Rules & Regulations of the State of Tennessee, Chapter 0400-18-01, Section 0400-18-01-.08 - FINANCIAL RESPONSIBILITY | Rules & Regulations of the State of Tennessee

(1) Purpose.

A tank owner or operator is required to pay for corrective action and/or for compensating third parties for bodily injury or property damages caused by accidental releases arising from the operation of petroleum underground storage tank systems. Furthermore, a tank owner or operator is required to demonstrate financial responsibility or the ability to pay for corrective action and/or for compensating third parties for bodily injury or property damages caused by accidental releases arising from the operation of petroleum underground storage tank systems. The purpose of this rule is to authorize the use of certain financial assurance mechanisms to satisfy the requirement to demonstrate financial responsibility.

(2) Applicability.

(a) This rule applies to owners and/or operators of all petroleum underground storage tank (UST) systems except as otherwise provided in this paragraph.

(b) State and federal government entities whose debts and liabilities are the debts and liabilities of a state or the United States are deemed to meet financial responsibility requirements without having to meet the requirements of this rule.

(c) The requirements of this rule do not apply to owners and/or operators of any UST system described in subparts (2)(b)1.(i), (iv) and (v) and subparagraph (2)(c) of Rule 0400-18-01-.01.

(d) UST systems listed in Rule 0400-18-01-.17 must comply with the requirements of this rule as provided in Rule 0400-18-01-.17.

(e) If the owner and the operator of a petroleum underground storage tank system are separate persons, only one person is required to demonstrate financial responsibility; however, both parties are liable in the event of noncompliance.

(3) Amount And Scope Of Required Financial Responsibility.

(a) Per occurrence amounts.

Owners or operators of petroleum underground storage tank systems shall demonstrate financial responsibility for taking corrective action and for compensating third parties for bodily injury and property damage caused by accidental releases arising from the operation of petroleum underground storage tanks in at least the following per occurrence amounts:

1. For owners or operators of petroleum underground storage tank systems that are located at petroleum marketing facilities, or that handle an average of more than 10,000 gallons of petroleum per month based on annual throughput for the previous calendar year: $1,000,000.

2. For all other owners or operators of petroleum underground storage tank systems: $500,000.

(b) Annual aggregate amounts.

Owners or operators of petroleum underground storage tank systems shall demonstrate financial responsibility for taking corrective action and for compensating third parties for bodily injury and property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems in at least the following annual aggregate amounts:

1. For owners or operators of one to 100 petroleum underground storage tank compartments: $1,000,000.

2. For owner or operators of 101 or more petroleum underground storage tank compartments: $2,000,000.

(c) The amounts of financial assurance required under this paragraph exclude legal defense costs.

(d) The required per occurrence and annual aggregate coverage amounts do not in any way limit the liability of the owner or operator.

(4) Allowable Financial Assurance Mechanisms and Combinations of Mechanisms.

(a) A tank owner or operator may use one of following financial assurance mechanisms to satisfy the requirements of paragraph (3) of this rule:

1. Tennessee Petroleum Underground Storage Tank Fund in accordance with paragraph (5) of this rule and Rule 0400-18-01-.09;

2. Financial Test of Self-Assurance in accordance with paragraph (6) of this rule;

3. Corporate Parent Financial Test Guarantee in accordance with paragraph (7) of this rule;

4. Liability Insurance in accordance with paragraph (8) of this rule;

5. Surety Bond or Performance Bond in accordance with paragraph (9) of this rule;

6. Irrevocable Standby Letter of Credit in accordance with paragraph (10) of this rule;

7. Personal Bond Supported by Certificate of Deposit in accordance with paragraph (11) of this rule;

8. Trust Fund and Agreement in accordance with paragraph (12) of this rule;

9. Local Government Bond Rating Test in accordance with paragraph (13) of this rule; or

10. Local Government Financial Test in accordance with paragraph (14) of this rule.

(b) Standby Trust Fund.

1. If a tank owner or operator uses one of the financial assurance mechanisms listed in this part to meet the requirements of paragraph (3) of this rule, a Standby Trust Fund and Agreement shall be established in accordance with paragraph (15) of this rule at the time the mechanism is established.

(i) Liability Insurance in accordance with paragraph (8) of this rule;

(ii) Surety Bond or Performance Bond in accordance with paragraph (9) of this rule; or

(iii) Irrevocable Standby Letter of Credit in accordance with paragraph (10) of this rule.

2. If a tank owner or operator uses one of the financial assurance mechanisms listed in this part to meet the requirements of paragraph (3) of this rule, a Standby Trust Fund and Agreement shall be established in accordance with paragraph (15) of this rule if the requirements of the financial test can no longer be met and the owner or operator fails to provide an alternative financial assurance mechanism that meets the requirements of this rule.

(i) Financial Test of Self-Assurance in accordance with paragraph (6) of this rule;

(ii) Corporate Parent Financial Test Guarantee in accordance with paragraph (7) of this rule;

(iii) Local Government Bond Rating Test in accordance with paragraph (13) of this rule; or

(iv) Local Government Financial Test in accordance with paragraph (14) of this rule.

(c) Use of combinations of financial assurance mechanisms.

1. The following financial assurance mechanisms may be used in combination by a tank owner or operator to satisfy the requirements of subparagraphs (3)(a) and (b) of this rule:

(i) Tennessee Petroleum Underground Storage Tank Fund in accordance with paragraph (5) of this rule and Rule 0400-18-01-.09;

(ii) Liability insurance in accordance with paragraph (8) of this rule;

(iii) Surety Bond or Performance Bond in accordance with paragraph (9) of this rule;

(iv) Irrevocable Standby Letter of Credit in accordance with paragraph (10) of this rule;

(v) Personal Bond Supported by Certificate of Deposit in accordance with paragraph (11) of this rule; and

(vi) Trust Fund and Agreement in accordance with paragraph (12) of this rule.

2. The following financial assurance mechanisms shall not be used in combination by a tank owner or operator to satisfy the requirements of subparagraphs (3)(a) and (b) of this rule:

(i) Financial Test of Self-Assurance in accordance with paragraph (6) of this rule;

(ii) Corporate Parent Financial Test Guarantee in accordance with paragraph (7) of this rule;

(iii) Local Government Bond Rating Test in accordance with paragraph (13) of this rule; or

(iv) Local Government Financial Test in accordance with paragraph (14) of this rule.

(d) The amount of assurance provided by each mechanism or combination of mechanisms shall be in the full amount specified in subparagraphs (a) and (b) of paragraph (3) of this rule if the owner or operator uses separate mechanisms or separate combinations of mechanisms in accordance with subparagraph (c) of this paragraph to demonstrate financial responsibility for:

1. Taking corrective action in accordance with Rule 0400-18-01-.06; or

2. Compensating third parties for bodily injury and property damage caused by accidental releases.

(e) The tank owner or operator using a financial assurance mechanism other than the Tennessee Petroleum Underground Storage Tank Fund shall not be considered to have satisfied the financial assurance requirements of this rule until the financial assurance mechanism has been received and approved by the Commissioner.

(f) These financial assurance mechanisms are established for use by the Division for taking corrective action or for paying third party claims in the event the owner or operator fails to take corrective actions or pay third party claims. The financial assurance mechanisms in this rule shall not be used by the owner or operator to satisfy the requirements of corrective action or third party liability claims with the exception of the Tennessee Petroleum Underground Storage Tank Fund authorized by paragraph (5) of this rule.

(5) Tennessee Petroleum Underground Storage Tank Fund.

(a) Corrective action costs.

Tank owners or operators who are eligible for reimbursement from the fund shall demonstrate that they have incurred the deductible amount for taking corrective action at the time an Application for Fund Eligibility is submitted to the Division in accordance with subparagraph (3)(e) of Rule 0400-18-01-.09.

