licensing and oversight by which captive insurance policies may be evaluated and compared against other instruments. In one example, the Report appears to be critical of the assets of one company's pure captive ( the Report's information was, tellingly, out of date), but the Report contains no analysis of the criteria or oversight by which the State of Vermont determined the asset base was adequate to satisfy the risk. Another example is found in the Report's finding that " there are few RCRA regulatory requirements on insurance established for financial assurance because insurance is primarily regulated by the States." The Report suggests that state oversight is a defect of captive and other insurance programs. On the contrary, deference to professional insurance regulators of a State is in fact a commendable aspect of the financial assurance requirements. In the case of captive insurance, it is entirely appropriate for federal and State regulators to defer to those State insurance agencies with professional expertise and extensive experience in regulating captive insurers. Indeed, captive insurance ( as well as other insurance) may be a superior form of financial assurance in light of the regulatory oversight by agencies whose primary responsibility is insurance regulation.

2. A more complete understanding and analysis of captive insurance demonstrates that captive insurance is a viable and vital form of risk management for RCRA entities and should be retained as an acceptable instrument for financial responsibility.

° There are currently over 4,000 captives licensed worldwide. Captive insurance helps States and regulated entities to fulfill their financial obligations consistent with EPA's stated policy of providing a broad array of mechanisms to facilitate the economically sound financing of financial assurance obligations. One of the chief functions of a captive is to facilitate the efficient financing of risk within an organization. In addition, captives form part of an overall financial planning structure for a corporation and can act as a shield against upswings and downswings in the commercial market.

° Vermont has licensed over 500 captives, which makes it the largest domicile in the U. S. This is attributable chiefly to the excellence of its regulatory control and administration. One hundred twenty ( 120) of the Fortune 500 companies have opted to domicile their captives in Vermont. 239 ° There has never been a failure of a Vermont regulated pure captive to meet its financial obligations.

° The owners of captive insurance companies are typically sophisticated entities with the ability to manage and retain their own risk.

° WM's captive, NGIC, is currently active in 18 states for financial assurance and 28 states for performance/ miscellaneous obligations.

° Vermont holds captives to a rigorous set of requirements before licensing, and then monitors the ongoing operations and financial stability of captives. Captive insurers are required annually to provide to the Vermont Insurance Department the following information:

° Audited financial statements ° An actuarial certification of loss reserves, calculated by an approved actuarial firm ° A statutory annual report including financial and insurance operational information ° Parent company financial statements ° Biographical affidavits outlining the background of every officer, director, and key employee ° In addition, the Department also monitors press releases and other public disclosures about the parent companies.

° The Vermont Department of Banking, Insurance, Securities, and Health Care Administration ( DBISHCA) examines captives every 3 5 years. The purpose of the examination is to determine if the Company is operating within its by laws and is conforming to Vermont Statutes and its plan of operation as submitted to the Department. A review of the Company operations is performed including an analysis of financial condition, a review of the corporate records, and tests of various income and disbursement items as deemed appropriate.

° In WM's case, there has never been a claim submitted to NGIC and currently there are no claim reserves established ( including incurred but not reserved). The independent actuaries, auditors, A. M. Best and the Vermont regulators have approved not carrying any cash reserves. It has been independently verified that due to the nature of the exposure, it is highly unlikely any claims will ever be submitted. Indeed, WM's total closure/ post closure costs are an extremely small percentage of the company's total assets or annual revenues. 240 ° NGIC is required to operate with a limits to surplus ratio of 3: 1. On average, NGIC will have a minimum of 33 cents in surplus for every dollar in limits written. This ratio is well above the standard for the commercial insurance industry.

° As of April 2001, the A. M. Best rating for NGIC was B++. It is uncommon for a captive to undergo a rigorous rating process such as this.

° NGIC has irrevocable, evergreen letters of credit in favor of the State of Vermont for $ 168 million, and an inter company note, payable upon demand, with Waste Management for an additional $ 157 million. The State of Vermont can require this inter company demand note to be replaced with letters of credit or cash if WMI fails to meet required financial standards at any time. This ability to call the inter company demand note allows Vermont to ensure that sufficient funds are available to NGIC to cover any foreseeable claim or demand for payment   fully independent of Waste Management.

° NGIC's management company is Marsh Management Services, Inc. Marsh is the largest manager of captive insurers in the country. Their knowledge of and experience with insurance companies of all kinds, including experience with captives, was a key element of WM's decision to contract with them. Marsh provides key services including issuance of policies, assistance in determining appropriate rate and policy conditions, statistical information for regulators, premium billings, accounting, regulatory compliance and actuarial certifications.

° If at any time Vermont determined that NGIC was not adequate for its intended purpose, WM would have to replace that vehicle in 60 days.

1. EPA's long standing policy is to promote a diversity of financial assurance instruments. Current market conditions support the need for continuation of that diversity policy to include retention of captive insurance as an acceptable instrument.

