Alaska Admin. Code tit. 20, § 25.1200 – Financial responsibility

(a) A storage operator shall demonstrate and maintain one of the following forms of financial responsibility satisfying the requirements of this section:
1. (1) trust fund;
2. (2) surety bond;
3. (3) letter of credit;
4. (4) insurance;
5. (5) self-insurance, including financial test and corporate guarantee;
6. (6) escrow account; or
7. (7) any other instrument satisfactory to the commission.
(b) Qualifying financial responsibility under this section must be sufficient to address endangerment of underground sources of drinking water and cover the cost of
1. (1) corrective action that meets the requirements of 20 AAC 25.1070;
2. (2) Class VI well plugging that meets the requirements of 20 AAC 25.1300;
3. (3) post injection site care and site closure that meets the requirements of 20 AAC 25.1310; and
4. (4) emergency and remedial response that meets the requirements of 20 AAC 25.1260.
(c) Qualifying financial responsibility under this section must include the following protective conditions of coverage:
1. (1) cancellation, renewal, and continuation provisions, including a prohibition on cancellation, termination, or failure to renew for other than failure to pay the financial instrument; cancellation, termination, or failure to renew may not occur and the financial instrument will remain in full force and effect in the event that on or before the date of expiration
  1. (A) the commission deems the storage facility abandoned;
  2. (B) the permit is terminated or revoked or a new permit is denied;
  3. (C) closure is ordered by the commission or a U.S. district court or other court of competent jurisdiction;
  4. (D) the storage operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy) U.S. Code; or
  5. (E) the amount due is paid.
2. (2) notice of cancellation, termination, or non-renewal by certified mail to the storage operator and the commission received not less than 120 days prior to cancellation, termination, or non-renewal;
3. (3) specifications on when the provider becomes liable following a notice of cancellation if there is a failure to renew with a new qualifying financial instrument, and
4. (4) requirements for the provider to meet a minimum rating, minimum capitalization, and ability to pass the bond rating when applicable.
(d) If a provider cancels, terminates, or fails to renew financial responsibility under this section for failure to pay, the storage operator shall provide an alternate financial responsibility demonstration within 60 days of notice of cancellation, and if an alternate financial responsibility demonstration is not acceptable or possible, any funds from the instrument being cancelled must be released within 60 days of notification by the commission.
(e) A storage operator shall renew all financial instruments, if an instrument expires, for the entire term of the storage facility. The instrument may automatically renew if the storage operator has the option of renewal at the face amount of the expiring instrument. The automatic renewal of the instrument must, at a minimum, provide the holder with the option of renewal at the face amount of the expiring financial instrument.
(f) The qualifying financial responsibility under this section must be approved by the commission and may include more than one qualifying financial instrument for a storage facility or phase of a storage facility. In addition,
1. (1) the commission will require a financial responsibility demonstration for all the phases of the storage facility before issuing a storage facility permit under 20 AAC 25.1170 and
2. (2) the storage operator shall provide any updated information related to the storage operator's financial responsibility instruments to the commission on an annual basis, and if there are any changes, the commission will evaluate, within a reasonable time, the financial responsibility demonstration to confirm that the instrument used remain adequate for use; the storage operator shall maintain financial responsibility requirements regardless of the status of the commission's review of the financial responsibility demonstration;
3. (3) the commission may disapprove of the use of a financial instrument if the commission determines that it is not sufficient to meet the requirements of this section.