1. If a fund-eligible tank owner or operator claims financial inability to pay the deductible set forth in paragraph (6) of Rule 0400-18-01-.09 at the time an Application for Fund Eligibility is submitted to the Division, the fund may be utilized, at the discretion of the Commissioner, to pay the deductible for taking corrective action.

(i) The tank owner or operator shall supply documentation of inability to pay the deductible amount for taking corrective action to the Commissioner upon request.

(ii) Pursuant to T.C.A. § 68-215-115, the Commissioner may seek cost recovery against the tank owner or tank operator for the deductible amount paid by the fund for taking corrective action.

2. If a fund-eligible tank owner or operator fails, without sufficient cause, to perform the release response, remediation, and/or risk management actions required in Rule 0400-18-01-.06 on order of the Commissioner and fails, without sufficient cause, to pay the deductible amount for taking corrective action at the time an Application for Fund Eligibility is submitted to the Division, the fund may be utilized to pay the deductible. Pursuant to T.C.A. § 68-215-115, the Commissioner may seek cost recovery against the tank owner or tank operator for the deductible amount paid by the fund for taking corrective action. In addition, pursuant to T.C.A. § 68-215-116, the Commissioner may seek a penalty in the amount of 150% of the costs expended by the fund as the result of the failure to take proper action.

(b) Third-party claims.

Tank owners or operators who are eligible for reimbursement from the fund shall demonstrate that they have incurred the deductible amount for third-party claims set forth in paragraph (6) of Rule 0400-18-01-.09 at the time the Division receives an application for payment accompanied by the original or a certified copy of a final judgment in accordance with subparagraph (12)(g) of Rule 0400-18-01-.09.

1. If a fund-eligible tank owner or operator cannot pay the amount of the deductible for third-party claims at the time an application for payment accompanied by the original or a certified copy of a final judgment is submitted to the Division in accordance with subparagraph (12)(g) of Rule 0400-18-01-.09, the fund may be utilized to pay the deductible for satisfying the third party-claim.

(i) The tank owner or operator shall supply documentation of the owner's or operator's inability to pay the deductible amount for third-party claims to the Division upon request.

(ii) Pursuant to T.C.A. § 68-215-115, the Commissioner may seek cost recovery against the tank owner or operator for the deductible amount paid by the fund for satisfying the third-party claim.

2. If a fund-eligible tank owner or operator fails, without sufficient cause, to pay the deductible amount for a third-party claim, the fund may be utilized to pay the deductible. Pursuant to T.C.A. § 68-215-115, the Commissioner may seek cost recovery against the tank owner or operator for the deductible amount paid by the fund to satisfy the third-party claim.

(6) Financial Test Of Self-Assurance.

A tank owner or operator may satisfy the requirements of paragraph (3) of this rule by passing a Financial Test of Self-Assurance in accordance with the provisions of this paragraph.

(a) A Financial Test of Self-Assurance shall not be used in combination with other financial assurance mechanisms, and shall not be used in cases where an owner or operator has a parent company or any other entity holding majority control of its voting stock.

(b) The financial statements of the owner or operator shall be prepared in accordance with generally accepted accounting principles applicable to the United States, and an independent certified public accountant (CPA) shall verify the accuracy of the financial test data relative to the financial statements.

(c) In order to demonstrate that the owner or operator meets the requirements of the Financial Test of Self-Assurance as set forth in this paragraph, the Chief Executive Officer or the Chief Financial Officer of the business firm of the owner or operator shall complete and submit a notarized letter, including a Financial Test of Self-Assurance as required in subparagraph (d) of this paragraph, both initially and within 90 days following the date of the close of each successive financial reporting year. Wording in the Letter of the Chief Executive Officer or the Chief Financial Officer of the business firm of the owner or operator shall be in accordance with guidance provided by the Division. The letter shall be in a format established by the Division.

(d) Both initially and annually, within 90 days after the close of each succeeding fiscal year, the owner or operator shall demonstrate that the owner or operator has adequate financial strength to provide the guarantee required by subparagraphs (h) and (i) of this paragraph by passing the applicable financial test, that is, either Financial Test of SelfAssurance -" Alternative I, completed in accordance with subparagraph (f) of this paragraph, or Financial Test of Self-Assurance -" Alternative II, completed in accordance with subparagraph (g) of this paragraph.

(e) The financial test alternatives, a comparison of business performance ratios, financial strength ratios, credit ratings, net worth, assets, operating revenues, and bond ratings relative to fixed criteria, shall be in a format established by the Division and completed in accordance with guidance provided by the Division.

(f) To use the Financial Test of Self-Assurance -" Alternative I as a financial assurance mechanism, the tank owner or operator shall meet the following conditions:

1. The tank owner or operator shall have a tangible net worth of at least $10,000,000 plus the dollar amount of all financial assurance covered by a financial test.

2. The tank owner or operator shall have a tangible net worth at least six times the required annual aggregate amount for corrective action and compensation of third parties for bodily injury and property damage assured by this financial test and at least six times the sum of all other amounts covered by a financial test of the owner or operator for all other environmental programs or agencies in the State of Tennessee, other states, and federal agencies.

3. The tank owner or operator shall have assets located in the United States which shall amount to at least 90% of the total assets of the owner or operator or at least six times the current amounts of financial assurance covered by the owner or operator through the use of the Financial Test of Self-Assurance -" Alternative I.

4. The tank owner or operator shall satisfy at least two of the three ratio standards in subparts (i) through (iii) of this part:

(i) The ratio of total liabilities to net worth shall equate to less than 1.5;

(ii) The ratio of the sum of net income plus depreciation, depletion, and amortization minus $10,000,000 to the total liabilities shall equate to greater than 0.10; and/or

(iii) The ratio of current assets to current liabilities shall equate to greater than 1.5.

5. The tank owner or operator shall report the firm's financial position to Dun and Bradstreet annually and have a financial strength rating of 4A or 5A and a composite credit appraisal of 1 by Dun and Bradstreet.

6. The tank owner or operator shall comply with one of the following:

(i) The owner or operator shall file financial statements with the U.S. Securities and Exchange Commission annually; or

(ii) The owner or operator shall file complete financial statements with the Energy Information Administration annually.

7. The fiscal year-end financial statements of the owner or operator:

(i) Shall be examined by an independent certified public accountant (CPA);

(ii) Shall be accompanied by the CPA's report of the examination; and

(iii) Shall not include an adverse auditor's opinion, a disclaimer of opinion, or a "going concern" qualification.

8. Annually the owner or operator shall submit a special report prepared by a CPA. The report shall include statements by the CPA that:

(i) The CPA has reviewed the data, specified as having been derived from the latest year-end financial statements of the owner or operator, in the Letter from the Chief Executive Officer or the Chief Financial Officer required by subparagraph (c) of this paragraph;

(ii) The CPA has compared the data in the Letter from the Chief Executive Officer or the Chief Financial Officer with the amounts in the latest yearend financial statements; and

(iii) The CPA's comparison of data in the Letter from the Chief Executive Officer or the Chief Financial Officer with the amounts in the latest yearend financial statements revealed nothing to cause the CPA to believe that the data in the Letter from the Chief Executive Officer or the Chief Financial Officer should be adjusted.

(g) To use the Financial Test of Self Assurance -" Alternative II as a financial assurance mechanism, the tank owner or operator shall meet each of the following conditions:

1. The tank owner or operator shall have a tangible net worth of at least $10,000,000 plus the dollar amount of all financial assurance covered by a financial test.

2. The tank owner or operator shall have a tangible net worth of at least six times the required annual aggregate amount for corrective action and compensation of third parties for bodily injury and property damage assured by this financial test and at least six times the sum of all other amounts covered by a financial test of the owner or operator for other environmental programs or agencies of the State of Tennessee, other states, and/or federal agencies.