It is important for EPA to recognize that many Fortune 500 companies have moved aggressively in recent years to establish captive insurance mechanisms as a response to the volatility and uncertainty of the commercial financial assurance marketplace. Companies seek to establish well run and fully regulated captive insurance companies for those risks they know and can directly manage   as compared to using a commercial carrier that forces the risks of the insured party to be commingled with the risks of other parties over which there is absolutely no control. As discussed below, the volatility and uncertainty of the commercial financial assurance marketplace has increased dramatically in recent months  and weeks. As a result, for some companies and for the integrity of the RCRA program, captive insurance may be the most secure financial assurance mechanism available for use. 241 Capacity has become extremely tight and very unstable for financial assurance instruments in the commercial marketplace. At the same time, the cost of the instruments has escalated; some rates have tripled since the summer of 2000. Surety capacity started tightening in 2000 when the number of primary surety companies began to shrink due to mergers, consolidations and business failures. For instance, as EPA is aware, Frontier Insurance Company, a major surety providing financial assurance to the waste industry for landfill obligations, lost their treasury listing in May 2000, which required replacement of virtually all of their bonds within a sixty day time period. In response, Waste Management moved quickly to comply with regulatory agency requirements in light of Frontier's changed status, without any violations; however having to replace Frontier bonds significantly reduced available capacity in the commercial marketplace.

This year, the tight surety market continues as the surety industry has begun to experience an increase in both contract and commercial bond losses. The economic downturn has begun to negatively affect many surety clients. The surety companies normally reinsure a large portion of their book of business with a small group of reinsurers. The reinsurance companies are now sustaining large losses and in turn are pulling back or refusing to renew the reinsurance treaties. This is resulting in large reductions in capacity and the exclusion of many classes of more difficult bonds from their reinsurance treaties. Although the waste industry has not incurred any losses suffered by the surety industry, the reinsurers have pulled back on all of their treaties.

A few of the commercial insurance companies offered significant capacity in 1999 by writing insurance policies. As the market continues to harden, capacity is shrinking and underwriters are not writing new policies without collateral from the client. New capacity is available on a case by case basis; the rates are significantly higher with a collateral requirement of up to 100% of the policy limits. Letter of credit ( LOC) capacity has shrunk due to the consolidations occurring in the banking industry. Some banks have changed their global strategy and made the decision to exit the commercial banking business altogether.

Further, the recent tragedies that occurred in New York and near Washington, D. C. will have a severe impact on the commercial insurance and surety markets. The insurance companies will see a decrease in their capital base due to the losses incurred; this will restrict the capacity offered to their clients. The commercial surety industry is geared toward the economy. The impact on the U. S. economy from these acts will put tighter restrictions on the capacity offered by the sureties. As recently stated in Waste Industry News ( September/ October 2001),

" The terrorist attack on September 11 is unquestionably the most significant event in the history of the insurance industry. Loss estimates continue to rise with current estimates as high as $ 40 billion. This will undoubtedly cause significant financial repercussions to primary insurers, reinsurers, and policyholders alike. These events will result in the largest workers' compensation loss in history, the most expensive aviation disaster in history, one of the largest property losses in history, the most expensive business interruption loss in history, the largest life insurance catastrophic 242 loss in history, and potentially the largest liability claim in history. It is predicted that this single chain of fortuitous ( sic) events could cause the capacity of the reinsurance market worldwide to shrink significantly, perhaps, by one third or even more."

It is important to note that none of the waste industry captive insurers suffered any losses due to the unfortunate events of September 11, 2001.

2. Assignability as it relates to captive insurance is an anomalous provision of the RCRA financial assurance requirements, and there is no evidence to indicate that the provision was intended to impede the use of captives.

The OIG Report did not reach a judgement on the merits of the assignability provision, but simply pointed out the potential anomaly. Indeed, at a July 18, 2001, meeting between representatives of WM and EPA, EPA staff suggested that the apparent intent of the assignability provision was to provide some protection for the insured, and was not intended as a barrier to the use of captive insurance. At its July 31 meeting with the Association of State and Territorial Solid Waste Management Officials, EPA cautioned against a presumption that the assignability provision was intended to limit or prohibit the use of captives. EPA acknowledges that the record for the development of the assignability provision is sketchy or non existent, and one can only turn to other events to provide context for the provision.

° For MSW landfills subject to Part 258, the assignability provision at Section 258.74( d)( 5), is sandwiched between two other provisions in the regulations. Both of these provisions are intended to protect the owner operator, apparently in the context of commercial insurance. Section 258.74( d)( 4) allows the owner/ operator to receive reimbursements for undertaking closure or post closure activities. Section 258.74( d)( 6) protects the insured, the owner/ operator, against cancellation except for premium default. The placement of the assignability provision in context indicates an attempt to protect the insured against an unreasonable failure to reassign by the insurer, in which case the provision may only be read to be appropriate for commercial insurance, as a captive insured would have no need for such protection.

° In 1988, in preamble language to amendments of the financial responsibility provisions of Parts 264 and 265, EPA acknowledged the existence of captive insurance as an acceptable instrument. This notice took place several years after the assignability provision was first established in these sections, and was already being used by the regulated community.

° As noted above, captive insurance has been used with unmatched success as a financial assurance instrument for at least 16 years, and in that time, EPA has not raised the issue of the anomalous assignability provision. 243 Given the above circumstances, there is no reason for EPA to conclude at this juncture that the assignability provision should be an impediment to the continued use of captive insurance.

Recommendations 1. To resolve the assignability issue, EPA should promptly proceed with an interpretive guidance, direct final rule, or a technical correction to the RCRA regulations at § 258.74 and § 264.143, 264.145, 265.143, and 265.145 of Title 40 of the CFR governing the use of financial assurance instruments.