(g) In making the financial responsibility demonstration required by this section, the storage operator may demonstrate financial responsibility by using one or multiple qualifying financial instruments for specific phases of the carbon storage project. If a storage operator combines more than one instrument for a specific carbon storage phase, including well plugging, the combination may not include instruments that are based on financial strength or performance of the storage operator, such as self-insurance or a performance bond, but shall include other mechanisms described in (a) of this section, including trust funds, surety bonds guaranteeing payment into a trust fund, letters of credit, escrow accounts, and insurance. Financial responsibility under this subsection is demonstrated by the combination of mechanisms, rather than a single mechanism, which must provide coverage for an amount at least equal to the current cost estimate. To demonstrate financial responsibility under this subsection, a storage operator
1. (1) when using a third-party instrument to demonstrate financial responsibility, shall provide proof that the third-party providers either have passed financial strength requirements based on credit ratings; or have met a minimum rating, minimum capitalization, and ability to pass the bond rating when applicable;
2. (2) when using certain types of third-party instruments shall establish a standby trust to enable the commission to be party to the financial responsibility agreement without the commission being the beneficiary of any funds; the standby trust fund must be used along with other financial responsibility instruments, e.g., surety bonds, letters of credit, or escrow accounts, to provide a location to place funds if needed;
3. (3) when using a surety bond or cash bond to satisfy its financial responsibility requirements, shall be the principal on the bond and each surety bond must be executed by a responsible surety company authorized to transact business in this state;
4. (4) may deposit money to an escrow account to cover financial responsibility requirements; this account must segregate funds sufficient to cover estimated costs for Class VI well carbon storage financial responsibility from other accounts and uses.
(h) A storage operator or the storage operator's guarantor may use self-insurance to demonstrate financial responsibility for a storage facility. To satisfy this requirement, the storage operator shall
1. (1) meet a tangible net worth of an amount approved by the commission,
2. (2) have a net working capital and tangible net worth each at least six times the sum of the current well plugging, post injection site care and site closure cost,
3. (3) have assets located in the United States amounting to at least 90 percent of total assets or at least six times the sum of the current well plugging, post injection site care and site closure cost, and
4. (4) submit a report of its bond rating and financial information annually to the commission on a date set by the commission.
(i) The storage operator shall either
1. (1) have a bond rating test of AAA, AA, A, or BBB as issued by Standard & Poor's or Aaa, Aa, A, or Baa as issued by Moody's; or
2. (2) meet all of the following five financial ratio thresholds
  1. (A) a ratio of total liabilities to net worth less than 2.0;
  2. (B) a ratio of current assets to current liabilities greater than 1.5;
  3. (C) a ratio of the sum of net income plus depreciation, depletion, and amortization to total liabilities greater than 0.1;
  4. (D) a ratio of current assets minus current liabilities to total assets greater than -0.1; and
  5. (E) a net profit, revenues minus expenses, greater than 0.
(j) A storage operator that is unable to meet corporate financial test criteria in this section may arrange a corporate guarantee by demonstrating to the commission that its corporate parent meets the financial test requirements on its behalf. The parent's demonstration that it meets the financial test requirement is insufficient if it has not also guaranteed to fulfill the obligations for the storage operator.
(k) If a storage operator uses an insurance policy other than a self-insurance policy that meets the requirements of this section to meet its financial responsibility requirements under this section, the insurance policy must be obtained from a third-party provider.
(l) The requirement to maintain adequate financial responsibility and resources is directly enforceable regardless of whether the requirement is a condition of a storage facility permit under 20 AAC 25.1130. The storage operator shall maintain financial responsibility and resources until the commission issues a certificate of completion under 20 AAC 25.1320, although a storage operator may be released from certain financial instruments under (m) of this section.
(m) The storage operator may be released from a financial instrument if
1. (1) the storage operator has completed the phase of the storage facility for which the financial instrument was required and has fulfilled all its financial obligations as determined by the commission, including obtaining financial responsibility for the next phase of the storage facility, if required; or
2. (2) the storage operator has submitted a replacement financial instrument and received written approval from the commission accepting the new financial instrument and releasing the storage operator from the previous financial instrument; or
3. (3) the commission issues a certificate of completion under 20 AAC 25.1320.