3. Assets of the tank owner or operator located in the United States shall amount to at least 90% of the total assets of the owner or operator or at least six times the current amounts of financial assurance covered by the owner or operator through the use of this Financial Test of Self-Assurance -" Alternative II.

4. The tank owner or operator shall have a current rating by a bond rating agency for its most recent bond issuance that meets or exceeds the level determined by the Commissioner to indicate a sound financial position. The Commissioner shall make this determination in writing.

5. For purposes of the Financial Test of Self Assurance -" Alternative II, bond ratings shall apply to outstanding, rated bonds that are not secured by insurance, a letter of credit, or other collateral or guarantee, and that have been issued directly by the owner or operator. Ratings on revenue bonds shall not be used in the financial test. In order to pass the Financial Test of Self-Assurance -" Alternative II, the owner or operator shall have at least one class of equity securities registered under the Securities Exchange Act of 1934.

6. The owner or operator shall file financial statements annually with the U.S. Securities and Exchange Commission.

7. The fiscal year-end financial statements of the owner or operator shall be examined by an independent certified public accountant (CPA) and shall be accompanied by the CPA's report of the examination. The firm's year-end financial statements cannot include an adverse auditor's opinion, a disclaimer of opinion, or a "going concern" qualification.

8. The owner or operator shall obtain and submit to the Commissioner a special report by a CPA stating that:

(i) The CPA has compared the data that the Letter from the Chief Executive Officer or the Chief Financial Officer specifies as having been derived from the latest year-end financial statements of the owner or operator with the amounts in such financial statements; and

(ii) In connection with the comparison in subpart (i) of this part, no matters came to the attention of the CPA which caused the CPA to believe that the specified data should be adjusted.

(h) In accordance with subparagraph (i) of this paragraph an owner or operator shall guarantee that the owner or operator can pay for and carry out corrective actions and/or compensate third parties for bodily injury and/or property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

(i) Annually, the owner or operator shall complete and submit a notarized written guarantee stating that the said owner or operator shall comply with all of the terms set forth in this paragraph as requirements governing the use of the Financial Test of SelfAssurance. Such Financial Test of Self-Assurance Guarantee Agreement shall:

1. Be in a format established by the Commissioner and completed in accordance with guidance provided by the Commissioner;

2. Commit the owner or operator to carrying out the required corrective actions and/or compensation to third parties in response to a judgment enforceable in Tennessee;

3. Commit the owner or operator to setting up and funding a standby trust in the amount required in an order issued by the Commissioner, up to the amount set forth in paragraph (3) of this rule;

4. Commit the owner or operator to notifying the Commissioner within ten days following a filing to seek bankruptcy protection from creditors under Title 11 U.S. Code; and

5. Commit the owner or operator to notifying the Commissioner within 72 hours following of any reasonable determination that the owner or operator can no longer satisfy the requirement of the Financial Test of Self-Assurance, whether Alternative I or Alternative II; and

6. Commit the owner or operator to complying with one of the following within 30 days of determination that the owner or operator no longer meets the requirement of the Financial Test of Self-Assurance, whether Alternative I or Alternative II:

(i) Submittal to the Commissioner of an alternative financial assurance mechanism; or

(ii) Establishment of and funding of an irrevocable standby trust in accordance with paragraph (15) of this rule to assure the performance of corrective action and/or compensation of third parties for bodily injury and property damage due to accidental releases arising from the operation of petroleum underground storage tank.

(7) Corporate Parent Financial Test Guarantee.

An owner or operator may satisfy the requirements of paragraph (3) of this rule if a direct or higher tier corporate parent of that owner or operator, through a Corporate Parent Financial Test Guarantee, which complies with the requirements of this paragraph, assumes the responsibility of the owner or operator to fund and carry out corrective action and compensate third parties for bodily injury and property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

(a) A Corporate Parent Financial Test Guarantee shall not be used in combination with other financial assurance mechanisms, and shall not be used in cases where a corporate parent itself has a higher parent corporation holding majority control of its voting stock.

(b) The financial statements of the corporate parent of the owner or operator shall be prepared in accordance with generally accepted accounting principles applicable to the United States, and an independent certified public accountant shall verify the accuracy of the financial test data relative to the financial statements.

(c) In order to demonstrate that the corporate parent of the owner or operator meets the requirements of the Corporate Parent Financial Test Guarantee as set forth in this paragraph, the Chief Executive Officer or the Chief Financial Officer of the parent company of the owner or operator shall complete and submit a notarized letter, including a Corporate Parent Financial Test as required in subparagraph (d) of this paragraph, to the Commissioner both initially and within 90 days following the date of the close of each successive financial reporting year. Wording in the Letter of the Chief Executive Officer or the Chief Financial Officer shall be in accordance with guidance provided by the Division and in a format established by the Division.

(d) Both initially and annually, within 90 days after the close of each succeeding fiscal year, the corporate parent of the owner or operator shall demonstrate that the corporate parent guarantor has adequate financial strength to provide the guarantee required by subparagraph (i) of this paragraph by passing the applicable financial test, either the Corporate Parent Financial Test -" Alternative I, completed in accordance with subparagraph (f) of this paragraph, or Corporate Parent Financial Test -" Alternative II, completed in accordance with subparagraph (g) of this paragraph.

(e) The financial test alternatives, a comparison of accounting ratios, net worth, assets, operating revenues, and bond ratings relative to fixed criteria, shall be in a format established by the division and completed in accordance with guidance provided by the division.

(f) To use the Corporate Parent Financial Test -" Alternative I as a financial assurance mechanism, the corporate parent guarantor shall meet the following conditions:

1. The corporate parent guarantor shall have a tangible net worth of at least $10,000,000 plus the dollar amount of all financial assurance covered by a financial test.

2. The corporate parent guarantor shall have a tangible net worth at least six times the required annual aggregate amount for corrective action and compensation of third parties for bodily injury and property damage assured by this financial test and at least six times the sum of all other amounts covered by a financial test of the corporate parent guarantor for all other environmental programs or agencies in the State of Tennessee, other states, and/or federal agencies.

3. The corporate parent guarantor shall have assets located in the United States which shall amount to at least 90% of the total assets of the corporate parent or at least six times the current amounts of financial assurance covered by the corporate parent guarantor through the use of the Corporate Parent Financial Test -" Alternative I.

4. The corporate parent guarantor shall satisfy at least two of the three ratio standards in subparts (i) through (iii) of this part:

(i) The ratio of total liabilities to net worth shall equate to less than 1.5;

(ii) The ratio of the sum of net income plus depreciation, depletion, and amortization minus $10,000,000 to the total liabilities shall equate to greater than 0.10; and/or

(iii) The ratio of current assets to current liabilities shall equate to greater than 1.5.

5. The corporate parent guarantor shall report the firm's financial position to Dun and Bradstreet annually and have a financial strength rating of 4A or 5A and a composite credit appraisal of 1 by Dun and Bradstreet.

6. The corporate parent guarantor shall comply with one of the following:

(i) The corporate parent guarantor shall file financial statements with the U.S. Securities and Exchange Commission annually; or

(ii) The corporate parent guarantor shall file complete financial statements with the Energy Information Administration annually.

7. The fiscal year-end financial statements of the corporate parent guarantor:

(i) Shall be examined by an independent certified public accountant (CPA);

(ii) Shall be accompanied by the CPA's report of the examination; and

(iii) Shall not include an adverse auditor's opinion, a disclaimer of opinion, or a "going concern" qualification.