EPA, the States, and the regulated community have proceeded for over a decade on the assumption that captive insurance was a viable financial assurance instrument, and the history of its use and effectiveness support the merits of that assumption. Captive insurance fulfills the principal purpose of financial assurance as identified by EPA in its rulemakings, to provide assurance only in the event that an owner/ operator is unwilling or unable to pay for closure/ post closure care. In that regard, WM understands that no captive has ever been called upon to fund a closure or post closure obligation. In addition, there is no evidence that the assignability provision was intended to limit or prohibit the use of captive insurance. If that were not the case, there would be no explaining EPA's long silence on the use of the instruments or EPA's determination in another rulemaking that captive insurance is a viable instrument. All evidence suggests that the existence of the assignability provision came about without EPA consideration or judgement as to its potential effect on the captive insurance instrument, and was not identified as an issue until the recent OIG Report. With this history, it is entirely appropriate for EPA to expeditiously correct the regulations in one of several ways:

( 1) EPA can amend the language of the assignability provision to remove its applicability to captive insurance policies.

( 2) EPA can amend the language of the assignability provision to provide an alternative condition that in the case of captive insurance, in lieu of assignability, there will be no lapse of coverage for financial assurance in the event of a change of ownership and/ or operation to a new permittee.

( 3) EPA can provide clarifying language that the assignability provision is intended solely for non captive insurance policies where an issue of asset recovery for the insured may exist.

With the appropriate resolution in place, the States may then be free to consider continuing the use of captive insurance without any ambiguity regarding the assignability provision.

2. EPA should examine the record and financial integrity of captive insurance programs, with the Vermont program as a model, and retain the use of captive insurance for meeting 244 financial responsibility obligations. By doing so, EPA will maintain its policy of diversity in the market place, preclude a crisis atmosphere in the financial assurance market place, and prevent an unwarranted flight to riskier mechanisms.

A thorough review of the Vermont program will provide strong evidence that captive insurance should remain among the instruments for use by the regulated community. In that regard, WM recommends that EPA consider developing guidance or regulatory amendments for the use of the captive insurance instrument which contains the following elements:

( 4) The licensing state should establish an annual review process for the captive insurer which will include the submission and review of audited financial statements, an annual report by the company with financial and insurance operational information, financial statements of the parent company, and biographical affidavits on the officers and directors of the captive insurance company.

( 5) Captive insurers writing coverage for RCRA financial assurance should have a minimum 1: 3 capital to limits ratio ( minimum of $ 1 of equity for every $ 3 of policy limits in force).

( 6) If loan backs are to be used as part of the captive insurer's capital base, the parent company should have equity of at least $ 100 million. Provisions should be established to require repayment of the loan if the financial condition of the parent company should so warrant.

( 7) The combined ratio generally should not be greater than 100%. ( The combined ratio is simply the measure of insurance company expenses ( including losses and administrative expenses) compared to premium dollars received. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses and administrative expenses.)

( 8) Premiums written to surplus ratio should not generally exceed 300%. ( This ratio attempts to measure the adequacy of an insurer's surplus, relative to its operating exposure. A low ratio indicates stronger surplus support for net premiums written and less exposure to a material reduction in surplus arising from a sudden downturn in underwriting results.)

3. WM opposes the establishment of the minimum insurance rating suggested by EPA.

EPA suggests in its notice that a minimum insurance rating for all insurance coverage would provide an extra measure of confidence in the insurance mechanism. WM believes that such a measure would be counterproductive and would only increase costs and flexibility for owner/ operators without any substantive improvement in the financial responsibility program. 245 ° The establishment of the specific minimum rating suggested by EPA appears to be arbitrary and does not identify any analysis of what problem EPA is trying to solve, other than one of appearances, nor does EPA articulate how the rating will improve the program compared to any other rating. EPA is making the same mistake found in the OIG Report, in that it is attempting to address the fears of regulators unfamiliar with insurance practices or risk management methods, rather than any substantive concerns with the insurance instrument itself. EPA stated policy is to promote a variety of financial assurance instruments. Any proposal that may restrict the use of an otherwise viable instrument, such as insurance, must meet a threshold test for necessity or program integrity. EPA has failed to undertake such an analysis in its proposal for a minimum insurance rating.

° EPA has not analyzed how any specific minimum insurance rating may affect the cost of insurance to the regulated community. As stated above, market circumstances have tightened the market for financial assurance instruments, and further restrictions on the participation of insurance providers will only serve to exacerbate the costs. EPA must analyze and document those potential costs before it can determine whether the marginal benefits of confidence or protection it may superficially obtain with a minimum insurance rating exceeds the likely costs or the potential flight to riskier instruments.

° EPA's justification for a minimum insurance rating for insurance companies addresses those circumstances where the risks of many companies are pooled, which is not the case for captives. EPA must undertake an analysis of how its minimum insurance rating might affect the availability of captive insurance vs. commercial insurance providers.

