17 Dec NJDEP: Safeguarding Remediation Costs with RFS and FA
The New Jersey Department of Environmental Protection (NJDEP) has designated two types of funding sources — the Remediation Funding Source (RFS) and Financial Assurance (FA) — to ensure that sufficient funds have been set aside to perform environmental remediation on affected properties. There are subtle differences between the two and, in fact, there are circumstances when both may be required.
What exactly is an RFS?
When an owner and/or operator transfers ownership or operators cease operations at an ISRA applicable property, an RFS must be established. The RFS is a source of funds set aside by the owner/operator to ensure the entire cost of the remediation is covered, including all NJDEP fees and any additional fees related to operating, monitoring, and maintaining any engineering controls used as part of the remedial solution. The RFS is maintained until remediation is complete. When the RFS needs to be established depends on the situation. If the owner/operator completes remediation prior to transferring ownership, the RFS needs to be established 14 days after the NJDEP receives a Remedial Action Workplan certified by an LSRP.
If property transfer is complete prior to remedial finality, an RFS will need to be established when a Remediation Certification Form is received by the NJDEP. If a Remediation Certification Form is submitted and a Preliminary Assessment and/or Site Investigation has not been completed, then an initial RFS must be established. The minimum acceptable amounts of the initial RFS are $100,000 if there is no know contamination and $250,000 if ground water in known to be contaminated. Cost reviews and updated remedial cost estimates are required annually.
If one of the default RFS amounts is used to establish the initial funding source, it must be replaced with a site-specific detailed remedial cost estimate and RFS at the time of the first annual cost review. The remedial cost estimates must be certified by an LSRP. The remedial cost estimates must also be acceptable to the purchaser if the RFS is established prior to the property transaction. If the remedial cost estimate exceeds the prior year’s RFS amount, the owner/operator must increase the amount of the RFS. Similarly, if ongoing remediation has been completed and the cost estimate to complete the remediation has reduced, the owners/operators can reduce the RFS with LSRP and NJDEP approval. The RFS must be renewed and kept in place by the owners/operators until owners/operators have received a Response Action Outcome (RAO) and release of the RFS is granted by the NJDEP.
An RFS mechanism can be any of the following: Letter of Credit, Remediation Trust Fund, Self-Guarantee, Line of Credit, Environmental Insurance Policy, Direct Oversight Remediation Trust Fund, Fully Funded Trust (Existing only pre-June 1993), Performance Bond (Existing only pre-June 1993), or Surety Bond (Existing only pre-June 1993).
What triggers Financial Assurance?
Anytime an engineering control (e.g., installation of a cap over an area of concern or entire site to restrict access or long-term active remediation of groundwater) is utilized as part of remedial action, FA is required. FA is money set aside to ensure the estimated costs to operate, monitor and maintain the engineering control are available until it is demonstrated the engineering control is no longer warranted. FA must be established prior to the submittal of the Remedial Action Permit Application. The minimum FA amount is $30,000. Ultimately, a cost estimate certified by an LSRP will dictate the amount of FA required. Cost reviews and updated cost estimates are due biennially. FA mechanism can be a Letter of Credit, Remediation Trust Fund, Line of Credit or an Environmental Insurance Policy. It is important to note that, unlike with an RFS, a self-guarantee cannot be utilized for FA.
Why would I need both?
A Remediation Funding Source is almost entirely specific to owners or operators of an industrial establishment or any other person required to perform remediation activities pursuant to the Industrial Site Recovery Act (ISRA). In limited instances, an RFS is required when the owner or operator of a non-ISRA property has been directed to do so by a State agency or court. In contrast, Financial Assurance applies to any property that utilizes an engineering control as part of the remedial action. Therefore, if an ISRA-subject property utilizes an engineering control as part of remediation, then both an RFS and an FA will be required. However, the RFS can be transferred and used as the FA mechanism in certain instances.