8. Annually, the corporate parent guarantor shall submit a special report prepared by a CPA. The report shall include statements by the CPA that:

(i) The CPA has reviewed the data, specified as having been derived from the latest year-end financial statements of the corporate parent guarantor, in the Letter from the Chief Executive Officer or the Chief Financial Officer;

(ii) The CPA has compared the data in the Letter from the Chief Executive Officer or the Chief Financial Officer with the amounts in the latest yearend financial statements; and

(iii) The CPA's comparison of data in the Letter from the Chief Executive Officer or the Chief Financial Officer with the amounts in the latest yearend financial statements revealed nothing to cause the CPA to believe that the data in the Letter from the Chief Executive Officer or the Chief Financial Officer should be adjusted.

(g) To use the Corporate Parent Financial Test -" Alternative II as a financial assurance mechanism, the corporate parent guarantor shall meet each of the following conditions:

1. The corporate parent guarantor shall have a tangible net worth of at least $10,000,000 plus the dollar amount of all financial assurance covered by a financial test.

2. The corporate parent guarantor shall have a tangible net worth of at least six times the required annual aggregate amount for corrective action and compensation of third parties for bodily injury and property damage assured by this financial test and at least six times the sum of all other amounts covered by a financial test of the corporate parent guarantor for other environmental programs or agencies of the State of Tennessee, other states, and/or Federal agencies.

3. Assets of the corporate parent guarantor located in the United States shall amount to at least 90% of the total assets of the corporate parent guarantor or at least six times the current amounts of financial assurance covered by the corporate parent guarantor through the use of this Corporate Parent Financial Test -" Alternative II.

4. The corporate parent guarantor shall have a current rating by a bond rating agency for its most recent bond issuance that meets or exceeds the level determined by the Commissioner to indicate a sound financial position. The Commissioner shall make this determination in writing.

5. For purposes of the Corporate Parent Financial Test, bond ratings shall apply to outstanding, rated bonds that are not secured by insurance, a letter of credit, or other collateral or guarantee, and that have been issued directly by the corporate parent guarantor. Ratings on revenue bonds shall not be used in the financial test. In order to pass this Corporate Parent Financial Test -" Alternative II, the corporate parent guarantor shall have at least one class of equity securities registered under the Securities Exchange Act of 1934.

6. The corporate parent guarantor shall file financial statements annually with the U.S. Securities and Exchange Commission.

7. The fiscal year-end financial statements of the corporate parent guarantor shall be examined by an independent certified public accountant (CPA) and shall be accompanied by the CPA's report of the examination. The firm's year-end financial statements cannot include an adverse auditor's opinion, a disclaimer of opinion, or a "going concern" qualification.

8. The corporate parent guarantor shall obtain and submit to the Commissioner a special report by a CPA stating that:

(i) The CPA has compared the data that the Letter from the Chief Executive Officer or the Chief Financial Officer specifies as having been derived from the latest year-end financial statements of the corporate parent guarantor with the amounts in such financial statements; and

(ii) In connection with the comparison in subpart (i) of this part, no matters came to the attention of the CPA which caused the CPA to believe that the specified data should be adjusted.

(h) In accordance with subparagraph (i) of this paragraph the corporate parent guarantor shall commit to paying for and carrying out the required corrective action and compensation to third parties for bodily injury and/or property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

(i) Annually, the corporate parent shall complete and submit a notarized written guarantee stating that the corporate parent will comply with all of the terms set forth in this paragraph as requirements governing the use of the Corporate Parent Financial Test Guarantee. Such Corporate Parent Financial Test Guarantee Agreement shall:

1. Be in a format established by the Division and in accordance with guidance provided by the Division;

2. Commit the corporate parent guarantor to carrying out the required corrective actions and/or compensation of third parties in response to a judgment enforceable in Tennessee;

3. Commit the corporate parent guarantor to setting up and funding a standby trust in the amount required in an order issued by the Commissioner, up to the amount set forth in paragraph (3) of this rule;

4. Commit the corporate parent guarantor to notifying the Commissioner within ten days following the filing to seek bankruptcy protection from creditors under Title 11 U.S. Code; and

5. Commit the corporate parent guarantor to notifying the Commissioner within 72 hours following of any reasonable determination that the corporate parent guarantor can no longer satisfy the requirement of the Corporate Parent Financial Test of Self-Assurance, whether Alternative I or Alternative II; and

6. Commit the corporate parent guarantor to complying with one of the following within 30 days of determination that the corporate parent guarantor no longer meets the requirement of the Corporate Parent Financial Test of Self-Assurance, whether Alternative I or Alternative II:

(i) Submittal to the Division of an alternative financial assurance mechanism; or

(ii) Establishment of and funding of an irrevocable standby trust in accordance with paragraph (15) of this rule to assure the performance of corrective action and/or compensation of third parties for bodily injury and property damage due to accidental releases arising from the operation of petroleum underground storage tank systems in the amount required in an order issued by the Commissioner; up to the amount set forth in paragraph (3) of this rule.

(8) Liability Insurance.

A tank owner or operator may satisfy the requirement of paragraph (3) of this rule by obtaining liability insurance that meets the requirements of this paragraph.

(a) Standby Trust Fund.

1. A tank owner or operator who uses an insurance policy as financial assurance to meet the requirements of paragraph (3) of this rule for taking corrective action and/or compensating third parties for bodily injury and/or property damage due to accidental releases arising from the operation of petroleum underground storage tank systems shall establish a standby trust fund when the policy is issued.

2. The trust agreement governing the trust fund shall satisfy the requirements of paragraph (15) of this rule. The trust agreement shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

(b) Qualified Insurer.

The tank owner or operator shall obtain insurance from a qualified insurer:

1. 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 Tennessee and have an A.M. Best rating of at least "A."

2. The insurer shall not be a "captive insurance company" as defined in T.C.A. § 5613-102.

(c) Insurance Policies, UST Certificates of Insurance, and UST Insurance Endorsements.

1. Liability insurance may be in the form of an endorsement to an existing insurance policy or a separate insurance policy.

2. An original UST Certificate of Insurance or UST Insurance Endorsement shall be submitted to the Commissioner.

(i) The UST Certificate of Insurance shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

(ii) The UST Insurance Endorsement shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

3. A duplicate original of the insurance policy shall be provided to the Commissioner within 30 days of the issuance of a UST Certificate of Insurance or a UST Insurance Endorsement. The insurance policy is subject to review and approval by the Commissioner prior to final acceptance of insurance as financial assurance for the tank owner or operator as required by paragraph (3) of this rule.

4. Each policy shall contain a provision allowing the assignment of the policy to a successor tank owner or operator. Such assignment may be conditional upon the consent of the insurer, provided such consent is not unreasonably withheld.

5. The tank owner or operator shall maintain the insurance policy in full force and effect until the Commissioner releases the tank owner or operator from the requirements for financial assurance as specified in paragraph (21) of this rule or until the owner or operator has substituted an acceptable alternate financial assurance mechanism in accordance with paragraphs (4) and (17) of this rule.

6. The insurance policy shall be issued for a face amount at least equal to the amount required by paragraph (3) of this rule. Actual payment by the insurer shall not change the face amount, although the insurer's future liability will be lowered by the amount of the payments.

7. The insurance policy shall guarantee that funds shall be available for taking corrective action in accordance with Rule 0400-18-01-.06 and/or for compensating third parties for bodily injury and/or property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

8. The insurance policy shall guarantee that the Commissioner is authorized to draw on the policy through claim or forfeiture up to the limits of liability or face value of the policy in the event the insured fails to take corrective action and/or compensate third parties for bodily injury and/or property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

9. Under the terms of the policy, all amounts forfeited by the insurance company, as ordered by the Commissioner, shall be paid to the Division in accordance with subparagraph (20)(e) of this rules or shall be paid directly into the standby trust fund.