° EPA's proposal for a minimum insurance rating, if applied to captives, is illogical and inconsistent with past EPA analysis. The financial test requires an " investment grade" bond rating. EPA has recognized that an investment grade bond rating  even those at the lower end of the investment grade scale  demonstrated an appropriate level of financial strength: " An investment grade bond rating was believed to be a good demonstration of financial strength because it reflected the expert opinion of the bond rating service and the financial community.   Moreover, the Agency performed a quantitative analysis indicating that bond ratings have historically been a reasonably good indicator for predicting default, and noted that none of the firms in its sample of bankrupt firms between 1966 and 1979 had an investment grade rated bond issuance." 56 Fed Reg. 30201( July 1, 1991). If EPA maintains on one hand that an investment grade rating may be appropriate for the financial strength for the parent company, then a separate test for a wholly owned subsidiary is redundant. Finally, if EPA were to adopt, as recommended above, a set of minimum criteria for captive insurance instruments, then the minimum insurance rating is again redundant, as all the needed protection is provided by the implementation of the criteria.

WM offers its resources and support for a more thoughtful review by EPA of the issues raised by the OIG Report. Please contact me at your convenience if you have any questions or concerns 246 regarding these comments or if WM can be of any further assistance. ( Edmund J. Skernolis, Director of Government Affairs, Waste Management Inc, RCRA 2001 0029 0040)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: We completely agree with USEPA that several aspects of the current financial assurance structure need revision.

. . . . .

Finally GEPD does not support the use of captive insurance. This is insurance is self insurance which is much less reliable than the financial test. ( Jennifer R. Kaduck, Chief, Georgia Department of Natural Resources, RCRA 2001 0029 0048)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: EPA requests comments on minimum ratings for insurers with respect to the financial strength of the insurer. Dominion agrees with the proposed requirement and the rating system. Dominion recommends that the Agency consider having the insurance company maintain a " bond." The bond could be set up to reduce the likelihood of having a claim made against the insurance company and having the insurance company say they have insufficient or no funds. ( Pamela F. Faggert, Dominion, RCRA 2001 0029 0049)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Because of various changes in the insurance business, the availability of insurance for TSD facilities has decreased. As a result, the cost of insurance for TSD facilities has significantly increased with no additional benefit to our companies. Therefore, hazardous waste firms must be able to utilize all the available tools to provide financial assurance. One of those options is captive insurance. 247 EPA asked for comments on captive insurance and provides several rationales why captive insurance policies should not be allowed. 66 FR 52237 col 1. Much of EPA's justification is based on the Office of Inspector General's report cited in the preamble. The OIG report assumes that captive insurance companies are mere subsidiaries or affiliates of the insured facilities, and that they are not financially separate. That is not true. The TSD facility and the captive insurance company are separately owned by different parent companies and do not exchange or intermingle monies other than premiums. In addition, Vermont law precludes the captive insurance company from subsidizing affiliates. Far enough up the ownership ladder, of course, the captive insurance company and the TSD facility come under the common ownership of the same corporate parent. This is a typical ownership structure in the corporate world, and there is no reason to believe that captive insurance companies, which are independent corporations that are typically incorporated under the insurance laws of the State of Vermont, are not financially separate from the insured facilities.

Vermont captive insurance companies are subject to regulations under the Vermont Department of Insurance that provide substantial oversight through capitalization requirements and certification of adequacy of loss reserves by certified actuaries. EPA's assumption that the state does not properly assess the capacity of these companies and that they are likely to fail underlies the proposal to drop captive insurance as an option. EPA needs to point to losses that occurred due to the inadequacy of captive insurance before rejecting captive insurance as an option.

A fully funded captive insurance reserve is a very low risk financial assurance mechanism. For example, trust mechanisms may not be fully funded if there is a pay in period over part of the life of the facility. What happens, then, if a company becomes insolvent during the pay in period? As well, surety bonds and letters of credit depend upon the financial strength of the surety company and/ or issuer of the letter of credit. Only a 100% funded trust is completely secure, but the cost of closure makes that a financially impractical option.

EPA suggests an independent rating of companies providing the captive insurance. This proposal is unfair, particularly for smaller businesses. The rating systems favor large companies, so even a fully funded smaller captive may not be able to achieve a high enough rating  or even be rated for that matter. In addition, the cost to obtain a rating may be from $ 20,000 to $ 40,000 initially, plus up to half that amount again to maintain the rating. We believe that EPA is required to consider the rating issue's impact on small business and the impact of not allowing captive insurance pursuant to the requirement of the Small Business Regulatory Enforcement Fairness Act ( SBREFA). EPA's analysis of small business impacts ( Section XII B.) seems to have been limited to those proposals dealing with standardized permits and not the additional issues such as captive insurance.

Another concern that is invoked as a supposed weakness of captive insurance is the lack of " diversity of risk." It may be appropriate for a large insurance company that is not fully funded to diversify its risk, but for a small, fully funded captive it is unnecessary. Diversity of risk just translates into " opportunity for claim." One concern common among states is that they do not like 248 insurance coverage because insurance companies are structured to deny and litigate claims. That is not the case with a captive insurance company. It seems illogical to force a captive insurance company to expose itself to other potential claims in order to achieve a rating.

EPA needs to reconsider the issue of requiring assignability because it is inconsistent with commercial insurance practices. EPA requires permit issuers to approve any sale of a facility. One of the issues EPA should expect is that the new owner will have proper closure financial assurance ready in place when it takes over the facility. Companies providing financial assurance, especially insurance companies, try to avoid having to pay claims. Therefore, they investigates the customer's viability before placing or pricing insurance. Expecting them to also cover future unknown buyers leads to higher insurance rates because of the increased uncertainty and risk. Therefore, EPA should revise its requirements for assignability and require the new coverage for the succeeding company to take effect upon the transfer. Such a change would follow industry practices and make the inability to assign the closure coverage a moot issue.