(n) The storage operator shall provide to the commission a detailed written estimate, in current dollars, of the cost of performing corrective action on wells in the area of review under 20 AAC 25.1070, plugging the Class VI well under 20 AAC 25.1300, post-injection site care and site closure under 20 AAC 25.1310, and the emergency and remedial response plan under 20 AAC 25.1260. The cost estimate shall be performed for each phase of a storage facility separately; the cost estimate must be based on the costs to the commission of hiring a third party to perform the required activities. For the purposes of this subsection, a third party is a party who is not within the corporate structure of the storage operator.
(o) During the active life of the storage facility, the storage operator must adjust the cost estimate for inflation within 60 days before the anniversary date of the establishment of the financial instrument used to comply with this section and provide the adjustment to the commission. The storage operator shall also provide to the commission written updates of adjustments to the cost estimate within 60 days of any amendments to the area of review and corrective action plan under 20 AAC 25.1070, the Class VI well plugging plan under 20 AAC 25.1300, the post-injection site care and site closure plan under 20 AAC 25.1310, and the emergency and remedial response plan under 20 AAC 25.1260. In adjusting for the cost of inflation, the storage operator shall use the consumer price index for urban consumers for urban Alaska, as determined by the United States Department of Labor, Bureau of Labor Statistics, without seasonal adjustment, for December of the proceeding calendar year.
(p) The commission must approve any decrease or increase to the initial cost estimate under (n) of this section. During the active life of the storage facility, the storage operator shall revise the cost estimate not later than 60 days after the commission has approved a request to modify the area of review and corrective action plan under 20 AAC 25.1070, the Class VI well plugging plan under 20 AAC 25.1300, the post-injection site care and site closure plan under 20 AAC 25.1310, and the emergency and response plan under 20 AAC 25.1260, if the change in the plan increases the cost. If the change to the plan decreases the cost, any withdrawal of funds must be approved by the commission. Any decrease to the value of the financial assurance instrument must first be approved by the commission. The revised cost estimate shall be adjusted for inflation as specified in (o) of this section. Whenever the current cost estimate increases to an amount greater than the face amount of a financial instrument currently in use, the storage operator, within 60 days after the increase, shall either cause the face amount to be increased to an amount at least equal to the current cost estimate and submit evidence of such increase to the commission, or obtain other financial responsibility instruments to cover the increase. Whenever the current cost estimate decreases, the face amount of the financial assurance instrument may be reduced to the amount of the current cost estimate only after the storage operator has received written approval from the commission.
(q) The storage operator shall notify the commission by certified mail or other trackable written delivery method of adverse financial conditions such as bankruptcy that may affect the ability to carry out its Class VI well plugging and post-injection site care and site closure under 20 AAC 25.1310. Notification shall occur
1. (1) in the event the storage operator or the third-party provider of a financial responsibility instrument is named as a debtor in a bankruptcy proceeding; the notice under this paragraph shall be made within 10 days after commencement of the bankruptcy proceeding; or
2. (2) by a guarantor of a corporate guarantee if the guarantor is named as debtor, as required under the terms of the corporate guarantee.
(r) A storage operator who fulfills the requirements of (a) of this section by obtaining a trust fund, surety bond, letter of credit, escrow account, or insurance policy will be deemed to be without the required financial assurance in the event of bankruptcy of the trustee or issuing institution, or a suspension or revocation of the authority of the trustee institution to act as trustee of the institution issuing the trust fund, surety bond, letter of credit, escrow account, or insurance policy. The storage operator shall establish other financial assurance within 60 days after the event.
(s) The storage operator shall provide an adjustment of the cost estimate this section, and any amended cost estimates, to the commission within 60 days of notification by the commission, if the commission determines during the annual evaluation of the qualifying financial responsibility instrument that the most recent demonstration is no longer adequate to cover the cost of corrective action required by 20 AAC 25.1070, Class VI well plugging as required by 20 AAC 25.1300, post-injection site care and site closure as required by 20 AAC 25.1310, and emergency and remedial response as required by 20 AAC 25.1260.
(t) The commission must approve the use and length of pay-in-periods for trust funds or escrow accounts.