10. The policy shall provide that the insurer shall comply with any Order of Forfeiture issued by the Commissioner as a result of the occurrence of any of the events or conditions itemized in items 11.(v)(I) through (IV) of this subparagraph.

11. Cancellation, Termination, or Failure to Renew by the Insurer.

(i) The policy shall provide that the insurer shall not cancel, terminate, or fail to renew the policy except for failure to pay the premium in which case the policy is still subject to forfeiture pursuant to subparts (v) and (vi) of this part.

(ii) If there is a failure to pay the premium, the insurer may elect to cancel, terminate, or fail to renew the policy. If the insurer so elects, the insurer shall send notice by certified mail to the insured tank owner or operator and to the Commissioner.

(iii) Cancellation, termination, or failure to renew shall not occur until at least 180 days after the date of receipt of the notice by the tank owner or operator, as evidenced by the certified mail return receipt.

(iv) Cancellation, termination, or failure to renew shall not occur until the Commissioner has received notice as evidenced by certified mail return receipt.

(v) Cancellation, termination, or failure to renew shall not occur during the period of coverage of the policy nor at the end of the 180 days reference in subpart (iii) of this part and the policy shall remain in force and effect in the event that on or before the date of expiration:

(I) The Commissioner deems the facility abandoned; or

(II) Closure of the facility is ordered by the Commissioner, the Board, or a court of competent jurisdiction; or

(III) The tank owner or operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy) U.S. Code; or

(IV) The premium due is paid; or

(V) The Commissioner issues an Order of Forfeiture as a result of the occurrence of conditions itemized in items (I) through (III) of this subpart.

(vi) Cancellation of the policy for any reason, without the insured's substitution of alternate financial assurance as specified in paragraph (17) of this rule may result in a demand by the Commissioner to the insurer to pay the face value of the policy into a standby trust fund at the end of the 180 day period of cancellation notification. If the policy is not renewed or replaced by an approved alternative financial assurance mechanism within one year of the funding of the trust, the funds of the standby trust shall be forfeited to the Division in accordance with subparagraph (20)(e) of this rule due to the failure of the insured to maintain financial assurance.

(9) Surety Bond or Performance Bond.

A tank owner or operator may satisfy the requirement of paragraph (3) of this rule by obtaining a surety bond that meets the requirements of this paragraph.

(a) Standby Trust Fund.

1. A tank owner or operator who uses a surety bond or performance bond as financial assurance to meet the requirements of paragraph (3) of this rule for taking corrective action and/or compensating third parties for bodily injury and/or property damage due to accidental releases arising from the operation of petroleum underground storage tank systems shall establish a standby trust fund when the surety bond is acquired.

2. The trust agreement governing the trust fund shall satisfy the requirements of paragraph (15) of this rule. The trust agreement shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

(b) Qualified Surety Company.

The tank owner or operator shall obtain the surety bond or performance bond from a qualified surety company:

1. The surety company issuing the bond shall be licensed to do business as a surety in the state of Tennessee; and

2. The surety company issuing the bond shall be among those listed as acceptable sureties on federal bonds in the latest Circular 570 of the U.S. Department of the Treasury.

(c) Surety Bond or Performance Bond.

1. The surety bond or performance bond shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

2. The original of the bond shall be submitted to the Commissioner.

3. The bond shall guarantee that the tank owner or operator shall assume financial responsibility for taking corrective action and/or compensating third parties for bodily injury and property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

4. The bond shall set forth the per occurrence amount and the annual aggregate amount for taking corrective action, and the per occurrence amount and the annual aggregate amount for third party claims.

5. The penal sum of the bond shall be in an amount at least equal to the amount required for the tank owner or operator as determined by paragraph (3) of this rule.

6. Under the terms of the bond, the surety will become liable on the bond obligation when the owner or operator fails to perform as guaranteed by the bond. Following a final determination by the Commissioner that the owner or operator has failed to so perform, under the terms of the bond, the surety shall perform corrective action in accordance with Rule 0400-18-01-.06 and/or provide third-party liability compensation or shall forfeit the amount of the penal sum as ordered by the Commissioner.

7. Under the terms of the bond, all amounts forfeited by the surety, as ordered by the Commissioner, shall be paid to the Division in accordance with subparagraph (20)(e) of this rules or shall be paid directly into the standby trust fund.

8. Cancellation.

(i) To effect cancellation under the terms of the bond, the surety shall issue notification of cancellation of the bond by sending the notice by certified mail to the owner or operator and to the Commissioner as evidenced by return receipt.

(ii) The notice of cancellation shall be received by the Commissioner by no later than 180 days prior to the anniversary date of the bond. Cancellation of the bond shall not occur during the 180 day period.

(iii) The tank owner or operator shall submit alternate financial assurance to the Commissioner as specified in paragraph (17) of this rule and obtain the Commissioner's written approval of the alternate financial assurance by no later than 61 days prior to the date of cancellation of the bond.

(iv) Cancellation, termination, or failure to renew shall not occur at the end of the 180 days specified in subpart (ii) of this part or at any other time during the period of coverage of the bond and the bond shall remain in force and effect in the event that on or before the date of expiration:

(I) The Commissioner deems the facility abandoned; or

(II) Closure of the facility is ordered by the Commissioner, the Board, or a court of competent jurisdiction; or

(III) The owner or operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy) U.S. Code; or

(IV) The premium is paid; or

(V) The Commissioner issues an Order of Forfeiture as a result of the occurrence of one or more of the conditions set forth in items (I) through (III) of this subpart.

(v) Upon notification by the Commissioner that the principal has failed to provide alternative financial assurance within 120 days after the date of notice of cancellation is received by the principal, the surety(ies) shall at the direction of the Commissioner, by no later than the 179th day following the date of the notice of cancellation, pay the amount of the penal sum of the bond into a standby trust fund. If the bond is not renewed or replaced by an alternative instrument within one year of the funding of the trust, the funds of the standby trust will be forfeited to the Division in accordance with subparagraph (20)(e) of this rule due to the failure of the tank owner or operator to maintain financial assurance.

(vii) The tank owner or operator may cancel the bond if the Commissioner has given prior written consent. The Commissioner will provide such written consent when:

(I) The tank owner or operator substitutes alternative financial assurance as specified in paragraphs (4) and (17) of this rule; or

(II) The Commissioner releases the owner or operator from the requirements of this paragraph in accordance with paragraph (21) of this rule.

(viii) The surety will not be liable for deficiencies in the performance of corrective action and/or third party liability compensation by the tank owner or operator after the Commissioner releases the tank owner or operator from the requirements of this paragraph in accordance with paragraph (21) of this rule.

(10) Irrevocable Standby Letter of Credit.

A tank owner or operator may satisfy the requirements of paragraph (3) of this rule by obtaining an irrevocable standby letter of credit that meets the requirements of this paragraph.

(a) Standby Trust Fund

1. A tank owner or operator who uses an irrevocable letter of credit as financial assurance to meet the requirements of paragraph (3) of this rule for taking corrective action and/or compensating third parties for bodily injury and/or property damage due to accidental releases arising from the operation of petroleum underground storage tank systems shall establish a standby trust fund when the surety bond is acquired.

2. The trust agreement governing the trust fund shall satisfy the requirements of paragraph (15) of this rule. The trust agreement shall be in a format established by the division and worded in accordance with guidance provided by the division.

(b) The issuing institution shall be an entity that has the authority to issue letters of credit in the state of Tennessee and whose letter of credit operations are regulated and examined by the U.S. Federal Reserve or the Tennessee Department of Financial Institutions.

(c) Letter of Credit.