Both the proposal and the Office of Inspector General's Report fail to point to losses in the hazardous waste industry or to other industries because of failures of captive insurance companies. Before Subtitle C facilities are further limited in closure funding options, EPA should have a stronger record of problems to justify the change. ( Environmental Technology Council, RCRA 2001 0029 0068)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: 1. VCIA believes that if EPA regulators have concerns about an individual program, due to a material problem, they should attempt to condition the use of a particular captive insurance company, rather than outlaw an entire industry, which serves a critically important role in the risk management strategies of companies ( both for and non profit) around the world.

2. By outlawing captive insurance companies, VCIA believes that EPA would set a dangerous precedent, which could open the door to the wholesale exclusion of captives for other legitimate purposes.

3. Captive insurance is a sophisticated and legitimate financial strategy that benefits the large and medium sized insurance consumer by providing them with greater control over their risk programs, the ability to achieve cost savings and efficiencies that are passed on throughout their organizations, and to customize the kinds of insurance coverages that are unique to that company. Barring the use of captives will force corporations to buy more costly traditional insurance and create additional pressure on the commercial market, where 249 there is already limited capacity to cover all these types of risks and little interest in providing such coverage, if it is available at all. Because of the complex nature and vitally important role of the captive insurance industry, the VCIA respectfully requests that the US EPA not adopt the proposed regulations to exclude the use of captive insurance for financial assurance purposes.

In his letter to Administrator Christine Todd Whitman, dated July 20, 2001, Vermont's US Senator James Jeffords outlined his concerns about two aspects of this OIG report in particular: the assignability of a policy and the independence of captives. I urge you to consider the arguments he puts forth on those two points, and to accept his invitation to work with you " to ensure the integrity of the financial assurance program while maintaining this necessary pool of viable instruments." ( Lisa Ventriss, President, Vermont Captive Insurance Association, RCRA 2001 0029 0070)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: We agree with the EPA Office of Inspector General's ( OIG) comments that captive insurance is just another form of self insurance which does not meet the financial standards of the financial test of self insurance. We recommend that captive insurers are disallowed as financial assurance providers. Additionally, we believe that EPA should adopt minimum ratings for insurance companies, and we concur with the ratings and ratings services identified by EPA. ( Texas Natural Resources Conservation Commission, RCRA 2001 0029 0072)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Onyx supports EPA's review of Captive Insurance policies for Hazardous Waste Management Facilities. Onyx agrees with the OIG report the states: "  insurance policies issued by a " captive" insurance company do not provide an adequate level of assurance because we found no independence between facility failure and the failure of the mechanism." Onyx also supports OIG's position that pure captive insurance is a form of " self insurance". Onyx believes that if EPA agrees to allow companies to utilize " pure captive insurance" an alternate financial test similar to the self insurance test should be developed. In conclusion, Onyx is supportive of EPA's review of Captive Insurance policies and would support the elimination of the pure captive insurance policies, or an added financial test to ensure that the hazardous waste facility could fulfill its financial obligations in the event of a bankruptcy. ( Onyx Environmental Services, RCRA 2001 0029 0078) 250 Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Onyx supports the recommendation that insurance providers meet at least a minimum rating of A by Moody's, Standard & Poor's, or A. M. Best to provide financial assurance to hazardous waste management facilities. ( Onyx Environmental Services, RCRA 2001 0029 0078)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: The National Solid Wastes Management Association's ( NSWMA) Landfill Institute is pleased to provide comments on the Environmental Protection Agency's ( EPA) proposed rule: Hazardous Waste Management System: Standardized Permit; Corrective Action; and Financial Responsibility for RCRA Hazardous Waste Management Facilities ( 66 FR 52192). The Landfill Institute's comments are limited to the request for comments and information on financial assurance. Our understanding is that EPA is not proposing any changes to the financial assurance provisions of the municipal solid waste ( MSW) landfill criteria ( RCRA part 258) at this time, but is seeking comments on issues raised by the EPA Office of Inspector General's ( OIG) Audit Report titled RCRA Financial Assurance for Closure and Post Closure ( March 30, 2001).

NSWMA is the trade association that represents the private waste management industry. NSWMA's Landfill Institute is comprised of those members that own or operate non hazardous waste landfills including MSW landfills. Our members own or operate some 800 MSW landfills, representing almost 60 percent of the nation's landfill capacity.

NSWMA members utilize a variety of financial assurance mechanism to meet their financial assurance obligations under RCRA part 258. The allowable mechanisms under the federal criteria include trust funds, surety bonds, letters of credit, insurance, a corporate financial test, and a corporate guarantee, or some combination of the mechanisms. The decision to use any particular instrument or combination of instruments at a landfill is a function of state requirements, company finances, and market factors influencing the cost of any instrument. This allows member companies to remain competitive in the market place.

EPA Should Fulfill Its Obligation to the Inspector General Before Seeking Comments The OIG's report did not recommend a change to the use of captive insurance. Rather, the report recommended that EPA's Acting Assistant for Solid Waste and Emergency Response ( OSWER): 251 ° Issue guidance to state financial assurance programs that when an insurance policy is used for closure or post closure financial assurance:

° The insurance policy should meet all requirements; and ° The state program should obtain verification from the insurance commissioner, in the state where the insurance company issuing the policy is licensed, that the insurance policy allows assignment of the policy to the successor owner or operator of the facility, in the event that the facility is sold outside of the corporate family of the seller.

° Investigate complex insurance issues with states and determine states' need for additional guidance on these issues.

° Develop existing financial assurance training materials for placement on the Agency's Internet site to be downloaded by state programs.

° Work with ASTSWMO to develop an Internet bulletin board to increase opportunities for information sharing among financial assurance program officials.

The Inspector General received EPA's response to its draft report on March 27, 2001. OSWER agreed with all of the Inspector General's recommendations and stated it planed to conduct a study during 2001 that would examine the existing financial assurance mechanisms. Therefore, EPA should not be seeking comments, and defer any decision, on captive insurance until it examines all financial assurance mechanisms and publishes the results of the study for review and comment. At this point in time, EPA appears to be premature in requesting comments on a single financial assurance mechanism ( i. e., captive insurance) without completion of this study and examination of the issues associated with all financial assurance mechanisms.

EPA Should Not Use the Office of Inspector General's Audit Report as the Basis for Limiting or Eliminating the Use of Captive Insurance Because the Report is Flawed The OIG report does not provide an in depth analysis of captive insurance. In the report, the OIG determined that risk independence was a critical element of a financial assurance mechanism. Therefore, the OIG assumed that pure captive insurance did not provide risk independence regardless of the financial strength of the parent company, the captive's asset requirements, or the state's licensing and regulatory oversight process. The report also demonstrated a misunderstanding of how insurance works and appears to reflect the viewpoints, concerns, and fears of state officials whose expertise lies outside insurance law, regulation, and standard practices.

Further, the report did not provide any analysis or case studies of captive insurance programs. The OIG's report failed to review and discuss the track record of captive insurance relative to other financial assurance mechanisms, which EPA stated it would reexamine. Finally, the standards of 252 licensing and oversight by which captive insurance policies should be evaluated and compared against other instruments was not presented in the report.

For example, the report criticized the assets of one company's pure captive but did not contain an analysis of the criteria or oversight by which the state determined the asset base was adequate to satisfy the risk. Additionally, the report found that few RCRA regulatory requirements on insurance had been established for financial assurance because insurance was primarily regulated by the states. The report suggested that state oversight was a defect of captive and other insurance programs. In fact, this aspect of the financial assurance requirements is commendable because it defers decisions to professional state insurance regulators. For the case of captive insurance, deferring to state insurance agencies with professional expertise and extensive experience in regulating captive insurers is entirely appropriate for federal and state regulators. Captive insurance, and other insurance instruments, may be a superior form of financial assurance because of the regulatory oversight by agencies whose primary responsibility is insurance regulation.

Current Market Conditions Support the Need for Continuation of EPA's Long Standing Policy is to Promote a Diversity of Financial Assurance Instruments Including Retention of Captive Insurance. EPA needs to recognize that many Fortune 500 companies have recently established captive insurance mechanisms as a response to the volatility and uncertainty in the commercial financial assurance marketplace. Companies, including those in the waste management industry, can directly manage their known risks by establishing well run and fully regulated captive insurance companies. Through the use of a captive insurance company, a company's risks are not commingled with the risks of other parties over which the company does not have control.

The commercial financial assurance marketplace has become increasingly volatility and uncertain in recent months. The capacity of the commercial marketplace for financial assurance instruments has become extremely tight and unstable, while the cost of the instruments has escalated. For example, some rates have tripled since the summer of 2000.

The surety capacity tightened in 2000 because the number of primary surety companies shrank as a result of mergers, consolidations and business failures. In 2001, the surety market continued to tighten as the industry began to experience increases in both contract and commercial bond losses. The recent economic downturn has negatively affected many surety clients because a surety company normally reinsures a large portion of business with a small group of reinsures. Because the reinsurance companies sustained large losses, they pulled back or refused to renew the reinsurance treaties. This resulted in large reductions in capacity and the exclusion of many classes of more difficult bonds from their reinsurance treaties. The reinsurers pulled back on all of their treaties despite the waste industry not incurring any losses suffered by the surety industry.

In 1999, a few of the commercial insurance companies offered significant capacity by writing insurance policies. As the market hardened, capacity shrank and underwriters were not writing new policies without collateral from the client. New capacity in the insurance industry is however 253 available on a case by case basis with significantly higher rates and collateral requirements equal to 100% of policy limits. Letter of credit capacity diminished because of consolidation in the banking industry with some banks exiting the commercial banking business.

Finally, the terrorist attacks on September 11 will have a severe impact on the commercial insurance and surety markets. The insurance companies expect to experience a decrease in their capital base because of the losses incurred. As a result, the capacity offered by insurance companies will be restricted. The commercial surety industry also is dependent on the economy. The impact from the terrorists attack on the U. S. economy will cause tighter restrictions on the capacity offered by the sureties.

None of the waste industry captive insurers suffered any losses because of the September 11 events. As a result, captive insurance may be the most secure financial assurance mechanism available for use by companies and the RCRA program.

Assignability of Captive Insurance is an Anomalous Provision of the RCRA Part 258 Financial Assurance Requirements and was not Intended to Impede the Use of Captives. The OIG report did not reach any conclusions concerning the assignability provision of captive insurance. Rather, the report pointed out that a potential anomaly existed within RCRA part 258. The intent of the assignability provision provides some protection for the insured and was not intended as a barrier to the use of captive insurance.