1. The letter of credit shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

2. The original of the letter of credit shall be submitted to the Commissioner. The letter of credit shall be accompanied by a letter from the tank owner or operator to the Commissioner referring to the letter of credit by number, issuing institution, and date, and providing the following information:

(i) The facility identification number assigned by the Division to each facility covered by the letter of credit;

(ii) The address of the location for each facility covered by the letter of credit; and

(iii) The specified amount of financial responsibility for taking corrective action and for third party liability compensation provided by the letter of credit.

3. The letter of credit shall be irrevocable.

4. The letter of credit shall be issued for a period of at least one year and shall provide that the expiration date shall be automatically extended each year for a period of at least one year unless, at least 180 days before the expiration date of the current one year period, the issuing institution notifies both the tank owner or operator and the Commissioner by certified mail of a decision not to extend the expiration date. Under the terms of the letter of credit, the 180 days shall begin on the date when the owner or operator has received the notice, as evidenced by the return receipt of certification of delivery. However, expiration shall not occur unless the Commissioner has received the notice, as evidenced by the return receipt of certification of delivery.

5. The letter of credit shall be issued in an amount at least equal to the amount specified in accordance with paragraph (3) of this rule.

6. The letter of credit may be drawn on by the Commissioner in the event the tank owner or operator fails to take corrective action in accordance with Rule 0 40018-01-.06 and/or compensate third parties for bodily injury and/or property damage caused by accidental releases arising from the operation of petroleum underground storage tank systems.

7. The letter of credit may be drawn on by the Commissioner in the event of the occurrence of the following events:

(i) The Commissioner deems the facility abandoned;

(ii) Closure of the facility is ordered by the Commissioner, the Board, or a court of competent jurisdiction; or

(iii) The owner or operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy) U.S. Code.

8. The Commissioner may draw on the letter of credit upon forfeiture as provided in paragraph (20) of this rule if the tank owner or operator does not establish alternate financial responsibility as specified in paragraphs (4) and (17) of this rule and obtain written approval of such alternate financial responsibility from the Commissioner within 120 days after receipt by the tank owner or operator of a notice from the issuing institution that it has decided not to extend the letter of credit beyond the expiration date of the current one year period. The Commissioner may delay the drawing if the issuing institution grants a one year extension of the terms of the credit by no later than 120 days prior to the stated cancellation date. During the last 60 days of any such extension, the Commissioner may draw on the letter of credit if the owner or operator has failed to provide alternate financial responsibility as specified in paragraphs (4) and (17) of this rule and obtain written approval of such financial responsibility from the Commissioner.

9. Under the terms of the letter of credit, all amounts forfeited by the financial institution issuing the letter of credit shall be paid directly to the Division in accordance with subparagraph (20)(e) of this rule.

10. The Commissioner will return the letter of credit to the issuing institution for termination when:

(i) A tank owner or operator substitutes alternative financial assurance as specified in paragraphs (4) and (17) of this rule; or

(ii) The Commissioner releases the owner or operator from the requirements of this paragraph in accordance with paragraph (21) of this rule.

(11) Personal Bond Supported by Certificate of Deposit.

A tank owner or operator may satisfy the requirements of paragraph (3) of this rule by obtaining a personal bond supported by a certificate of deposit that meets the requirements of this paragraph.

(a) The financial institution holding the funds shall be a commercial financial institution governed by the Federal Reserve and the U.S. Comptroller of the Currency or regulated by the Tennessee Department of Financial Institutions.

(b) Statement of Personal Bond.

1. The owner or operator shall submit the Statement of Personal Bond Supported by Certificate of Deposit to the Commissioner concurrent with the issuance of the certificate of deposit.

2. The Statement of Personal Bond Supported by Certification of Deposit shall be in a format established by the Division and worded in accordance with guidance provided by the division.

(c) Certificate of Deposit.

1. The funds of the account shall be pledged irrevocable to the Tennessee Department of Environment and Conservation.

2. The ownership of the certificate of deposit shall be registered as follows:

(i) The name of the tank owner or operator and the Tennessee Department of Environment and Conservation; or

(ii) The Tennessee Department of Environment and Conservation.

3. The certificate of deposit shall be automatically renewed annually with the earned interest maintained with the principal.

4. The original certificate of deposit or safekeeping receipt shall be submitted to and held by the Department.

(d) Accompanying the original certificate of deposit or safekeeping receipt shall be a letter from an officer of the issuing financial institution which attests to the following:

1. No liens or assignments exist on the deposited funds;

2. The certificate of deposit shall be automatically renewed each year;

3. The initial funds of the deposit plus the accrued interest are irrevocably assigned to the Department;

4. The funds shall not be released to the owner or operator without the written consent of the Commissioner or his/her designee; and

5. The issuing financial institution shall honor the right of the Department to unilaterally redeem the certificate(s) of deposit for cash in the event the Commissioner executes an Order of Forfeiture due to the failure of the owner or operator to take corrective action in accordance with Rule 0400-18-01-.06 and/or to compensate third-parties for bodily injury and property damage.

(12) Trust Fund and Agreement.

A tank owner or operator may satisfy the requirement of paragraph (3) of this rule by establishing a trust fund and an associated trust agreement that meets the requirements of this paragraph.

(a) Trust Fund.

1. Trustee.

(i) The trustee shall be an entity that has the authority to act as a trustee.

(ii) The operations of the trustee shall be regulated and examined by the State of Tennessee or a federal agency.

(iii) The trustee shall invest and reinvest the principal and income of the trust fund, keeping the trust fund as a single fund.

2. Funding.

(i) The trust fund shall be fully funded on its effective date.

(ii) If at any point in time the value of the fund drops below the financial assurance amount covered by this mechanism, the grantor (the tank owner or operator) shall make a payment into the fund to return the value of the trust fund to the required amount.

(iii) If at any point in time the value of the fund increases above the financial assurance amount covered by this mechanism, the grantor may submit a written request to the Commissioner for release of the excess funds.

(iv) Within 60 days of receipt of a written request for release of excess funds submitted in accordance with subpart (iii) of this part, the Commissioner shall review the request and shall decide whether such release of funds is appropriate at the time of the request.

(I) If the Commissioner determines that a release of funds in the amount requested by the grantor or in a lesser amount is appropriate, the Commissioner shall instruct the trustee to release the funds.

(II) If the Commissioner determines that a release of the funds is not appropriate, the Commissioner shall notify the grantor and the trustee of that decision.

3. The Division of Underground Storage Tanks of the Department of Environment and Conservation shall be designated as the beneficiary of the trust fund.

4. The trust fund shall not be used for any of the following:

(i) Any obligation of the grantor (the tank owner or operator) under a workers' compensation, disability benefits, or unemployment compensation law or other similar law;

(ii) Bodily injury to an employee of the grantor arising from and/or in the course of employment by the grantor;

(iii) Bodily injury or property damage arising from the ownership, maintenance, use, or entrustment to others of any aircraft, motor vehicle, or watercraft;

(iv) Property damage to any property owned, rented, loaned to, in the care, custody, or control of, or occupied by the grantor that is not the direct result of a release from a petroleum underground storage tank system; or

(v) Bodily injury or property damage for which the grantor is obligated to pay damages by reason of the assumption of liability in a contract or agreement other than a contract or agreement entered into to meet the requirements of paragraph (3) of this rule.

5. The trust fund shall be irrevocable and shall continue until terminated at the written direction of both the grantor (the tank owner or operator) and the trustee with the written approval of the Commissioner or by the trustee acting upon written direction by the Commissioner.

(b) The trust agreement shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

(13) Local Government Bond Rating Test.

A local government tank owner or operator and/or a guarantor may satisfy the requirements of paragraph (3) of this rule by having a currently outstanding issue(s) of bonds that meets the requirements of this paragraph.

(a) A local government bond rating test shall not be used in combination with other financial assurance mechanisms.

(b) A general purpose local government owner or operator and/or a local government serving as a guarantor shall have a currently outstanding issue(s) of general obligation bonds of $1,000,000 or more, excluding refunded obligations.