The assignability provision for MSW landfills is contained at Section 258.74( d)( 5). The provision is preceded and followed by other provisions intended to protect the owner operator using commercial insurance. The first section ( Section 258.74( d)( 4)) allows the owner/ operator to receive reimbursements for undertaking closure or post closure activities. The second section ( Section 258.74( d)( 6)) protects the owner/ operator against cancellation except for premium default. The placement of the assignability provision in context with the other two provisions appears to be an attempt to protect the insured against an unreasonable failure to reassign by the insurer. Read in context, the provision is only appropriate for commercial insurance. A captive insured would not have a need for such protection.

Further, the 1988 preamble language to the financial responsibility provisions amendments of Parts 264 and 265 acknowledged the existence of captive insurance as an acceptable financial assurance instrument. The notice appeared several years after the assignability provision was first established in these sections and was already being used by the regulated community.

Finally, captive insurance has been used with unmatched success as a financial assurance instrument for at least 16 years. EPA has not raised the issue of the anomalous assignability provision in this time. Based on the above, EPA cannot conclude that the assignability provision should be an impediment to the continued use of captive insurance. Therefore, the Landfill Institute recommends that EPA 254 promptly proceed with interpretive guidance, a direct final rule, or a technical correction to 40 CFR part 258.74 of the RCRA regulations that govern the use of financial assurance instruments.

The EPA, state regulatory agencies, and regulated communities have used, and assumed, that captive insurance was a viable financial assurance instrument more than decade. The use and effectiveness of captive insurance supports this assumption because:

Captive insurance fulfills the principle purpose of financial assurance as identified by EPA by providing assurance only in the event that an owner/ operator is unwilling or unable to pay for closure/ post closure care, and Captive insurance has never been called upon to fund a closure or post closure obligation.

Finally, evidence does not exist indicating that the assignability provision was intended to limit or prohibit the use of captive insurance. In fact, EPA has not identified this as an issue until the recent OIG Report despite having opportunities in rulemaking to raise the issue. EPA's quick development of the October 12, 2001 request for comments appears to indicate that the agency did not consider the potential effect on the use of the captive insurance instrument. We believe that EPA can quickly correct the regulations in one of several ways:

° Amend the language of the assignability provision to remove its applicability to captive insurance policies,

° Amend the language of the assignability provision by providing an alternative condition that in the case of captive insurance a lapse of coverage for financial assurance will not occur in the event of a facility owner/ operator change to a new permittee, or ° Clarify that the language concerning the assignability provision is intended solely for non captive insurance policies where an issue of asset recovery for the insured may exist.

Once a resolution is in place, states are then free to consider continuing the use of captive insurance without any ambiguity regarding the assignability provision.

EPA Should Not Establishment Minimum Insurance Ratings In the October 12, 2001 Federal Register notice, EPA stated that it was considering a minimum insurance rating for all insurance coverage to provide an extra measure of confidence in the insurance mechanism. The Landfill Institute opposes such a requirement because it would be counterproductive, increase costs, and decrease flexibility for owner/ operators without any substantive improvement in the financial assurance program.

First, the minimum ratings suggested by EPA appear to be arbitrary and lack any in depth analysis of the problem trying to be solved. EPA does not provide any analysis or data to show how the rating would improve the program compared to any other rating. Any proposal that restricts the 255 use of a viable financial assurance instrument, such as captive insurance, must meet a threshold test for necessity or program integrity. The Institute believes that EPA has failed to undertake such an analysis for proposing a minimum insurance rating. Rather, EPA appears to be addressing the concerns and fears of regulatory agencies that are unfamiliar with insurance practices or risk management methods rather than any substantive concerns with the insurance instrument, a similar mistake found in the OIG Report.

Second, EPA has failed to analyze how a minimum insurance rating may affect the cost of insurance to the regulated community. As previously stated, market conditions have tightened for financial assurance instruments. Further restrictions on the participation of insurance providers only serve to exacerbate the costs. EPA must analyze and publish for comment these potential costs before determining whether the marginal benefits of confidence or protection the minimum ratings may obtain exceeds the costs or the potential move by operators to riskier instruments.

Finally, EPA's suggestion regarding a minimum insurance rating different from the one for a parent company does not make sense. If a lower rating supports the financial test for a parent company, the same rating should support a parent company's wholly owned subsidiary. If EPA adopts the recommended set of minimum criteria for captive insurance instruments, then the minimum rating is redundant because the needed protection is provided through the implementation of the criteria. ( Edward W. Repa, Ph. D., Director, Environmental Programs, National Solid Wastes Management Association, RCRA 2001 0029 0079)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions.

Comment: Probably the matter that presents the most difficulty is that which was recently highlighted by the United States Office of Inspector General. Among many other problems, the Auditor General has noted that:

When insurance is the mechanism, a state program may be presented with a number of additional complex issues, e. g., policy terms and exclusions inconsistent with regulations, potential litigation, late or missing cancellation notices, and whether the insurer is qualified to write insurance in the state. Since insurance is primarily regulated by states, differences in state insurance regulations contribute to the complexities in evaluating insurance policies. As a result, insurance can be difficult to evaluate and monitor.   The lack of a standardized insurance policy form for financial assurance adds to the difficulty.

Evaluation of insurance as a mechanism involves more than merely evaluating the legal effect of the tendered policy   a task that is usually daunting enough. It also involves evaluation of the insurance provider. Since a closure and post closure care insurance policy   at least in theory   256 might be required pay out the full cost of closure shortly after becoming effective, companies either " front load" the policy ( require a substantial advance premium in the amount of the present value of the total predicted cost of closure) or privately contract with the owner/ operator for a substantial deductible. In the former case, the policy is not much different from a trust fund administered by an insurance company, rather than a bank or other financial institution. In the latter case, the company gambles on sharing the risk with the insured. However, one of the reasons that an insurance company might be required to pay out on a policy relates to the financial inability of the owner/ operator to pay for its own costs of closure and post closure care. Such circumstances might prevent a company from being able to collect the deductible from the owner/ operator, and several of these might have an adverse affect upon the financial ability of the company to honor the terms of its policies. Accordingly, in addition to evaluating the terms of the policy, a review of an insurance policy as a tendered mechanism for financial assurance ought to include consideration of the financial strength of the insurer. This is especially true of insurance providers that are not licensed by the Illinois Department of Insurance to transact the business of insurance in Illinois, but may nevertheless provide closure insurance for MSWLFs if they meet the requirements Section 21.1( a 5) of the Illinois Environmental Protection Act (" Act"), 415 ILCS 5/ 21.1( a 5), because policies issued by such companies are not subject to the Illinois Insurance Guarantee Fund.

While the financial assurance regulations generally require an unconditional commitment to pay the full costs of closure and post closure care once the triggering event for the obligation has occurred, most insurance policies are drafted in such a way that their obligation to pay seems highly conditional. In order to determine whether a particular policy complies with the regulations, it should be subjected to a full legal review   preferably by someone with experience ( or specifically trained) in the area of insurance underwriting or insurance. As an alternative to a complex review of each tendered policy and, USEPA and subsequently the Illinois Pollution Control Board should promulgate a standard closure and post closure care insurance policy that would be incorporated in the regulations, with non alteration provisions, that any insurance company wishing to undertake such business would have to adopt.

The third area of concern has to do with company attitude towards claims management. Different companies have different attitudes toward claims. Some companies may readily pay claims presented in accordance with the terms of their policy, while others with similar policy terms and similar claims may balk at settlement and even require litigation before paying. There is no way to tell in advance what attitude will be encountered upon presentation of a claim. This mechanism seems clearly less desirable than a trust fund, an irrevocable letter of credit or a performance bond.

In addition to the foregoing, use of captive insurance companies presents special problems associated with the captive being a wholly owned subsidiary of the facility owner/ operator. Captives are thus subject to the same financial circumstances or conditions as the owner/ operator, and a failure of the parent might well signify the failure of the subsidiary, due to a lack of diversification. There are also rarely measures in place that would insulate the captive in the event that the parent files bankruptcy. In addition, since they are not full service insurance companies, 257 captives often have minimal capitalization and reserve obligations. What capitalization they have is often stock of their parent corporation, which would not be worth its stated value in the event the parent experiences financial hardship. Moreover, captives are often surplus lines carriers that are not licensed in Illinois, and are thus not subject to the Illinois Insurance Guarantee Fund. Finally, a corporation unable or unwilling to perform its closure and post closure care activities in its capacity as a facility operator may be no more willing to act in its capacity as the corporate captive insurer. A " good" captive policy may be no more effective than a mere promise by the parent to comply. As financial assurance this amounts to mere form without substance. ( William C. Child, Chief, Bureau of Land, Illinois EPA, RCRA 2001 0029 0080)

Response: This final rule does not include a policy or regulatory provisions related to the use of captive insurance or minimum ratings for insurers. The Agency continues to explore these issues, and has requested that an Agency federal advisory committee, the Environmental Financial Advisory Board provide input on these questions, and on the use of insurance for demonstrating financial assurance under the RCRA regulations.

66. Executive Order 12866: Description of potential benefits of this rule ( XII. A. 1. b)

Comment: We foresee no other benefits besides those outlined in the preamble to the proposed rule. ( Missouri Department of Natural Resources, RCRA 2001 0029 0065)

Response: Thank you for your comment.

Comment: Comments on the Economic Analysis According to EPA's own economic analysis, the standardized permit rule will have a very small economic benefit of only $ 100 to $ 5800 per permit action. This amount is based entirely on administrative time savings of 2 to 140 hours per permit action. The total estimated national savings is reported to be $ 380,000 to $ 530,000 a year, barely the cost of one commercial incinerator trial burn or risk assessment. Such an insignificant impact does not justify the standardized permit process. The savings come primarily from eliminating the review process by the Agency with written Notices of Deficiencies and responses by the permit applicant, as well as from eliminating the preparation of a closure plan prior to permit issuance. Such small savings do not justify the elimination of these vital steps in the permitting process.

A review of the Economics Background Document to this proposed rule indicates that even these purported cost savings are highly overestimated. See Estimate of Potential National Cost Savings for the Industrial Hazardous Waste " Standardized" RCRA Permit Proposal, EPA Office of Solid Waste ( May 3, 2000). This is due to the following 5 major points: 258 ° State permit fees are not accounted for in the analysis.

° There are no savings associated with eliminating the closure plan in the application.

° Permit renewal applications are assumed to be of equal time demand as new permit applications.

° The analysis assumes 200 permit actions per year, when historically Table 5 of the Economic Background Document indicates an average of 105 actions per year.