1. The local government shall have a current rating by a bond rating agency for its most recent bond issuance that meets or exceeds the level determined by the Commissioner to indicate a sound financial position. The Commissioner shall make this determination in writing.

2. Where the local government has multiple outstanding issues, or where the local government's bonds are rated by both Moody's and Standard and Poor's, the lowest rating shall be used to determine eligibility.

3. Bonds that are backed by credit enhancements other than municipal bond insurance shall not be considered in determining the amount of applicable bonds outstanding.

(c) A local government owner or operator and/or a local government serving as a guarantor that is not a general purpose government and does not have the legal authority to issue general purpose bonds shall have a currently outstanding issue(s) of revenue bonds of $1,000,000 or more, excluding refunded issues.

1. The local government shall have a current rating by a bond rating agency for its most recent bond issuance that meets or exceeds the level determined by the Commissioner to indicate a sound financial position. The Commissioner shall make this determination in writing.

2. Where the local government has multiple outstanding issues, or where the local government's bonds are rated by both Moody's and Standard and Poor's, the lowest rating shall be used to determine eligibility.

3. Bonds that are backed by credit enhancements shall not be considered in determining the amount of applicable bonds outstanding.

(d) The local government owner or operator and/or guarantor shall submit to the Commissioner an original or certified copy of its most recent bond rating published within the last 12 months by Moody's or Standard and Poor's.

(e) The local government owner or operator and/or guarantor, using the local government bond rating test, shall annually report to the Commissioner the applicable bond ratings within 90 days following the end of the fiscal year of the owner or operator and/or guarantor.

(f) To demonstrate that the local government tank owner or operator and/or guarantor meets the local government bond rating test, the chief financial officer of the local government owner or operator and/or guarantor shall complete and submit a notarized letter, both initially and within 90 days following the date of the close of each successive financial reporting year. Wording in the Letter of the Chief Financial Officer, whether for a general purpose local government or for a non-general purpose government, shall be in accordance with guidance provided by the Division. The letter shall be in format established by the Division.

(g) If a local government owner or operator and/or guarantor, using the bond rating test to provide financial assurance, finds that it no longer meets the requirements of the financial bond rating test, it shall obtain and submit to the Commissioner alternate financial assurance within 30 days of its determination that it no longer meets the requirements. The local government owner or operator and/or guarantor must notify the Commissioner within ten days of its failure to obtain alternate insurance.

(h) If the Commissioner has reason to believe that the local government owner or operator and/or guarantor no longer meets the requirements of the local government bond rating test, the Commissioner may require the local government tank owner or operator and/or guarantor to submit reports of its financial condition. The local government owner or operator and/or guarantor shall submit the required financial reports to the Commissioner in accordance with the schedule established by the Commissioner.

(i) Upon determination by the Commissioner that the local government owner or operator and/or guarantor no longer meets the local government bond rating test requirements, the local government owner or operator and/or guarantor shall either:

1. Obtain and submit an alternate financial assurance mechanism in accordance with paragraphs (4) and (17) of this rule within 30 days after notification of such a determination by the Commissioner; or

2. Fund a standby trust in accordance with paragraph (15) of this rule in the amount required by paragraph (3) of this rule for corrective action and for compensating third parties for bodily injury and property damage. The trust shall be funded by no later than 30 days after notification of such a determination by the Commissioner.

(14) Local Government Financial Test.

A local government tank owner or operator may satisfy the requirements of paragraph (3) of this rule by passing a financial test that meets the requirements of this paragraph.

(a) A local government financial test shall not be used in combination with other financial assurance mechanisms.

(b) The local government owner or operator shall have the ability and authority to assess and levy taxes or to freely establish fees and charges.

(c) The local government owner or operator shall have the following information available, as shown in the year end financial statements for the latest completed fiscal year:

1. Total revenues: consisting of the sum of general fund operating and nonoperating revenues including net local taxes, licenses and permits, fines and forfeitures, revenues from use of money and property, charges for services, investment earnings, sales (property, publications, and others), intergovernmental revenues (restricted and unrestricted), and total revenues from all other governmental funds including enterprise, debt service, capital projects, and special revenues, but not excluding revenues to funds held in a trust or agency capacity. For purposes of this local government financial test, the calculation of total revenues shall exclude all transfers between funds under the direct control of the local government using this financial test (interfund transfers), liquidation of investments, and issuance of debt.

2. Total expenditures: consisting of the sum of general fund operating and nonoperating expenditures including public safety, public utilities, transportation, public works, environmental protection, cultural and recreational, community development, revenue sharing, employee benefits and compensation, office management, planning and zoning, capital projects, interest payments on debt, payments for retirement of debt principal, and total expenditures from all other governmental funds including enterprise, debt service, capital projects, and special revenues. For purposes of this local government financial test, the calculation of total expenditures shall exclude all transfers between funds under the direct control of the local government using the financial test (interfund transfers).

3. Local revenues: consisting of total revenues, as set forth in part 1. of this subparagraph, minus the sum of all transfers from other governmental entities, including all monies received from federal, state, or local government sources.

4. Debt service: consisting of the sum of all interest and principal payments on all long-term credit obligations and all interest-bearing short-term credit obligations. Debt service includes interest and principal payments on general obligation bonds, revenue bonds, notes, mortgages, judgments, and interest bearing warrants. Debt service excludes payments on non-interest bearing short term obligations, interfund obligations, amounts owed in a trust or agency capacity, and advances and contingent loans from other governments.

5. Total funds: consisting of the sum of cash and investment securities from all funds, including general, enterprise, debt service, capital projects, and special revenue funds, but excluding employee retirement funds, at the end of the local government's financial reporting year. Total funds includes federal securities, federal agency securities, state and local government securities, and other securities such as bonds, notes and mortgages. For purposes of this local government financial test, the calculation of total funds shall exclude agency funds, private trust funds, accounts receivable, value of real property, and other non-security assets.

6. Population: consisting of the number of people in the area served by the local government.

(d) The local government's year-end financial statements, if independently audited, cannot include an adverse auditor's opinion or a disclaimer of opinion. The local government cannot have outstanding issues of general obligation bonds that are rated at less than investment grade.

(e) To demonstrate that it meets the local government financial test, the local government owner or operator shall complete and submit a notarized letter, both initially and within 120 days following the date of the close of each successive financial reporting year. Wording in the Letter of the Chief Financial Officer shall be in accordance with guidance provided by the Division. The letter shall be in format established by the Division.

(f) If a local government owner or operator, using the local government financial test to provide financial assurance, finds that it no longer meets the requirements of the financial test, it shall obtain and submit to the Commissioner alternate financial assurance within 30 days of its determination that it no longer meets the requirements.

(g) If the Commissioner has reason to believe that the local government owner or operator no longer meets the requirements of the local government financial test, the Commissioner may require the local government tank owner or operator to submit reports of its financial condition. The local government owner or operator shall submit the required financial reports to the Commisioner in accordance with the schedule established by the Commissioner.

(h) Upon the Commissioner's determination that the local government owner or operator no longer meets the local government financial test requirements, the local government owner or operator shall either:

1. Obtain and submit an alternate financial assurance mechanism in accordance with paragraphs (4) and (17) of this rule within 30 days after notification of such a determination by the Commissioner; or

2. Fund a standby trust in accordance with paragraph (15) of this rule in the amount required by paragraph (3) of this rule for corrective action and for compensating third parties for bodily injury and property damage. The trust shall be funded by no later than 30 days after notification of such a determination by the Commissioner.

(15) Standby Trust Fund.

(a) A tank owner or operator using the financial assurance mechanisms set forth in paragraphs (8), (9) and (10) of this rule shall establish a Standby Trust Fund and Agreement in accordance with this paragraph.

(b) A tank owner or operator using the financial assurance mechanisms set forth in paragraphs (6), (7), (13) and (14) of this rule shall establish a Standby Trust Fund and Agreement in accordance with this paragraph if the requirements of the financial test can no longer be met and the owner or operator or guarantor fails to provide an alternative financial assurance mechanism that meets the requirements of this rule.

(c) Trustee.

1. The trustee shall be an entity that has the authority to act as a trustee.

2. The operations of the trustee shall be regulated and examined by the State of Tennessee or a federal agency.

3. The trustee shall invest and reinvest the principal and income of the trust fund, keeping the trust fund as a single fund.

(d) The Division of Underground Storage Tanks of the Department of Environment and Conservation shall be designated as the beneficiary of the trust fund.

(e) The trust fund shall not be used for any of the following:

1. Any obligation of the grantor (the tank owner or operator) under a workers compensation, disability benefits, or unemployment compensation law or other similar law;

2. Bodily injury to an employee of the grantor arising from and/or in the course of employment by the grantor;

3. Bodily injury or property damage arising from the ownership, maintenance, use, or entrustment to others of any aircraft, motor vehicle, or watercraft;

4. Property damage to any property owned, rented, loaned to, in the care, custody, or control of, or occupied by the grantor that is not the direct result of a release from a petroleum underground storage tank system; or

5. Bodily injury or property damage for which the grantor is obligated to pay damages by reason of the assumption of liability in a contract or agreement other than a contract or agreement entered into to meet the requirements of paragraph (3) of this rule.

(f) The trust fund shall be irrevocable and shall continue until terminated at the written direction of both the grantor (the tank owner or operator) and the trustee with the written approval of the Commissioner or by the trustee acting upon written direction by the Commissioner.

(g) The trust agreement shall be in a format established by the Division and worded in accordance with guidance provided by the Division.

(16) Record Keeping.

A tank owner or operator shall maintain, on site at each facility or at the place of business of the owner or operator, a copy of all financial assurance documents submitted to the Commissioner demonstrating compliance with this rule. This documentation shall be maintained until the owner or operator is released from the financial responsibility requirements by the Commissioner in accordance with paragraph (21) of this rule.

(17) Substitution of Financial Assurance Mechanisms by the Owner or Operator.

In satisfying the requirements of paragraph (3) of this rule, an owner or operator may substitute an alternative financial assurance mechanism for the financial mechanism already on file with the Commissioner. The alternate financial assurance mechanism shall satisfy the requirements of this rule. The financial assurance mechanism already on file with the Commissioner shall not be released and shall be maintained in force until the alternative financial mechanism has been received and approved by the Commissioner. By no later than ten business days following the date of the approval of the alternate financial assurance mechanism by the Commissioner, the prior financial assurance mechanism shall be released to the tank owner or operator.

(18) Changes of Ownership or Operational Control of UST Facilities.

Changes in or the replacement of an existing financial assurance mechanism due to changes of ownership or operational control of a UST facility shall be submitted to the Commissioner concurrent with the change of ownership or operational control of the facility. All submittals shall comply with the requirements of this rule.

(19) Bankruptcy or Other Incapacity of the Owner or Operator or the Issuer of the Financial Assurance Mechanism.

(a) Within ten days after the commencement of a voluntary or involuntary proceeding under Title 11 (Bankruptcy) U.S. Code, naming a tank owner or operator as debtor, the owner or operator shall notify the Commissioner by certified mail of such commencement.

(b) An owner or operator who obtains financial assurance by a mechanism other than the Financial Test of Self-Assurance as set forth in paragraph (6) of this rule will be deemed to be without the financial responsibility required by this rule in the event of a bankruptcy or incapacity of its provider of financial assurance, or a suspension or revocation of the authority of the provider of its financial assurance to issue a guarantee, an insurance policy, a surety bond, or a letter of credit. Within ten business days of receiving notice of such bankruptcy or incapacity, the tank owner or operator shall notify the Commissioner, by certified mail, of the same. By no later than 30 days subsequent to the date of receiving notice of such bankruptcy or incapacity, the tank owner or operator shall obtain alternate financial assurance and shall submit the original financial assurance documents comprising or associated with the alternate financial assurance mechanism to the Commissioner in accordance with the provisions of this rule.

(20) Procedures Governing the Forfeiture of the Financial Assurance of UST Owners and Operators.

(a) Upon the Commissioner's determination that a tank owner or operator has failed to pay for taking corrective action in accordance with Rule 0400-18-01-.06 and/or compensate third parties for bodily injury and property damage caused by an accidental release arising from the operation of a petroleum underground storage tank system, the Commissioner may provide notice of such non-compliance, to be served on the tank owner or operator by hand delivery or by certified mail. The Notice of Non-Compliance shall establish a schedule for coming into compliance with the regulatory requirements.

(b) If the Commissioner determines that the owner or operator has failed to perform as specified in the Notice of Non-Compliance, or as specified in any subsequent compliance agreement which may have been reached by the owner or operator and the Commissioner, the Commissioner may cause a Notice of Show Cause Meeting to be served upon the owner or operator. The Notice of Show Cause Meeting shall establish the date, the time, and the location of a meeting scheduled to provide the owner or operator with the opportunity to "show cause" why the Commissioner should not pursue forfeiture of the financial assurance filed to guarantee such performance.

(c) If no mutual compliance agreement is reached at a show cause meeting, or upon the Commissioner's determination that the owner or operator failed to perform as specified in an agreement that was reached, or in lieu of a show cause meeting, the Commissioner may order forfeiture of the financial assurance filed to guarantee such performance. Upon the Commissioner's determination that the procedures of this paragraph have been followed, the Commissioner, at his or her discretion may issue such an order of forfeiture. Upon issuance, a copy of the Order of Forfeiture shall be hand delivered or forwarded by certified mail to the owner or operator and to the issuer of the financial assurance mechanism or guarantor of financial assurance. Any such order issued by the Commissioner shall become effective 30 days after the receipt by the owner or operator unless it is appealed to the Board as provided in Rule 0400-1801-.11.

(d) If necessary, upon the effective date of the Order of Forfeiture, the Commissioner may give notice to the Attorney General of the State of Tennessee who shall collect the forfeiture.

(e) Funds from forfeitures shall be deposited in the Tennessee Petroleum Underground Storage Tank Fund. The forfeited funds shall be earmarked for use in the performance of corrective action or the compensation of third parties due to bodily injury or property damage in connection with the operation of the underground storage tank systems of the owner or operator forfeiting the financial assurance.

(21) Release of Financial Assurance Mechanisms.

The original financial assurance mechanism document(s) shall be held by the Commissioner until replaced by an alternate instrument or until the owner or operator is released by the Commissioner. The Commissioner shall release the financial assurance mechanism to the tank owner or operator or to the issuing financial institution after one of the following has occurred:

(a) The underground storage tank systems have been closed to the satisfaction of the Division pursuant to paragraphs (4) and (5) of Rule 0400-18-01-.07; or

(b) An alternative financial assurance mechanism has been received and approved by the Commissioner in accordance with paragraph (17) of this rule.

Rules & Regulations of the State of TennesseeTitle 0400 - Environment and ConservationSubtitle 0400-18 - Division of Petroleum Underground Storage TanksChapter 0400-18-01 - Underground Storage Tanks ProgramSection 0400-18-01-.08 - FINANCIAL RESPONSIBILITY

Rules & Regulations of the State of Tennessee
Title 0400 - Environment and Conservation
Subtitle 0400-18 - Division of Petroleum Underground Storage Tanks
Chapter 0400-18-01 - Underground Storage Tanks Program
Section 0400-18-01-.08 - FINANCIAL RESPONSIBILITY